2022 was a transformative year for UK and EU sanctions. Russia's invasion of Ukraine in February 2022 ushered in wider reaching changes to the architecture of UK and EU sanctions as well as an unprecedented escalation in the deployment of financial and trade sanctions by the UK, EU and their international partners. The effects of these changes will continue to be felt in 2023.

Businesses operating across the UK and EU in 2022 saw increasing evidence of divergence in the timing and targets of sanctions designations as well as the approach to implementation of specific sanctions measures. These developments have resulted, and will continue to result, in an increase in compliance complexity for international businesses, notwithstanding significant efforts by the UK, EU and others to coordinate their sanctions measures. The compliance challenge posed by divergence likely will be further amplified by the trend toward the UK and EU making use of increasingly complex and, at times novel, sanctions measures.

While UK and EU sanctions agencies acknowledge that business desires harmonization and remain committed to close coordination and cooperation when introducing and implementing coordinated sanctions, they also recognize that some level of sanctions divergence ultimately is inevitable because the legislative language and architecture of the UK and EU sanctions regimes now differs to reflect both drafting conventions and, at times, policy-led decisions about how certain measures should be framed and implemented. However, much common ground remains and there are indications that the two jurisdictions are taking steps to align their sanctions regimes even further. For instance, the European Commission has announced that it is planning to put forward a proposal to include corruption in the EU's human rights sanctions regime. This initiative would bring the EU closer to the UK, which already has a similar anti-corruption sanctions regime in place.

There is little evidence to suggest that the scale and scope of UK and EU sanctions will abate in 2023. Subject to developments on the ground in Ukraine, further Russia sanctions measures appear likely. The prospect of additional Iranian sanctions also has been increased by the Iranian government's supply of drones to Russia and involvement in human rights violations. As the stance of the UK and EU appears to be hardening toward China, one or both may follow the lead of the US in imposing sanctions, particularly if the situation with respect to Taiwan were to deteriorate.

Finally, the sweeping changes to the UK and EU sanctions landscape introduced at pace in 2022 are likely to give rise to increased enforcement action in 2023. While the UK and EU have articulated their intention to prioritize the enforcement of sanctions evasion, it remains to be seen to what extent individual sanctions agencies also seek to target "low hanging fruit." The UK's introduction of strict civil liability for breaches of financial sanctions in June 2022 significantly lowered the evidential bar HM Treasury's Office of Financial Sanctions Implementation must meet to impose civil monetary penalties on companies and individuals, making the prospect of increased enforcement likely.

In the EU, a notable development has been the Council's recent decision to add the violation of EU sanctions to the list of so-called "EU crimes", which will now pave the way for a Directive establishing minimum rules on the definition of and penalties for the crime of violating EU sanctions measures. This implies that over time, all Member States will eventually have to provide for criminal penalties of a certain minimum level. Other EU concrete measures include the introduction in March 2022 of a new Sanctions Whistleblower Tool, through which EU sanctions violations can be anonymously reported, and the "Freeze and Seize Task Force" set up by the Commission to coordinate actions to freeze and, where applicable, confiscate assets of Russian and Belarusian oligarchs. The EU has also recently appointed an International Special Envoy to liaise with third countries on ways to avoid sanctions circumvention.

For further updates on sanctions on Russia see our dedicated  webpage.

To know more about developments in trade, antitrust/competition, ESG, chemicals, food and food contact materials regulation, insurance and criminal investigations, read the full article  here.

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