Increasingly, the US, the EU and the UK implement trade and financial sanctions as a foreign policy tool, as well as to tackle persons connected with financing terrorism.
During the past decade, the EU and the US have mainly adopted a consistent approach to sanctions. However, that changed with the US re-imposing extra-territorial sanctions against Iran and threatening to enforce these against non-US businesses. In parallel, an EU Blocking Statute is aimed at countering the effect of US sanctions on EU economic operators engaging in lawful activity with third countries.
Against this backdrop, exporting can be a daunting prospect, but the UK and Scottish governments are making considerable efforts to encourage exporters and to explain the support that is available.
A new UK authority called the Office of Financial Sanctions Implementation (OFSI) has been established to better inform businesses of the risks that arise from sanctions that restrict exports to, and transactions with, sanctioned persons, businesses and certain sectors. This area of trade policy has a major impact on UK exporters who need to navigate the legal maze of often competing US and EU laws.
Britain has the potential to be an exporting “super power”, according to international trade secretary Liam Fox, who last month announced a new export strategy aimed at increasing total UK exports to 35 per cent of gross domestic product.
An estimated 400,000 businesses currently do not export despite believing that they could. Both Fox and business groups recognise there are challenges to exporting that the government needs to help businesses overcome, with some of the most obvious including export controls, duty and shipping requirements and International Commerce terms (Incoterms).
Arms embargoes and restrictions on exporting equipment and technology that can be used by the military are common and generally understood. What is also common, but less well understood, are the prohibitions or licence requirements on doing business with the thousands of people who are listed on sanctions lists or connected with such persons.
There are numerous trade restrictions that apply to particular products and services depending on where in the world the goods and services are destined.
Banks and financial service companies are also subject to requirements to carry out sanctions screening, and to not process payments connected to sanctioned countries, sanctioned persons, or restricted transactions. Banks are particularly nervous about US “secondary sanctions” which can apply to non-US companies.
Currently, US government officials are warning UK banks of significant consequences if they breach US sanctions against Iran and Russia. This is despite EU laws that prohibit EU-based firms from complying with US sanctions. UK companies engaged in, or proposing to engage in, lawful business from a UK and EU law perspective may therefore find themselves in the position that their banks will not process payments, and their insurers will not provide cover, due to fearing the transaction may contravene US sanctions.
Better enforcement of EU blocking law and clearer government advice on the application of sanctions to exporting businesses is required if the government is to succeed in its ambition to increase total exports.
It is clear many businesses are struggling with this complex area of regulation and compliance. At Pinsent Masons, we are delighted to welcome David McLean, OFSI’s deputy head and head of engagement, to Aberdeen on 17 September, and Edinburgh on 18 September, for a roundtable discussion which is intended to assist exporters and financiers in understanding what they should do to comply with financial and trade sanctions, so that they can export with confidence.
Tom Stocker, partner and regulatory law expert, Pinsent Masons.