The UK Government has decided to continue to apply the EU Blocking Statute which attempts to prevent the applicability of US Sanctions after Brexit – or, specifically, from 1 January 2021 onwards1. This puts UK firms, entities and individuals in the firing line for the massive potential impact of US Sanctions – which is a substantial risk for them. In the wake of the COVID-19-driven economic catastrophe and post-Brexit need for the UK to operate safely and with certainty in cross-border fashion, this is an extraordinarily ill-advised, highly precipitous decision.
US Sanctions, it should be noted, cover all realms of corrupt financing activity, from Proliferation, Human Rights Abuses to Money Laundering – namely, all types of illicit commercial activity conceivable. Any attempt to limit their scope of application over commercial, investment activity at government, entity and individual level is ultimately completely erroneous. The US Sanctions regime integrates all of the money laundering typologies as found under United Nations and related OECD FATF (Financial Action Task Force) policy – and adds further emphasis in particular jurisdictions and areas of commercial activity or human transaction as well.
Furthermore, the failure of the EU Blocking Statute, to date, to protect EU businesses from US Sanctions has been pretty obvious. The solution for UK businesses – in the face of the multi-billion dollar US fines and potential for being cut off from the US financial system, US dollar transactions altogether – is to avoid breaching US Sanctions in the first place. What company in their right mind would enter into business with the likes of Iran and Cuba if this were to mean threatening its access to the largest economy in the world, or the world’s most prominent – by far – forex (90% globally out of a total of 200% on a forex, pair currency transaction basis) and reserve currency (over 60% of global reserves are held in US dollars) – namely, the US dollar?
Typically, many pro-Iran and anti-US supporters have made much of the potential of a Biden Presidency returning the US to the Iran Nuclear Deal (“JCPOA”) that President Trump pulled out of in November 2018. Yet the Iran Nuclear Deal did very little for non-nuclear, commercial ties and business for Iran – as so much regular commercial trade was still prohibited under US Sanctions laws. Moreover, the mere fact that US Congress – not the US President via Executive Orders – has made it abundantly clear that Iran remains – as it has since 1979 – a major foreign policy target for the US – in passing anti-Iran legislation – shows that US foreign policy will not alter much over the next four years – regardless of the US President who comes into office.
As usual, the UK Government are less interested – or, potentially, and even more worryingly, perfectly ignorant of, the massive problems that EU Blocking Statute will cause – making it a criminal offence to comply with the stated Sanctions policy of the UK’s most trusted strategic foreign ally, the US. The simple fact is that the US continues to use its Sanctions policy as a foreign policy tool, and for the UK – as its main strategic ally – to contradict this via the continued application of the EU Blocking Statute – makes absolutely no sense at all.
However, there is one chink of light in the new UK Government guidance – which should be carefully followed by any UK firm, entity or individual looking to risk an “apparent” violation of US Sanctions (more than sufficient for US authorities to take action and impose penalties):
“… The retained Blocking Regulation does not compel protected persons to do business with Iran or Cuba. Instead it ensures that commercial decision-making is not based on compliance with legislation imposing the proscribed sanctions. Protected persons may also decide whether to engage or not in an economic sector, based on normal commercial decisions. UK sanctions imposed on Iran must be taken into consideration. …”
Frankly, the answer is very simple indeed for UK firms wishing to engage with the likes of Iran and Cuba – or other US foreign policy and Sanctions targets. Take great care before engaging with US foreign policy targets. As any Risk Manager at any multinational financial institution will tell you – it is not worth the effort.
After all, between 2008-2018 (which, crucially, included the Democrat Obama and Republican Trump US Administrations for anyone wishing to take a “read” on any potential Republican/Supreme Court and Senate-driven, Democrat Biden Presidency as regards US Sanctions policy), the following applies:
“…A study (source: Fenergo) found that although the US only accounted for 44% of all global AML, KYC and Sanctions fines (2008-18), yet US penalties amounted to an astonishing 91% of the total value of all fines, at $23.52bn…”
The bottom line – you can claim, as Angela Merkel (Germany) and Mahathir Mohamed (Malaysia) continue to, that US cross-border Sanctions have no validity – as only the United Nations has the power to impose penalties with extra-territorial effect. Or you can look at the harsh facts – and accept that there is no realistic defence for apparent breaches of US Sanctions – and the downside for those who continue to act in denial of the power of US Sanctions is catastrophic. Neither Merkel nor Mahathir Mohamed will be able to help UK entities or individuals who find themselves, potentially:
1. Cut off from US Dollar transactions globally.
2. Cut off from the US market entirely.
3. Multi-million/billion US Dollar fines.
4. Subject to major asset freezes.
5. On the receiving end of massive legal advisory fees in a vain attempt to mount a legal defence.
6. In conflict with the “mandatory provision of law” definition of US Sanctions provisions as determined by the UK Court of Appeal in Lamesa Investments Limited v Cynergy Bank Limited  EWCA Civ 821.
A recent US case proves the devastating outcome for businesses – even where a formerly charged Chairman is exonerated. The former Chairman of Pilatus Bank, Iranian Ali Sadr was ultimately exonerated after being previously found guilty of 5 counts of US-Iran Sanctions violations in United States v. Ali Sadr Hashemi Nejad,’ Case No. 18-cr-224-AJN (S.D.N.Y.), had already had his bank, Pilatus Bank, in Malta closed down in 2018 by the European Central Bank after alleged violations of US Sanctions. No financial institution Risk Manager worth their salt would ever contemplate such an outcome as remotely worth the risk.
The EU Blocking Statute cannot provide any meaningful protection against US Sanctions – it has not, to date, and for the UK to continue to apply this unhelpful EU legislation which works against stated US foreign policy aims is both delusional and highly dangerous in the post-Brexit business environment. In terms of protecting UK business post-Brexit, this is an inexcusable strategic error by the UK Government.
Furthermore, UK Court precedent does not even seem to support the EU Blocking Statute provisions that attempt to criminalise UK entities from following US Sanctions provisions. In the recent UK decision from June 2020 in Lamesa Investments Limited v Cynergy Bank Limited  EWCA Civ 821, the UK Court of Appeal found that US secondary sanctions can apply extra-territorially, as they constitute a “mandatory provision of law”. This makes the UK Government’s decision to continue to apply the EU Blocking Statute – effectively making it a criminal offence to follow US Sanctions – even more bizarre and ill-advised.
If governments, entities or individuals commit mere “apparent violations” of US Sanctions, do not rely on the EU Blocking Statute – nor, indeed the UK Courts – to offer protection.