Licence to thrill: key features of the UK's export control and sanctions licensing regime

The UK's autonomous sanctions framework under the Sanctions and Anti-Money Laundering Act 2018 (?SAMLA?) has introduced a ream of changes to the sanctions landscape in which financial institutions operate.  These have become more prominent following the end of the Brexit transition period on 31 December 2020, when the sanctions previously introduced via European regulations were transposed into law through regulations made under SAMLA.  However, one area of change which has flown somewhat under the radar is licensing.

Prior to the end of the transitional period, companies were well-versed in obtaining licences from the Office of Financial Sanctions Implementation (?OFSI?) or the Export Control Joint Unit (?ECJU?) (as applicable). However, as the dust settles there are important points to note about the UK's SAMLA licensing regime.

Firstly it is important to remember that the UK's sanctions regimes under SAMLA, and the export/trade restrictions in the Export Control Order 2008 (the ?ECO)?, broadly apply to (i) conduct in the UK by anyone, and (ii) conduct outside the UK by UK persons (nationals or entities).  This means that any foreign-incorporated companies operating in the UK (as well as companies incorporated in the UK), or any company with UK employees (wherever based) whose business is caught by UK export/trade controls or financial sanctions, may need to obtain a licence from OFSI or the ECJU to perform activities otherwise prohibited or controlled by UK legislation. Typically, under EU sanctions regulations, it is specified that authorisations granted in a competent member state where the exporter is established shall be valid throughout the Union. However, businesses falling within the scope of the jurisdiction of SAMLA will now need to apply for a separate licence in the UK (where applicable) even where there may otherwise exist a valid EU licence for the same activities and vice versa. In addition, the UK sanctions restrictions under SAMLA contain certain differences to the equivalent EU sanctions regimes. This can therefore affect when licences are required to be obtained. Businesses therefore cannot assume that the position is consistent as between the EU and UK.    

Another point to note is that financial institutions considering whether a licence is required, available or likely to be granted for payments otherwise prohibited by financial sanctions should not proceed on the basis that the licensing grounds are as they were under the pre-SAMLA legislation. The licensing grounds found in the regime-specific regulations should be checked thoroughly.  For example, there are new or modified licensing grounds for humanitarian assistance and the basic needs of a designated person in certain country regimes, which may allow for potentially broader application. The changeover to the new regime also has the potential to affect those seeking to renew licences obtained prior to SAMLA regulations coming into force.  Again, care will need to be taken to ensure applications are accurate and reference the correct licensing powers to ensure that they are processed swiftly.

On the trade and export control front, changes from a licensing perspective predominantly affect exporters. However, financial institutions do need to be aware of these changes for two reasons: first, they may be providing services which are within the scope of the ECO's trade controls, and second, in order to ensure that any underlying business/transactions that they are providing financial services in relation to are carried out in accordance with applicable law.

Separately, changes have been made to certain open general licences. For example, the Open General Trade Control Licence ?Insurance or Re-insurance? which authorises insurance parties to arrange or provide (re)insurance in relation to certain UN mandated or authorised missions or operations was updated on 31 December 2020 to introduce a list of destinations in respect of which the licence applies (thereby limiting its application). Legal and compliance teams should therefore ensure they double check available open general licences to confirm that the conditions can be satisfied.

To distil the above into a single message - do not assume that things remain as they were before. In many respects they do, but it is important to check before you proceed and in particular, to consider how UK touchpoints may impact on the compliance obligations of your busines

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