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 financial and trade sanctions that restrict trade 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 earlier this month announced a new export strategy aimed at increasing total UK exports to 35% of gross domestic product (GDP).
An estimated 400,000 businesses currently do not export despite believing that they could. Both Fox and business groups recognise that 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, International Commerce terms (Incoterms), export finance and export credit insurance.
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, and the sectoral trade restrictions can apply.
There are numerous trade restrictions that apply to particular products and services depending on where in the world the goods and services are destined for. For example, oil and gas engineering, equipment and technology suppliers face significant restrictions on exporting goods and services for use in Russia.
Banks and financial service companies are also subject to requirements to carry out sanctions screening, and to not process payments connected to sanctioned countries or sanctioned persons. Banks are particularly nervous about US 'secondary sanctions' which can apply to non-US companies; particularly those that have a physical presence in the US, use the US banking system to, for example, clear US$ transactions), or where the underlying goods or services being exported are of US origin.
Currently, US government officials are warning UK banks not to breach US sanctions against Iran and Russia and that, if they do, they will face significant consequences. This is despite there being EU laws that prohibit EU-based businesses from complying with US sanctions. UK companies engaged in or proposing to engage in perfectly lawful business from a UK and EU law perspective may therefore find themselves in the position that their banks will not process payments due and their insurers will not provide insurance cover because of a fear - which is sometimes misplaced - that the transaction may contravene US sanctions.
Against this backdrop, better enforcement of EU blocking law and clearer and stronger advice from the UK government on the application of sanctions to exporting businesses is required if the government is to succeed in its ambition to increase total exports as a proportion of GDP. The OFSI has a vital role to play in helping exporters to understand what they should do to comply with financial and trade sanctions so that they can export with confidence.
Tom Stocker is a regulatory law expert at Pinsent Masons, the law firm behind Out-Law.com. David McLean, joint deputy head of the OFSI, will join Tom to lead a discussion on the complex and increasingly important subject of sanctions and compliance in Aberdeen on 17 September 2018 and in Edinburgh on 18 September 2018.