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Brexit Could Bring Changes to U.K. Sanctions Policy

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03/14/2019 | 03:04pm EDT

By Nina Trentmann

Britain's exit from the European Union could bring significant changes to the country's sanctions policy.

The U.K., which is so far closely aligned with France and other EU-countries on sanctions, might use its departure from the bloc as a chance to revisit its position, compliance specialists said Thursday during an event hosted by The Wall Street Journal and Dow Jones Risk & Compliance.

Brexit provides the U.K. for the first time in years with the "flexibility to forge its own path on sanctions," said Zia Ullah, a partner at Eversheds Sutherland, a law firm.

After Brexit, the U.K. might seek closer proximity to the general sanctions imposed by the U.S., in contrast to the list-based sanctions favored by the EU, said Tom Plant, a director for proliferation and nuclear policy at the Royal United Services Institute for Defense and Securities Studies in the U.K., a think tank. U.S. sanctions tend to be more broad than EU sanctions and are generally open-ended. EU sanctions are adopted for a limited time period, and are usually more specific in nature.

"There's clearly potential for [U.K. and EU sanctions policy] to diverge, " Mr. Plant said.

The U.S. and the EU have been pursuing contrasting policies in a number of cases, including sanctions against Iran. France, Germany and the U.K. defied threats from the U.S. and in late January set up a special payments vehicle to in effect circumvent U.S. sanctions on Iran, resulting in criticism from Vice President Mike Pence.

In the short-term, the U.K. is expected to make only minor changes to its sanctions policies, as outlined in the government's instruments on no-deal Brexit, said Susannah Cogman, a partner at law firm Herbert Smith Freehills LLP. The notices are reflective of the government's position that the U.K. should stay aligned with the EU on issues such as the Fifth Money Laundering Directive taking effect in January 2020, she added.

"The fact remains that there are very strong and close links with the Europeans, with France in particular," said Mr. Ullah. "I don't think we will let that go overnight."

Brexit might result in the U.K. providing more guidance on sanctions and how to comply, Ms. Cogman said. The U.K. has in the past followed a restrained approach to interpreting EU sanctions, she said. "This is one of the things where Brexit might be helpful, from a sanctions perspective," Ms. Cogman said.

Under a no-deal Brexit, there would be some differences between the sanctions policies pursued by the U.K. and the EU, for example on the test of ownership, Ms. Cogman said, which is the process of determining ownership of an entity and, potentially, whether sanctions should be applied.

U.K. companies currently benefiting from EU exemptions to Russia sanctions should also make sure they remain compliant after Brexit, she said.

A potential divergence of U.K. and EU sanctions policies over time doesn't mean that the U.K. would blindly follow U.S. sanctions policy, said Mr. Plant.

The U.S. could try to leverage the U.K.'s interest in striking new trade deals to demand further sanctions commitments, Mr. Ullah said. "It will be interesting to see how the U.S. leverages Brexit in the context of our trade negotiations," he said.

The U.K.'s exit might also have an impact on EU sanctions policies, Mr. Plant said. "It's not just that the U.K. might grow away from the EU but the EU itself might change," he said.

The U.K. plans to leave the EU on March 29, but hasn't agreed on the terms of its exit yet. The government's deal for exiting the EU has repeatedly failed to gain parliamentary approval.

Parliamentarians on Wednesday voted to avoid a no-deal Brexit scenario without a withdrawal agreement, potentially resulting in an extension of the U.K.'s EU-membership.

--Nick Elliott contributed to this article.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

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