By Richard Tauwhare, Senior Director, Dechert LLP
2016 promises to be yet another eventful year for trade controls in the UK. This article picks out four likely themes: structural changes amongst the regulators, procedural changes for exporters, changes in the risks in major export destinations, and potential changes in the EU including the possibility of a UK vote to leave.
Export Control Unit
It was announced in the UK’s Strategic Defence and Security Review 2015 that, in the context of a wider restructuring of the UK’s national security structures to promote a more coherent, whole-of-government approach, 7 new Joint Units will be established in 2016. One of these will be a new Exports Controls Unit, to be hosted by the Department for Business, Innovation and Skills, and to provide ‘coordinated cross-government operation of export controls’.
The Unit will combine the existing staff and resources of the Export Control Organisation (ECO) with those of the export licensing casework teams from the Foreign and Commonwealth Office and the Ministry of Defence, who are currently the main advisers to the ECO in assessing licence applications. The Unit will report jointly to the Business, Defence and Foreign Secretaries.
This restructuring is not likely to lead to significant changes in the export controls system, at least in the short term. But it should help ensure a more coherent approach to challenging issues.
Office for Financial Sanctions Implementation
In parallel, the Financial Sanctions Unit in the Treasury will turn itself into the new Office for Financial Sanctions Implementation (OFSI) in April/May 2016, following the announcement in the Chancellor’s Budget earlier this year. Although the scale of the original ambitions for the new Office have apparently been scaled back, it is expected nonetheless to have greater resources than the current Financial Sanctions Unit and the aims remain to provide ‘high quality service’ in licence processing, improved information on sanctions rules, and more effective enforcement.
While it is unlikely that the UK will seek to impose fines for breaches of financial sanctions prohibitions on the scale of the US regulators, the penalties available to OFSI will, we understand, be expanded to align them more closely with those currently wielded by HM Revenue and Customs for breaches of trade sanctions and other export control regulations, in particular raising the maximum imprisonment from 2 to possibly as much as 10 years, and creating the option of unlimited compound penalties, thereby enabling OFSI to settle serious cases without criminal prosecution. OFSI will work more closely with the National Crime Agency and HM Revenue and Customs to detect violations and pursue enforcement actions.
It remains to be seen whether the promised delivery of a ‘high quality service’ to business will translate into greater clarity in the interpretation of the often imprecise language used in EU sanctions regulations, particularly since this requires EU-wide coordination.
The long-awaited design of a replacement for the ECO’s current online licence application system, SPIRE, has just been launched. The project is an integral and early part of the wider programme, ‘One Government at the Border’ being led by HM Revenue and Customs to deliver a single, coherent service for the movement of goods across the UK border. The ECO is reviewing ‘from first principles’ the service that it currently provides, to identify what its customer organisations want, in order to deliver improvements. It is intended to progress by designing and publicly testing small, discrete sections of the new system before rolling them out more widely in – it is hoped - 2017.
The new system should be a radical improvement, providing an open interface that will enable licence applications to be completed largely automatically by exporters’ logistics systems, and reducing the administrative burden and frustrations of the current system.
The ECO’s current review of the requirements for signed, hard-copy undertakings should lead to substantial simplifications, although their full introduction may have to wait until the new SPIRE system rolls out. In the short term, there seems to be a fair prospect of soft-copy undertakings, based on a simpler template, becoming acceptable, and that no new requirements for undertakings as a condition of
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