Charles Enderby Smith and Katharine Silverleaf explore the value of licencing within a properly functioning sanctions regime.

The ongoing war in Ukraine has brought the details of sanctions regimes arguably further into the public eye than they have ever previously been. The response of Western powers such as the US, EU and UK to Russia’s actions has been to ramp up their respective sanctions regimes.

The UK government has enacted legislation meaning that any individual or entity who supports or obtains a benefit from the government of Russia could be designated. As a result, swathes of new individuals, companies and entire sectors of industry have been designated. As with many sanctions regimes, this is all part of a concerted effort to apply intense economic pressure to the target, here the ruling regime in Russia.

A similar approach has been taken by the UK government (along with other Western powers) in the implementation of its Syria sanctions regime. Under this regime the UK has the power to designate any person who supports or benefits from the Syrian regime run by Bashar Al Assad. The purpose is to target the leaders and supporters of the regime responsible for significant human rights abuses, including the use of chemical warfare and arbitrary executions against civilians, and to alter their behaviour.

But the UK’s regimes have increasingly come under fire through allegations that its sanctions do not go far enough. One particular area which has recently come under intense scrutiny is that of licencing, i.e. government-authorised permission to carry out activities which would otherwise be prevented by sanctions.

This scrutiny has led HM Treasury to conduct an internal review of its procedures on the consideration of licence applications.

Nonetheless, sanctions licences are a fundamental feature of sanctions regimes around the world and there are important reasons for this.

What is a sanctions licence?

As mentioned above, licensing provides a mechanism for a person to act in a way which would otherwise breach sanctions. Licences must be granted for specific purposes, circumscribed by the relevant sanctions regulations, and are generally available in the UK to:

  • meet basic needs;
  • pay for legal services;
  • pay fees for the maintenance of frozen accounts;
  • enable payment of extraordinary expenses;
  • satisfy pre-existing judicial decisions; and
  • enable humanitarian assistance.

In order to obtain a licence from the UK government it is necessary to apply to the Office of Financial Sanctions Implementation (“OFSI”). Applicants need to set out the purpose for which they require licence and the proposed sums of money required to fulfil the purpose. If an application is successful, the licence will specify what conduct is authorised and can include conditions on that authorisation.

Why does licencing exist?

Licencing exists predominantly to protect human rights, in particular the rights of those subject to sanctions. Thus, the list of authorised purposes set out above includes protection for the most basic right – the right to life – which requires funds to be available to meet a person’s basic needs of food, water and shelter.

Another critical protection exists to safeguard a person’s access to justice, a fundamental pillar of the rule of law and of legitimate, open and free democracies. Indeed, as has been recognised by the Exchequer Secretary to the Treasury, James Cartlidge, in the context of recent parliamentary debates over sanctions licencing, “even at the Nuremberg trials, people who had committed the most heinous crimes in the history of the western world were legally represented”.

Access to justice requires adequate legal representation, and hence the expressly specified licencing ground for the payment of legal fees. This is true in respect of legal advice generally, and more specifically where a person seeks to challenge a sanctions designation.

Sanctions are an inherently political device, sometimes applied on the basis of sparse or even flawed information. In this context the necessity of protecting a person’s right to challenge designations is all the more important.

Syria sanctions general licence

A salient example of the necessity of a workable sanctions licensing system is found in the recent earthquakes which have devastated parts of Turkey and Syria.

As mentioned above, Syria is subject to broad sanctions regimes by the UK and other Western powers which permit the designation of anyone who is thought to have supported or obtained a benefit from the Syrian regime. This includes a number of financial institutions which operate in Syria. The result of this is that attempts to provide humanitarian aid to regions within Syria are often stymied as transfers to and from accounts held with these financial institutions are prohibited.

In such cases reliance on a licencing ground for humanitarian assistance is clearly crucial, and the severity of this particular situation has in fact led OFSI to issue a “general licence” permitting the United Nations and the organisations with which it works to deliver aid, to pay funds and to provide goods and services which are necessary to ensure the timely delivery of humanitarian assistance. Few would argue that this is not a necessary step, or that it amounts to an erosion of the efficacy of sanctions.

The fundamental role of licencing

In spite of the heated public discourse regarding licencing, which has included criticism that it is a means of “side-stepping” restrictive measures, what is clear is that without it the very purposes which many of our sanctions regimes are pursuing risk being undermined. The recent decision to issue a general licence for humanitarian aid in Syria drives this point home.

Access to legal representation is no less important a fundamental right and therefore no less important a licencing ground. In developed Western legal systems it is the court’s prerogative to determine whether a legal claim has merit, and leaving such considerations in the hands of the government department in charge of sanctions designations falls far short of this standard. In this way licencing to allow access to justice derives from a fundamental aspect of the rule of law rather than any circumvention or “side-stepping” of sanctions. Similarly, HM Treasury should not be criticised for granting licences for legal fees in cases which are ultimately found, by the courts as the appropriate institution, to be without merit.

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