Sanctions - What's the big deal?
We are all aware of the requirement within Guernsey’s and Jersey's finance industry to screen our customer databases against international sanctions lists. We do so to ensure that none of our clients has become a “designated person” and therefore subject to an asset freeze or travel ban. That, however, is just part of the story. Many sanctions measures take the form of restrictions on trading with another country, and the resulting restrictions, exemptions and licensing requirements can be very complex indeed. Where sanctions measures against a country comprise an arms embargo for example, there will be restrictions not just on the sale and supply of military hardware, but also goods deemed to be “dual use”, in other words products and technologies normally used for civilian purposes but which may have a military application. It goes without saying that we’re not going to assist a client in the supply of automatic weapons or ammunition to the Democratic Republic of Congo because of the arms embargo; but what about hand-held radios, consumables for Land Rover engines or aircraft spares? What if you sit on the Board of a private equity fund that owns a footwear factory that makes, among other things, desert boots? Do you know where they are being shipped (or trans-shipped) and to whom they are being sold? Make no mistake, the world of trade sanctions is not at all straightforward – but all these restrictions apply to all of us.
Currently the Bailiwick of Guernsey implements all UN and EU sanctions measures in their entirety, and which are given local effect primarily through one of several legislative routes:
- an Order in Council made under section 1 of the United Nations Act 1946
- an Ordinance made under section 1 of the European Communities (Implementation) (Bailiwick of Guernsey) Law 1994
- an Order made under the Export Control (Bailiwick of Guernsey) Law 2006
- primary Bailiwick legislation, for example the Terrorist Asset-Freezing (Bailiwick of Guernsey) Law 2011.
This means that new sanctions measures arising by way of UN Security Council Resolution or EU Council Regulation, together with all subsequent updates, apply to Guernsey persons and entities in their entirety. In addition, travel bans implemented under the UK Immigration Act 1971 apply locally by virtue of provisions in that Act being extended to the Bailiwick by the Immigration (Guernsey) Order 1993; and arms embargoes and other export restrictions can be implemented in the Bailiwick under the Export Control (Military, Security, and Related Matters) (Bailiwick of Guernsey) Order 2010. This Order mirrors the UK Export Control Order 2008 therefore any changes made under the UK Order automatically become effective under the Guernsey Order. There is no escape.
Administration of sanctions matters in the Bailiwick is through a Sanctions Committee consisting of members from Guernsey’s Policy & Resources Committee, the Law Officers Chambers, the GFSC, the Guernsey Border Agency, and the States of Alderney. Even Sark is included, because Chief Pleas is kept informed of all sanctions related matters. The Sanctions Committee ultimately reports to Policy & Resources, which in turn works closely with HM Treasury and the Foreign and Commonwealth Office in the UK. We may only be tiny islands but we treat the whole sanctions thing just as seriously as the bigger countries.
One question currently being asked is what will happen post-Brexit?
Two Policy Letters have been laid before the States of Deliberation; the first dated March 2017 and the second dated October 2018. The first Policy Letter recommended that the States agree to introduce a Bailiwick-wide law for the implementation of sanctions, giving Policy & Resources powers to enable not only the implementation of UN and EU measures but also to permit the future direct implementation of UK sanctions measured into Bailiwick law if need be. By the time of the second Policy Letter there was more certainty around the UK’s intentions post-Brexit, the UK Parliament having introduced the Sanctions and Anti-Money Laundering Act 2018. Consequently the second Policy Letter asked the States to approve a Projet de Loi entitled “The Sanctions (Bailiwick of Guernsey) Law, 2018 “ which now awaits the approval of Her Majesty in Council before being registered by the Royal Court. The new Law defines sanctions measures as (i) a Resolution adopted by the UN Security Council, (ii) a Council Regulation made by the EU, or (iii) a regulation made by a UK government minister under the aforementioned UK Act. Thus the new Bailiwick law will allow Policy & Resources to make regulations for the adoption of any sanctions measures so defined.
Lastly, a word on US sanctions. From a general legal perspective they don’t apply in the Bailiwick, unless a person resident here qualifies as a US person or maintains some presence in the US. That said, the US Treasury Office of Foreign Assets Control (OFAC) takes the view that in order for sanctions to be effective, everyone needs to be on board, and so they prosecute sanctions evasion vigorously wherever they can. And they have the ultimate leverage - how many firms in Guernsey’s finance industry need to do business in US Dollars? The penalties for failure to comply with US sanctions can be severe. Some years ago Christopher Tappin, a UK businessman, found himself extradited to the US to face charges that he evaded sanctions by arranging the supply of zinc/silver oxide batteries to Iran. The batteries are used in Hawk surface-to-air missiles. A cosmetics retailer in California was recently fined almost $1,000,000 because the products they were importing from China were found to contain raw materials that the Chinese suppliers had themselves obtained from North Korea. As we have now learned, Mr Trump is currently not yet minded to lift any of the trade sanctions that are clearly a source of irritation for Mr Kim.
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Article written by Neil Duquemin of Redwood Offshore Limited