With the UK now no longer part of the EU, and EU law ceasing to apply at the end of the current transitional period, the future application of many of the bloc’s laws and regulations in the UK (and if/how the UK will transpose them) is the subject of increased speculation, not least in the already complex area of sanctions law.

Some of that speculation was put to bed when on 6 July 2020 Foreign Secretary Dominic Raab placed before Parliament the Global Human Rights Sanctions Regulations 2020 (the Regulations) which provide for the freezing of funds and economic resources of certain persons, entities or bodies responsible for or involved in serious violations of human rights.

The Regulations, made under the UK Sanctions and Money Laundering Act 2018 (SAMLA), back up comments previously made by Foreign Secretary Raab concerning the UK’s intention to “bring into force a UK Magnitsky Law” to sanction those who commit human rights violations. They also expand the UK’s current roster of independent regimes under SAMLA which will supersede EU sanctions after the end of the “transition period” currently scheduled to end at 11 p.m. on 31 December 2020.

Unlike other new secondary legislation, including regimes in respect of Iran, Syria and Russia, which will not come into force until the end of the transition period, the Regulations are now in force.

The EU Position

As outlined in our previous GT Alert, in the EU the decisions to impose sanctions are taken by all 28 EU Member States. Initially a political decision, sanctions are then crystallised by EU regulations, which have direct effect in the EU Member States.

Enforcement is left to each Member State. In the UK, for example, sanctions are monitored, administered and enforced by the Office of Financial Sanctions Implementation (OFSI). OFSI issues guidance on the operation of sanctions in the UK, and penalties for violations are set out in both primary and secondary legislation. 

SAMLA provides the UK with a mechanism to impose financial, immigration and trade sanctions, including a way for the individual or entity to which the sanction relates (the designated person) to request variation or revocation of the same.

What is meant by ‘Magnitsky Law’?

In 2009, a Russian tax advisor and lawyer named Sergei Magnitsky was discovered dead in his cell in a Moscow detention centre. Magnitsky had been arrested in 2008 and imprisoned following an investigation of his involvement in an extensive $230 million tax fraud with links to Russian public officials.

Reports and investigations following Magnitsky’s death prompted an international reaction. In 2012, the United States passed the Magnitsky Act which imposed asset freezes and travel bans on a list of Russian officials believed to have been implicated in Magnitsky’s death. U.S. law was then expanded to allow the imposition of sanctions on any individual anywhere for committing human rights violations or acts of significant corruption. In 2018, this power was used to freeze the assets of individuals suspected to have been involved in the killing of Saudi Arabian journalist Jamal Kashoggi, and it continues to be used to sanction both individuals and entities.

The rest of the world is catching up, with similar regimes already in place in Canada and a number of EU countries. In March 2019, the European Parliament adopted a resolution calling for a regime to be adopted at the EU level.

The UK has taken things in stages.

As its first step, it amended the existing definition of “unlawful conduct” in the Proceeds of Crime Act 2002 (POCA 2002) to include “conduct which constitutes, or is connected with, the commission of a gross human rights abuse of violation…” thus allowing (in theory) UK law enforcement to recover the proceeds of such conduct.

Secondly, when SAMLA was passing through the legislative process, an amendment was added to allow sanctions regulations to be made for the sole purpose of providing “accountability for or [to] be a deterrent to gross violations of human rights, or otherwise promote compliance with human rights law or respect for human rights…”.

Now, by introducing the Regulations, the UK has exercised the power afforded to it by that amendment, and it did so by targeting a total of 49 individuals and entities, 25 of which are Russian nationals involved in the mistreatment and death of Sergei Magnitsky plus 20 individuals involved in the death of Kamal Khashoggi. All 49 are now subject to an asset freeze.

In announcing the Regulations, Mr Raab confirmed his intention to work closely with the UK’s allies including the EU, Canada and the United States.

The United States expressed support for the Regulations. U.S. Secretary of State Mike Pompeo commended the UK’s “continued global leadership on the promotion and protection of Human Rights” and said that the introduction of the Regulations marks a “new era for UK sanctions policy and cooperation between the two countries” with the UK’s new powers complementing the efforts of the United States and Canada.

It remains to be seen if this new era of cooperation will result in the further expansion of the UK’s ability to impose sanctions in other areas. For example, the provisions of SAMLA have previously attracted criticism for their failure to permit the imposition of sanctions against public officials involved in acts of corruption – something U.S. law does permit.

What does this mean for your business?

Like the existing EU regime, the Regulations prohibit all persons subject to UK jurisdiction (including companies) from dealing with any individuals or entities the UK government chooses to target, whether or not the conduct takes place in the UK.  

This will add an extra layer of complexity to the already challenging world of sanctions compliance. With a number of countries having already imposed their own Magnitsky laws and others looking to follow suit, multinational organisations and those breaking into new markets may well find that they need to assess a number of country-specific regimes to identify risk areas.

With varying but potentially severe penalties for non-compliance, not to mention possible reputational damage, companies entering new markets may wish to put sanctions compliance to the top of their priority lists when reviewing their internal policies and procedures. Those that have already uncovered a potential sanctions violation within the business should seek legal advice immediately.

Bill Tupman, The Independent

Everything has changed because of the coronavirus, and crime is no exception. Criminals have adapted to the pandemic, and this isn’t the only major challenge facing the police and security services. The appointment of a new national security adviser, and our imminent Brexit, also complicate the efforts of those working to keep us safe.

Covid-19 means fewer flights, ferry crossings and movement in general, making the trafficking of drugs and people more exposed to discovery by the security services. On the other hand, there are new opportunities for organised crime: black markets in personal protective equipment (PPE); fraudulent health products; and counterfeit medicines and snake-oil sales schemes. They all have obvious potential for exploitation, as does the problem of personnel shortages in health services. Meanwhile, illicit drugs have already been discovered hidden in consignments of much-needed PPE. The trend to commit crime via the internet will also be further enhanced.

Intelligence about the changing nature of criminality was always important, but as the pace of that change increases, it is vital. The departure of Sir Mark Sedwill as head of the civil service is not wholly a shock, given the briefings against him over recent months. More significant, though, is his replacement as national security adviser with David Frost, the prime minister’s Brexit adviser who will remain as chief Brexit negotiator. As face-to-face negotiations restart, attention will return to the way in which security and police cooperation will be affected.

The UK has always been an outlier in European justice and home affairs policy, but the ability and skill of the country’s detectives has always been admired — as is the British policy of policing by consent. This has led to an assumption among British negotiators that the EU will have to give the UK something in exchange for our continued cooperation.

They know that without this, following Brexit, there is a possibility that the UK will become an offshore haven for transnational criminals because extradition will be problematic and money laundering so easy. The UK will expect cooperation from the rest of Europe in finding and returning its offenders, while possibly refusing or delaying the extradition and provision of evidence to police and judicial authorities outside its borders. The country will become attractive to people smugglers because stronger border controls will enable them to put their prices up.

UK negotiators in the Brexit talks are confident that the country will still cooperate with the EU in justice and home affairs through mutual legal-aid agreements that will lead to the arrest and prosecution of criminals. They are critically underestimating the nature and complexity of cross-border criminal networks, and not taking into account differences in legal and policing procedures (unlike many EU nations, UK investigators and politicians favour disruption over prosecution, arguing that prosecution takes too long and that juries tend not to understand complex cases and therefore acquit).

People working in the intelligence and security services want to share data with their counterparts in other countries after Brexit. UK politicians are uncomfortable with this because this means UK security activity would be supervised by the European courts; though they might be happy to look at data from EU countries, they are much less happy to have investigators from those countries accessing UK data. The EU itself is, of course, very suspicious of UK data-protection law and procedures. That the Home Office failed to admit the wrongful storage of data from EU databases and the sharing of such data with the US (and probably the rest of the “Five Eyes”) has strengthened this suspicion.

The GBP/USD lifted higher towards 1.2600 on the back of Brexit optimism, before easing when no concrete deal proved to be forthcoming. With there being no outcome on the Brexit talks, analysts at OCBC Bank do not rule out some softness for the cable for now.

Key quotes

“The market bet on a Brexit compromise deal, lifting the cable higher towards 1.2600. Nevertheless, no deal was forthcoming, and the GBP/USD pair subsequently retraced lower.”

“Short-term implied valuations remain pointed south. For now, any upward extension will have to breach 1.2600, before targeting the 200-day MA (1.2696).”

 

What does the published data reveal to us?

Economic data over the last week or two have certainly supported the market optimism of an economic rebound.

We’ve seen nonfarm payrolls from the U.S surge by record levels. And we have seen PMIs, retail sales, and industrial production recover.

It’s worth noting, however, that these are coming back from record lows. So, while the figures are supportive of even a V-shaped recovery, July numbers will need to maintain that upward trend.

When you see governments having to reintroduce confinement measures as a result of COVID-19 spikes that recovery could be tested. All in all, this will make the next round of economic indicators all the more relevant and influential. Expect plenty of sensitivity to the next set of numbers.

The markets are still bound to watch out for a return of the coronavirus.

In the meantime, are there any notable geopolitical developments occurring?

While Brexit remains a headline, the U.S and China tensions remain the biggest threat. We saw the U.S send two aircraft carriers into the South China Sea while China carried at war drills.

Since then, however, it’s been relatively quiet. The U.S has dragged the UK into the spat, however. Britain riled Beijing over plans to pull out of the Huawei deal. To top things off, offering 3m Hong Kong citizens with UK citizenship didn’t go down too well either…

Ironically, the U.S has asked China to ramp up imports in spite of the latest spat. That suggests that it’s nothing more than arm flexing for now, though things could deteriorate…

The US elections are bound to grow in importance, as their impact on the markets grows.

Meanwhile, Brexit news is off the news wires. Are there any developments in the process?

Following last week’s curtailed talks, Brexit talks are set to resume today after last night’s dinner in Downing Street.

The key to any deal remains EU access to UK fisheries. From an EU perspective, it is clear. No agreement on fisheries means no trade agreement.

News had hit the wires early in the week that the EU was willing to compromise, which delivered Pound support.

How much of a compromise they are willing to make remains to be seen, however…

There is the talk of a zonal attachment. This is where access to fish is based on the amount of time it spends in British waters. Scientific data would then provide the allotments…

All of this has stemmed from climate change. Britain’s waters are warmer and the fish want warmer water. EU fishermen, however, still want access to the fish.

Expect updates over the next couple of days to materially influence the Pound. Any agreement and the Pound should rocket.

• GBP/USD reaches its highest level in three-weeks despite lack of progress.
• Lack of progress in EU/UK negotiations largely priced in.
• Cable could approach 1.2700 in the upcoming sessions.

The GBP/USD pair advanced for the fourth day in a row on Wednesday, climbing above 1.2600 to reach its highest level since Jun 16 at 1.2620, amid dollar weakness and despite the lack of progress in Brexit talks. On Tuesday, UK Prime Minister Boris Johnson reportedly told German Chancellor Angela Merkel that Britain is ready to end the transition period (Dec 31, 2020) without a deal if the EU is not willing to compromise. No major data releases are due on Thursday.

As for the technical outlook, Cable holds a short-term bullish bias, although it could go through a phase of consolidation as the RSI approaches overbought levels. Meanwhile, the price trades well above its main moving averages as it consolidates near three-week highs. If the GBP/USD breaks decisively above 1.2620, it could approach the 1.2690 zone in the upcoming sessions where the 200-day SMA could offer stiff resistance. On the flip side, supports are seen at 1.2520, 20-period SMA in the 4-hour chart and 1.2480, 200-period SMA.

Support levels: 1.2520 1.2480 1.2440

Resistance levels: 1.2620 1.2690 1.2730

View Live Chart for the GBP/USD