By: Anna Sayre, reporter SanctionsAlert.com 
Date: June 30, 2016

On June 23rd 2016, after 40 years of membership, the UK has voted to no longer be a member of the European Union. A 52% majority of the British population have cast a “Leave” vote, creating a momentous decision in British history that will make an indelible mark in the financial landscape of the world for years to come. The vote by the UK to leave the EU, or ‘Brexit’, has already created mounting uncertainty within the UK financial market, caused the British pound to plummet, and made big banks and other financial institutions consider a permanent move from London to much less volatile offices in Frankfurt or Dublin.

Though it is not entirely clear what the future holds for the UK on the world stage, one thing is very certain: a vote to exit the European Union is sure to impact not only cultural ties between Britain and the EU, but also world financial markets, trade alliances, and the future of sanctions policy and implementation worldwide.

The status quo

Currently, the EU, which includes the UK, has sanctions in place against numerous countries, and/or certain individuals and entities within those countries. These sanctions are particularly onerous in respect of Iran, North Korea and Syria. Other countries affected include Russia, Afghanistan, Egypt, Iraq, Sudan, and Libya. At the moment, extra care is needed when doing business in these countries or with people from or connected to these countries.

Sanctions employed by the EU are one of three kinds: sanctions agreed by the United Nations Security Council (UNSC), those supplemental to UNSC sanctions, as with Iran, North Korea, and Libya, or those EU sanctions put in place in the absence of a UN mandate, as in the case of Syria, Russia or Myanmar.

The EU, and therefore all its members, is required to implement sanctions imposed by the United Nations Security Council (UNSC), but can also decide to impose its own sanctions in the absence of a UNSC decision. This is referred to as the EU’s autonomous practice. The EU has decided on adoption of a number of sanctions regimes in the absence of pre-existing UNSC resolutions, thus developing a rich sanctions practice that has become more frequent and more sophisticated, especially in the last 20 years.

It is important to stress that, though the UK has voted to leave the EU, the vote has no legal ramifications until the UK invokes Article 50 of the Treaty of the European Union. This clause, which governs the rules of exit for EU member states, says that there can be a two-year period of negotiations before a formal divorce is final. Therefore, any changes in the UK’s sanctions policy, or otherwise, will strongly depend on the model of the UK’s relationship with Europe after post-Brexit negotiations take place.

The potential impact of ‘Brexit’ on UN sanctions policy

Once UK officially ceases to be a member of the EU, the UK is still very much a member of the UN and, as such, remains duty bound to apply any sanctions imposed by the UNSC. Therefore, these types of sanctions are unlikely to be greatly affected by the ripples of the Brexit earthquake.

The UK outside the EU would still impose UNSC sanctions and, in some cases, would employ supplementary measures of their own and designate further entities or individuals that wouldn’t have made the EU list after joint deliberation. HM Treasury already publishes independent sanctions that are added on to the designations of the UN and EU, and this is a scenario that will likely intensify, potentially creating more compliance risks or potential prohibitions when doing business in the UK.

The potential impact of ‘Brexit’ on EU sanctions policy

The UK has played a vital role in EU sanctions policy in recent times. Arguably, no other European member state has played such an instrumental role in the use of EU sanctions as the UK, which has acted as a pro-active and committed advocate of their use recently against countries such as Russia, Syria, North Korea and Iran.

EU autonomous sanctions, or those made in the absence of a UN mandate, are more likely to be affected by Brexit, especially those that are typically vetoed at the UNSC by Russia or China. For these types of sanctions, consensus is required among all EU member states and unanimity has often depended in the past on strong support provided by the UK.

The effects of Brexit on sanctions policy are most likely to be felt in cases involving competing political, commercial or ideological links to the targeted country, where consensus between the UK and the EU is more difficult to achieve. Some argue that, the weaknesses in current EU sanctions policy require improvement and the need for consensus between the members states often leads to sanctions being watered down, such as in the case of Myanmar. Despite these slight bureaucratic limitations, however, there are a number of reasons why working within the EU leads to a more effective sanctions policy and brings benefits to the UK.

Firstly, sanctions tend to be most successful where strong political engagement exists involving a range of countries. The recent success in implementing a plan to reduce sanctions against Iran, made between the UK, France, Germany, Russia, China and the US, serve as an example of unprecedented unity in global sanctions policy. Sanctions rarely operate effectively in isolation and their success depends in part on a combined dialogue, agreement and conflict prevention between various countries. Working within the EU presents a broader range of available tools as compared to the UK operating alone.

Further, the UK and EU increase the symbolic and material impact of their sanctions by working together within the EU framework. The EU, as the largest trade bloc in the world, adds weight to the UK’s sanctions policy efforts.  In turn, the UK, as a major global economic player, lends the EU extra leverage. If the EU and UK combine efforts to impose economic sanctions and cease areas of trade with a particular target, the impacts are likely to be greater. Brexit could very well impede decision-making on sanctions in a coherent and decisive manner through weakened unanimity among EU member states.

Finally, if the UK were to leave the EU, not only would it lose the ability to apply sanctions with the same breadth and weight, it would also lose much of its say regarding EU sanctions policy by giving up its seat at the table in Brussels.  The UK would lose access to key forums through which to push for ongoing momentum and joint action among fellow EU member states.

The potential impact of ‘Brexit’ on sanctions against Russia

EU sanctions policy, which has been weakened by Brexit, is likely to intensify the need to employ other, more expensive, complex, or complicated forms of diplomacy in order to achieve its objectives. As such, this could very well strengthen Russia’s hand against the EU, as it benefits from a fragmented Europe with a weaker set of united policy tools at its disposal.

A British departure from the EU carries the real risk of loss of leverage for the UK, and its European partners, especially over an increasingly resistant and unpredictable Kremlin.

Petras Austrevicius, a liberal member of the European Parliament’s Foreign Affairs Committee from Lithuania, said that Britain “has always been a staunch and a very stable partner in terms of shaping the EU’s policy toward Russia” and that “any diminishing” of its role in the block would negatively impact this policy. Austrevicius says, “I believe it was very much in the Russian interest to see Brexit happen. Now we see a reality which is absolutely unfortunate, and this is a great sense of joy in the Kremlin,” “In general terms, Brexit will in fact make the EU policy toward Russia less effective.”

As a result of Brexit, it is very likely that the UK will decide to adopt an agreement such as the one currently in place between the EU and other non-EU countries, such as Norway or Switzerland. Both of these countries have had to decide whether or not to implement European sanctions programs, including those against Russia.

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