Sanctions in the era of Brexit-Biden- what the past six months tell us about the future transcript

TC: Hello and welcome to our webinar on the topic of sanctions in the year of Brexit and Biden. My name is Tom Cummings and I'm a Partner in Ashurst London Dispute Resolution team.

Now the past few years have seen unprecedented developments in the world of international sanctions. In the United States we've seen the Trump era with its expansion of US sanctions and withdrawal from the nuclear sanctions deal with Iran, replaced by the Biden administration. In the UK the legal implications with the Brexit vote in 2016 have included the development of more autonomous UK sanctions policy independent of that of the European Union.

But in the EU, we have a relatively new European Commission lead by Ursula von der Leyen with ambitions to be a geopolitical commission to wheel European influence on a global stage, and it's roughly six months since both the Biden administration took office and the Brexit transition period came to a close. And it seemed to us like a good time to take stock in terms of developments that have happened and look forward to what those developments may tell us about the future.

Now for today's session I’m joined by three speakers, located fittingly in Washington, London and Paris and they're going to discuss these things with me. First we have Nancy Fischer of Pillsbury Winthrop Shaw Pittman in Washington. Nancy leads her firm's public practices and public policy teams and she's now authority on international trade law. Nancy's expertise extends across the full spectrum of international trade law and she frequently advises clients on international matters involving US export controls and sanctions.

Secondly we have Ross Denton, who is Ashurst Head of International Trade. Ross has been working in the field of international trade and compliance for over 30 years, and although his expertise extends across all UK export controls and sanctions issues, over the past 12 months or so he's been spending a lot of time advising on the implications of Brexit.

Thirdly, Olivier Dorgans is our Partner in Ashurst Paris team. Olivier focuses on compliance, global investigations and more generally on financial and regulatory crime. His sanctions and export controls experience encompasses advisory work and internal investigations, often arising out of the extra territorial application sanctions.

Nancy, let's start with you and the theme of our webinar is what do the past six months in terms of sanctions law and policy tell us about the future. Are you able to kick us off by talking a bit about the transition from the Trump era to the Biden team's approach to international sanctions?

NF: Sure, and thanks Tom. I think it's certainly been, you know, during the Trump administration, a heavy focus on China so we'd thought we'd start with that as a topic in terms of what's happened under Trump and what's now happening under Biden. We certainly saw a focus on companies in China that had a military related connection, there were a number of tools that were used by the Trump administration, in the first instance in many cases, use of the entity lists, for example, is more of a sanctions type towards as opposed to just the STM list and so there were a number of developments focused on concerns about supply chain and telecom during the Trump administration which we've seen continue into the Biden administration.

So far we've seen a focus around regulations on investments and securities of Chinese companies, in particular those that have a military related connection. There have been a number of lists that have been published. Under the Trump administration we had what we called the Chinese Communist Military Company list. Now it's rebranded as the Chinese Military Industrial Complex Company's list and so not to give people too much or many acronyms but it is Washington right, so that's to be expected. So I think that that has been at least a continued focus of those designated companies. And then the real issue is the investments by US companies and securities of those companies, and so I think that is a focus area that continues in their ruling of permutations on that front so a number of companies were also added to the list as part of that new roll-out or rebranded list by the Biden administration.

That list is now being handled by Treasury as opposed to DOD so I think that's another development. There have been, with the Biden administration, I think a more focus on process and so I think that has certainly affected how they've gone about doing things. You're seeing much more of a typical regulatory process approach as opposed to a Twitter approach to policy making and so that does give companies a little bit more comfort in terms of trying to figure out how to navigate this environment. So there has been some indication that some of this was coming.

There have been other lists that are being published in connection with Chinese companies with military affiliations called the Military Civil Fusion Contributors list. And these are coming out of some of the requirements from Congress under the NDAA, the National Defence Authorisation Act, and lots of things are brewing at Congress and it is important to continue to monitor a number of legislative efforts dealing with China. And so I do think that that's something that we're going to continue to see, that at least so far this Military Civil Fusion Contributors list doesn't have any specific action or targeted issues associated with in terms of restrictions, however it is something to watch in terms of how it's going to be used by the administration. It does give a little bit of a red flag for companies that are on those lists, so I think those companies are looking at doing business with parties on the list. It is something to conduct a more sense of due diligence and understand what the impact might be.

And then of course human rights issues were something that the Trump administration was very much focused on and the companies that were put on the entity list and activities really with the Chinese government there, that's continuing under the Biden administration again. A bit more process orientated, we'll see whether there's any changes in terms of companies that were placed on the entity list and seeking removal or modification of those designations under the Biden administration, but I think that still remains to be seen. We've seen some recently come off the list, not necessarily from China but other countries.

Next slide … no, we'll keep that there, sorry. But I do think that that's something just to continue to watch. The other areas I mentioned at the outset was Telecom. The supply chain types of issues are front and centre. We're seeing that across a number of different aspects of the US government, whether it be the Congress department, the FCC or the Treasury department. So I do think that is an area to continue to watch. We saw some recent orders come out of the FCC that could result in equipment being, not authorised for use in the US, and whether that means that certain equipment has to be taken out of existing infrastructure could in fact be what happens as a result of some of those proposed rules that are being contemplated by the FCC. So that's something to watch there in relation of the companies that are impacted.

The Congress department has also put into place what they call ICTS Rule Information Communications Technology and Supply Chain. This is a CFIUS like type of tool that the Congress department can use with regard to transactions involving more adversaries which could include Russia, China, Cuba, Iran and other places of concern but the main focus is really on China and Russia. And then that again involves equipment, transactions of all the technology and software with companies from those countries and those could require a potential ban in connection with those transactions and could require a review similar to CFIUS, again we're still kind of waiting to see what the final rule is going to look like, if it changes at all from the error and final rule. There's also supposed to be process associated with preclearing transactions, but that is still to be issued.

The other thing we saw during the Trump administration was a real focus on TikTok in connection with the CFIUS related issues there. The Biden administration ultimately revoked some of the prior executive orders that the Trump administration issued and ultimately decided not to proceed with actions against TikTok. However, there have been, again, a number of these other tools that have been put in place to deal with concerns surrounding supply chain of all the technology types of transactions. So, I think the goal is again to have more process oriented approach in connection with how things will be handled there.

And then the other thing I think is really worth noting is China's pushing back. Their anti-sanctions law that came out on 10 June is quite expansive. It's similar in some respects to the EU Blocking Regulations, but I'd say more expansive than that. They have the ability to penalise US and foreign companies in connection with what we call formulating a decision making or implementation of sanctions imposed by foreign counties. So if a company is involved with implementation or facilitation of those foreign sanctions rules there could be potential retribution on the China side. I think it's still remains to be seen how that's going to be interpreted and whether specific restrictive measures by foreign countries are put on that list, like the way the EU does, but right now that hasn't happened yet. There's also the potential that it could be applied mainly in connection with foreign government officials in terms of their development of those laws and so I do think it remains to be seen what implementation really means. Does that mean actual compliance by US persons or others of foreign sanctions laws in relation to China or does it mean something more. And so I do think that's something to really watch out for, we're getting a lot of questions from our clients that do business in China in terms of how to handle that risk area. But I think that it's something that Olivier might have some thoughts in relation to how the EU Blocking rule might apply and give us some sense of what that might pretend for how China might implement this.

TC: Yes, Olivier in Paris, do you want to pick that point up from Nancy?

OD: Yes, sorry. Yes, it's interesting that China is trying to push back in a way the EU tried to push back in the 1990s when it adopted its Blocking Regulation. I think two things you mentioned ring a bell. The first is that the EU Blocking Regulation is very limited in scope, when it was adopted in 1996 it targeted a very unique set of secondary sanctions targeting respectively Cuba, Libya and Iran and in the context of discussion for the World Trade Organisation Dispute Resolution Body, it was rendered useless and when the Trump administration decided to back out of the JCPOA it was revived and again in 2018 in the summer only specific secondary sanctions rules were targeted. So, it's quite different from what China is currently looking at in terms of the Blocking Regulation.

Another point of interest is the fact that it's been very impractical to use in the EU and companies, and I'll get back to that in the EU sections of our webinar, that companies have been quite puzzled by how to abide by the Blocking Regulation while being active on the US market. So I think that's a very good example of what company have been put between a rock and a hard place and I think it would be interesting for Chinese governmental agencies to look at the effect of the Blocking Regulation which up until now has been quite impractical.

RD: Okay, it is just worthwhile noting that the Chinese measure as Nancy and Olivier have said. It doesn't really seem to be restricted to any particular named measures or any particular country so at the moment, maybe we're going to get some clarity on this, but at the moment it does relate to literally any measure that could be deemed to be a problem for China and does give, at least, persons in China and arguably other persons as well, the right to take measures in China to stop and to get damages in relation to those measures so it could be a very, very wide range of piece of legislation if it's not limited to particular breaches of foreign legislation as the Blocking Regulation does.

TC: Thanks very much, Ross. Nancy should we go to Russia next?

NF: Sure, so the activities on the Russia front continue to create challenges for the Biden administration. Interestingly during the Trump administration there was a lot of concern about whether there was enough action on the administration's part in dealing with cyber security types of issues and the like in connection with Russia's activities and including things related to chemical weapon types of issues including the Sergei Skripal type of situation and whether Trump administration was quick enough to do something in response to that.

The Biden administration has wasted no time in terms of trying to send signals on that front and of course with the meetings in the last week or two in Europe in connection with President Biden and Putin, I think those certainly give an indication that this is an important issue for the administration.

We've seen increased sanctions as a results of Russia's use of chemical weapons in connection with Alexei Navalny . I think that is something that we should continue to watch, additional restrictions in the form of export controls have been put in place including the revocation of several licence exceptions for NS controlled items and now certain items, NC control items, for Russia are under a presumption of denial. So there are actions that the administration is seeking on that front.

There are also activities in connection with space cooperation that may be further limited starting in September again with the presumption of denial with some of those activities that have previously been more case by case review. So I do think that's something to continue to watch, and Russia was added to the, what we called the Prohibited Country list under the ITAR, the 126.1 list. And so that is also a response to Russia's use of chemical weapons, so I do think that that's something we're going to continue to have this administration focus on and in particular their focus on the concerns about SolarWinds hack, the cyber security issues, the ransomware issues, the recent situation with the pipeline in the US and the cyber-attack there. That really got everybody's attention. When you couldn't drive from Georgia to Virginia without being able to get gas, it doesn't happen very often but it has that much of an impact on people's lives but it really did create some serious issues during the time period when they were not able to get access to their data and operate the pipeline. And so I think we're seeing a greater focus around those types of cyber security, ransomware issues.

Companies were, especially during the pandemic were getting these kinds of targeted attacks unfortunately on a frequent basis and lawyers were consulted to try and figure out how to respond and I do think that that's something that requires a broader response from the government because it is something that's hard for companies to deal with on their own, but it is a real practical concern if your data has been taken and you can't get your operations up and running.

So I think that as a result of that, we've seen a number of asset freezes and these restrictions on and pursuant to another executive order issued by the Biden administration to target cyber enabled activities by Russia and so we've seen a number of individuals and entities added to that list, so again a compliance of really important to continue to watch these lists, they're not static and you really have to be aware of what it means for you in relation to your ability to do business with all of these people and entities that are added to the list.

They've also expanded some additional financial restrictions in connection with sovereign debt bonds and denominated funds. But I do think that's, again, something that really requires watching and what the Biden administration is going to do with connection with Russia hovering ransomware attackers and that obviously was the subject of debate during the conversation with President Biden and Putin. So I think we'll see where that goes but I think Russia is continuing to be a challenge for the US administration.

And I think most importantly in connection with Europe Nord Stream 2 has been a very much consistent concern as to how the administration is going to try to walk the line there. There was, as part of the NDA of 2021, called a Protecting Europe's Energy Security Act, was put in place and that really expanded the scope of sanctions [inaudible] to facilitate the lease sale of provision of vessels in the construction of a Nord Stream 2 or TurkStream pipelines, engage in pipeline activities as well as other services necessary to complete the projects which include insurance, underwriting and reinsurance. So, it is an area that the administration continues to focus on.

There have been some waivers however and ones that are important specifically in connection with the German entity Nord Stream 2 AG that actually oversees the project and so there have been situations where the Biden administration has been sensitive to allies' concerns but at the same time still makes a point that this is an ongoing concern of the administration. So, I think we'll see how they use the tools. Some of these things aren’t always front and centre of the press and so I think it's something to continue watching and monitoring as you're doing business in Russia, especially in sectors that could be affected by Nord Stream 2.

TC: Thanks Nancy, and on the question of cyber-attacks and cyber related issues, Ross and I have spent quite a bit of time looking at recently is the implications from a sanctions perspective paying ransoms. But I wonder if, Olivier, you can just comment briefly on what the EU is doing in relation to cyber threats from a sanctions perspective.

OD: Of course. Cyber criminality and type of threats have been its main resource of perlocution for the EU and early as 2017 it adopted a toolkit which culminated last summer, at the end of July 2020 the EU adopted its first cyber criminality sanction package. It's been an interesting shift because up until then the EU had a country-based approach to its sanction programme and for the first time the EU moved from that approach to a policy approach and we've seen another example of that in December of last year when the EU adopted a first human right sanctions package as well. Interestingly when it comes to cyber criminality, the EU is lagging behind the US because the sanctions which were adopted in the summer of 2020 relates to attacks in cyber criminality acts from the mid-2010s the "WannaCry", the "NotPetya" tax for instance or the "Cloud Hopper" attack and as a result it's lagging behind the US which is at the forefront of using sanctions in this type of criminality context, but I'm hopeful that with that new tool that has been in place for almost a year now, it will be easier for the EU to adopt more targeted measures after the cyber criminality act of any sorts.

RD: Not to sort of extend this discussion too long but I mean it is a really interesting dynamic between the US position which I've worked with Nancy on a case which, it does seem to be that if you actually pay money to the ransom, to the person demanding ransom without really understanding who they are and what the money is going to be used for, that could get you into trouble under the US system. Where you compare that to the EU and the UK system where you would have the defence of no reasonable cause to suspect, well of course, you're paying somebody that by definition does not want to be revealed and therefore if you've done your homework and you got all your ducks in a row, you probably have no reasonable cause to suspect that you're paying somebody that's a bad actor or a criminal. Whereas in the US I think it's a slightly different process, maybe it comes to the same result in the end but it does seem to be as if there is a difference that it does have practical implications for, in a real life ransomware cases. Nancy, I don’t know if you want to have a two second view on that?

NF: No. I think that's right. I think the due diligence obligations exist, especially on the US side, to confirm whether the party does have at least a known connection to sanction parties. And often times these actors are familiar to those that are in the space and I think that is something that does require at least a level of due diligence in that sense and there are also cooperation with the US authorities on that front as well.

So I do think that there are steps that companies can take to try to protect themselves from a potential allegation that they violated US sanctions in relation to paying ransomware. The other challenge is the issue with regard to cyber security insurance and what that looks like in relation to the US side. And so I think that there is almost a … okay, you can do it and you're going to get paid from your insurance company if it's covered, so there are some mixed signals I think that are being sent in terms of what the US government … how strongly they feel about it. And it could be that the recent incident starts to change things. So it'll be interesting to continue to watch.

TC: Okay. Thank you Nancy, thank you Ross and Olivier. Shall we close out the US section by just talking about two longstanding targets of US sanctions, Iran and Cuba.

NF: Sure and I'll cover those quickly. I think Iran, as everyone has probably seen in the press, there is a desire by the Biden administration to re-enter the JCPOA which the Trump administration pulled out of in 2018. There have been ongoing discussions, a shuttle diplomacy of sorts, in connection with the US and Iran through intermediaries. So I do think that that is something which is hopefully going to give us some sense of where things are going.

The last round of talks was in last week or so. So I think watching out for what's … with the new president of Iran, that could play into what the next steps are from the Biden administration side and also what tweaks the US government would require to re-enter. We've seen Iran continue to enrich uranium and do things that the US government would view a violation of the JCPOA. So I do think that that still has to be resolved and so, again, something to continue to watch.

On Cuba, that's, again, change of administration. The Castro brothers have now passed the baton, so to speak, to the new president, Miguel Díaz-Canel. And I think it'll be interesting to see whether he continues the policies of the former administration and what that tells us about US Cuba policy. So while the restrictions have not changed in connection with what was put in place under the Biden administration, a number of parties are on various lists that you have to be careful of, especially those that deal with travel to Cuba. I do think that that's something that could change in the future, depending on how the new administration on the Biden side and on the Cuba side, what signals they send to each other. And then the last thing I would say is that the Helms-Burton piece, in allowing a foreign US nationals to sue foreign persons in connection with expropriating property in Cuba, still is in place. And so there have been a number of lawsuits that were filed but it remains to be seen whether the Biden administration will resuspend the operation of that act in connection with potential lawsuits by individuals.

TC: Excellent. Thank you very much for that survey Nancy. Ross, let's swoop across the Atlantic now and talk about the UK. The Brexit transition period obviously ended on 31 December of last year and EU sanctions cease to be applicable in the UK. What has happened since then?

RD: Okay. Well thanks Tom. So it's a real pleasure to be talking here today. Obviously the way in which the UK has removed itself from the EU and the sanctions regime is something that we could spend probably a whole session on itself. But it's probably worthwhile just going through some of the key takeaways here. The first thing to say was, I've had discussions with diplomats and foreign officials around the world over the many, many years that I've been looking at this stuff and it is clear that the rest of the world saw the UK as they key player in the EU sanctions regime. Not only did it provide a lot of the intelligence infrastructure and a lot of the legislative backbone that was there to say this is how the EU should do things. It was also there making strong comments about particular regimes and whether or not the EU should take an active role in respect of those regimes. So for example, in respect of Russia, the UK, while it was a member of the EU, was very much at the forefront of making the EU take sanctions seriously, to enforce them, to make sure they were renewed on a regular basis. And removing the UK from that picture … and I'll leave Olivier to tell it from his side, but removing the UK from that picture has changed the balance somewhat. So I do expect there to be subtle, maybe major differences between the UK and the EU over things, for example, such as Russia.

The second thing that we did, which has made a big practice change in the UK is, that up until 2018, and this was done in anticipation of us leaving the European Union, the UK actually had no legislation that allowed the UK to take autonomous sanctions. So we actually didn't have a mechanism by which we could do our own sanctions regime going forward. We could of course take on the ones that came from the European Union but we wouldn't have any ability to [a new] one so we passed this new thing called the Sanction and Anti-Money Laundering Act, referred to as SAMLA, which is actually a really, really important piece of legislation for practitioners in the area. And it's a really detailed piece of legislation. Probably the most important things to say are that the way in which the UK now can do sanctions going forward looks a little bit different from what we had under the EU.

In particular, and as an example, we now have a very, not unusual but a different system of how persons that are now subject to sanctions can have those sanctions reviewed. A very set process there. And also one of the thing that we actually pushed for, as a group of practitioners, was to expand the situations in which the UK government could actually provide licences to deal with activity that would otherwise be subject to sanctions. Because the EU system is actually quite limited in what you can do in respect of getting permissions to deal with sanctioned entities, particularly in the course of commercial activity. And that comes down from the United Nations sort of structure. But the UK is now giving itself more flexibility to deal with sanctions issues that pop up in the course of commercial dealings. So that's a big change that's in there.

We've obviously still finding our way through SAMLA and there will clearly be some litigation around certain aspects that we'll need to follow. But generally speaking we now have the power to impose our own autonomous sanctions and we have actually been relatively busy in doing that in the six months that we've left the European Union.

So the other thing that happened, starting after SAMLA, but quite quickly, was that the UK actually put together a parallel sanctions regime. So under the old system we just literally had statutory instruments that implemented the EU measures and then added in some things about some of the detail, a little bit of the detail and a lot of the enforcement stuff. What we actually did after SAMLA was to develop these very, very detailed and lengthy sanctions regimes that mirrored, almost exactly, what the European Union was doing. And this was done largely to allow for the possibility that the UK would effectively crash out of the European Union. And if we crashed out of the European Union on a no deal Brexit, we would then have in place domestic legislation that could pick up what was not carried over from the European Union. Of course that didn't happen but we now can just bring in these pieces of legislation. So for each of the EU sanctions regimes, we actually now have a very detailed and fulsome UK equivalent.

There have been some substantive differences. So I won't go into a great amount of detail. But the UK has always favoured a much broader test of what is owned or who owns or controls a designated person. So obviously that's an issue under US law, it's an issue under most sanctions law, but the UK effectively says that you can go down as low as, in some cases, 25 per cent negative control from a corporate law perspective, as to who controls particular entities. So that's a subtle difference between the UK system and the EU system. Whether or not it has any practical implications going forward we don’t really know yet, it's a bit soon but we are now working on a much broader test of what is owned or controlled.

So since January when we left, I think it is right to say that the UK has diverged from the EU regime, as we thought it probably would. If you look at it in terms of where the UK has diverged from the European Union system globally, I think sanctions is probably the example where it's diverged the quickest because it's a very rich and fast moving area that we have sanctions, and the UK has taken measures that, I won't say necessarily surprised us, but they are showing that we are moving away from the EU regime quite quickly. I'll come back to that in the moment.

The other thing to say is that it's again been a little bit of a surprise to practitioners as to … we thought that the UK would drift away from the European Union and towards the US and that would be something that would be encouraged by all parties and the UK would do that quite proactively. It has been the case that, if you look across the international activity on sanctions, it's not the case that the UK has always done what the US has done. Obviously that would be a strange conclusion anyway, but even in situations where you look at Belarus and where you look at Myanmar, there's not really any obvious synching up there.

Now we have seen, actually late last week, combined activity between the EU, the US, Canada and the UK in respect of Belarus. So that's something that did happen last week where we can see that obviously there's been a lot of foreign policy coordination between all of the actors and the UK has joined in on that. However, when you actually look at other things that have happened, for example, on cyber and a couple of other things, where the European Union and the US have positively gone out and said that they are cooperating together, the UK hasn't been involved in that. So it's a very, I won't say confused picture, but it's not a simple … the UK has moved towards the US and away from the European Union, it's a much more complicated picture.

One of the things that it has done, quite an interesting process, and it mirrors a little bit what Olivier was talking about, which was moving away from country regimes to sector based regimes. The UK has brought out two new structures that have been classified as part of the UK sanctions regimes.

And let's dwell on one of them which is the global corruption structure. What we effectively have here is that the UK has kept or continued to use the sanctions template that we all know about. And the way in which the sanctions work, which comes down from the UN template where you would have restrictions on travel, restrictions on the use of funds, the provision of economic resources etc. And rather than say that these are dealing with general issues that the UK or the EU or the US has with foreign regimes, they've actually narrowed it down to say those things can now be imposed for breaches of human rights or in the case of global corruption, serious global corruption.

And it is interesting to see that it may be that, I'm not sure that we could necessarily think today of another regime that they might come out with but it does seem to be as if the UK is plugging and playing. It's taking the tools from the toolbox of general sanctions and saying, right, now we're going to apply that to global corruption.

And it is interesting, if you look at the global corruption issue, it does seem to be as if the UK has said, well we had our Bribery Act which has a very specific and systematic system that applies to persons subject to UK law and the connections that they have with third countries. So you have that jurisdictional basis. But of course if you don’t have companies involved and if you don’t have nexus to the UK, many of these corrupt activities outside our borders will be on the scope of the Bribery Act.

Now it seems to be as if the UK has said, well actually what we can do is apply sanctions techniques to those types of … all those serious global corrupt activities that we couldn't necessarily get to under the Bribery Act. So we have seen already, there are a number of large scale global corruption activities that have been the subject of these rules. And Olivier will probably tell you this is also potentially something that the European Union is going to pick up as well.

And we've got that in respect of human rights as well. It's potentially the case, not only that we've done things that we couldn't do under our domestic legislation, but also that we've had specific regimes, now human rights and global corruption, so that those systems themselves actually are not really that amenable to judicial review. Because now we've got specific legislation that says we can act in this respect and people couldn’t come and say, please point to a piece of legislation that tells me that you can act against global corruption under your sanction regime or your sanctions techniques.

And now we’ve got that, we can now actually potentially defend cases where people come to say you can't do this. But now we've got these human rights and global corruption systems in place. So I think I'm going to leave it there and turn it over to Olivier to give us a run through on the European highlights.

OD: Thank you very much Ross. I'll try to be as quick as possible as well. So I've got some questions and we’ve seen some questions already in the Q&A. I think the EU is a turning point when it comes to sanctions. The EU has been understanding how sanctions work and how they can be used as an effective tool with diplomacy for quite some time now. I think there has been a wave of sanctions enforcement from the US against European based companies in 2000 to 2010 and I think that has helped the EU to understand how sanctions can be used effectively. And, as I said to you a few minutes ago, we see a move from sanctions which were country based regimes to policy based regimes, and I think as Ross just said, that's extremely useful especially in terms of digital review. What the newly instated von der Leyen Commission did, a year into power, is publish a very interesting but poorly communicated communication from the Commission that was addressed to the European Parliament, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions. And that communication, entitled the European economic and financial system fostering openness, strength and resilience, laid out a very interesting picture of what's to be expected from the use of sanctions by the EU. The idea is to reinforce and the communication explained how that's going to be done at EU level, is to reinforce the use of sanctions in two ways.

The first is to look into implementation and enforcements of sanctioned regimes across the member states, as you probably all know, as sanctions are adopted at EU level, but they are enforced locally, and that has given rise to a lot of issues. Because the penalties for sanction violations are not the same from one member state to another. There are differences in appreciation between what is covered and what is not covered by the various sanction regulations. And there are also differences in the licencing policies from the various member states. So the EU has understood now that it needs to come together, not only in terms of adopting tech but also in terms of their implementation and, more importantly, their enforcement. In Malaysia, I think that communication had several ideas on how to do so. And the other thing that the EU is trying to vocally react to is the extraterritorial reach of foreign legislation. And it says foreign legislation but what it has in mind, primarily, is US sanctions and amongst US sanctions, primarily US secondary sanctions.

As I mentioned to you, in the 1990s, the EU adopted the Blocking Regulation, which it didn't really have to use because of the proceedings that were launched before the World Trade Organisation Dispute Resolution Body committed to the adoption of the Blocking Regulation. The Blocking Statute was revised in 2018 but besides that piece of legislation, there's a growing discontent at EU level about the extraterritorial reach of certain US sanctions.

So that communication also lays out some ideas on how to answer to the extraterritorial application of what it calls unlawful regulations. It lays out several objectives. The first, and that goes to also trying to better understand how enforcement action has been launched against financial institutions within the European Union.

The Commission is to engage with all key financial market infrastructure companies to conduct an analysis of their vulnerability. And I think that's a very wise answer to the fact that the enforcement action that has been led primarily by US authorities against several European banks or European insurance companies have caught the European Union by surprise.

So what the Commission is trying to do is it's trying to understand what is the vulnerability of our financial institutions with respect to the extraterritorial reach of sanctions and what can we do to help them better that to that extraterritorial reach.

The second thing. The EU will set out, by year end, a sanctions information exchange repository which will basically be a place, a forum where a member state in the Commission can exchange about their implementations of sanctions and the enforcement of sanctions.

Another thing the Commission wants to do is to establish a single point of contact for enforcement and implementation issues which have a cross border dimension. And there's a lot of enforcement that involves several EU companies. And the idea is that instead of having several authorities amongst member states that don’t know necessarily how to cooperate and how to discuss this, to try to create a single point of contact for enforcement which will also allow for a more coordinated and more structured enforcement of sanction violations when there are cross border investigations.

Another interesting element in terms of strengthening the enforcement of the EU sanctions is through the creation of an anonymous reporting system for sanction divisions. So the EU has realised that there's little or very limited enforcement in terms of violations of EU sanctions. So what it wants to do is it also wants to create a reporting line where companies or individuals that are witnessing sanction violations can anonymously report these sanction violations or sanction divisions to their reporting line.

And lastly, and which will be a nice transition into the alternative roles opinion that I'll touch upon briefly in a minute. Lastly the EU, and it hasn't laid out a very specific example yet, but the EU wants to give some thoughts on how to strengthen potentially its EU Blocking Regulation and what tools are at its disposal to counter effect the extraterritorial reach of foreign sanction regimes.

And interestingly the EU is publishing these at a time, which is a nice way for me to transition to the next slide, at a time where the Attorney General has issued a very interesting opinion, a few weeks ago, in mid-May, in the Bank Melli Iran v Telekom Deutschland case. In that case, in 2020, a German federal court sought out a preliminary ruling from the European Courts of Justice on the scope of the EU Blocking Regulations.

As you know, the EU Blocking Regulation, which was adopted in 1996, which was updated in 2018 to reflect the US withdrawal from the JCPOA, prohibits European companies, to say it very simply, from bailing out of an established contractual relationship or taking any actions simply on the sole basis of their willingness to comply with the extraterritorial reach of its US secondary sanctions which are listed within Annex 1.

And the question at hand here was whether Deutsche Telekom could terminate an ongoing contract it had with Bank Melli simply based on its reliance with US sanctions. And interestingly the Attorney General Hogan concluded that Deutsche Telekom must provide reasons underlying the termination of the contract it had with Bank Melli. And to the extent it does not, or that these reasons, which were the reasons which were put forward by Deutsche Telekom solely refer to compliance with US secondary sanctions, which are listed in Annex 1, the termination of Deutsche Telekom is to be considered as ineffective and the contract is to remain in force. And that is possibly the worst practical fears for a European company.

A lot of companies which re-entered the Uranian market in 2016, 2017, 2018 bailed out of these established contractual relationships because they had activities or they had exposure to the US and they didn't want to be put in a position where they would not be complying with the US secondary sanctions.

So most of these companies and a significant amount of trade with Iran that was ongoing at the time, basically shutdown overnight or over a short period of time. And what was put forward by companies was compliance with US secondary sanctions. And that was completely against the spirit and perhaps the letter or the text of the EU Blocking Regulation, and that's why there were these proceedings before German courts which led to that preliminary hearing before the European Court of Justice. And to the extent the European Court of Justice follow the Advocate General Hogan's opinion, that's going to be possibly one of the most major sanctions development in recent years because a company that has been complying with the US [inaudible] secondary sanctions and have bailed out of established contractual relationship with Iranian counterparties, will risk facing significant litigation from their terminated Iranian counterparts. So this will have significant consequences.

In terms of timing, we're looking at most probably a decision from the court at some point after the summer break. So realistically, in the early fall, we'll be paying close attention to that of course and we'll make sure to reach out to you as soon as the ruling from the court is known.

That was it from my end, just perhaps, by way of conclusion, in terms of where the EU stands, the EU is at a very interesting place right now. It's not necessarily the area of focus of companies when it comes to sanctions, I think the US and the UK recently have dominated the landscape. But a company should be on the lookout for development because, as I also explained, we are moving into a policy based approach when it comes to sanctions.

There will be more and more designation. We've seen human right designations based on the human rights sanctions regulation tactics which was adopted in December. We are likely to see more designation on the cyber package as well. And interestingly there's also talks at EU level now to adopt a corruption sanction regulations similar to what to what Ross was presenting a few minutes ago.

So we're clearly seeing that shift and we're seeing more flexibility from EU institutions to impose sanctions and [inaudible] but that should be on the radar, that are subject to EU sanctions because there will be a lot of evolution in the coming months and the coming years and hopefully the EU will catch up to speed with the US and the UK's position.

TC: Excellent, thank you very much Olivier. Very concise and interesting. We've received a few questions and I'm keen to put some of these to the panellists in the minutes that we have remaining. First one I wanted to put to Nancy which is a question that I have also looked at, so resonated with me. And it is this, although the Chinese Securities Executive Order is focused on prohibiting US persons dealing in publicly traded securities of Chinese entities, is there something companies, engaging in normal commodity trading businesses with a list of entities, should be wary of? What do you think, Nancy?

NF: So I think any time a company's on the list for something that's close to activities that, might not necessarily be strictly covered, it is something to closely watch. We've seen initial designations in certain areas or scopes of certain rules expand to cover things that maybe the government didn't quite appreciate would be impactful. And so it is important to continue to monitor that.

But like we've seen, for example, with the entity listing in relation to the China related designations, we had an initial approach with regard to the entity list that covered things subject to the EAR. And then we saw arguments that while these were falling through the cracks, these were loopholes, and then the Huawei restrictions were tightened in connection with certain activities and the so-called footnote 1 that was added in relation to that to cover activities that were taking place outside the US to further develop the products.

And so I think that the government will continue to monitor these types of things even if they're not strictly covered, if it's really getting at something that they think is meaningful and has an impact on this. And I think that, at the end of the day, one of the big reasons for this restriction is, they don’t want US companies funding these types of activities by companies that they feel are acting in a way that's counter to US policy.

And so I think that's really at the heart of what it's about. And so, to the extent that those types of activities and commodity trading potentially continue that concern, or their use is a circumvention in some respects around the rules, I think it could get a closer look.

TC: Thank you. And the other point I would add to that, which is based on my experience, is also if you're one of those commodity trading companies, have a look at your contracts. You may have loan agreements that restrict dealings with people who are on sanctions lists. And even though the sanctions Nancy has described are quite limited in extent, they may still trigger breaches of covenants and undertakings in loan agreements or other commercial contracts.

So you have to think of it both in terms of position at law but also in terms of your contractual exposure. Ross, let me put a quick question to you. Olivier talked a bit about enforcement in the European Union and the history of that or the history of non-enforcement in the EU. What has the position been in the UK and do you think there will be any changes going forward?

RD: Thanks Tom. It's almost like every time we talk about enforcement in the UK we say, well next year it's going to be tougher, next year it's going to be tougher. We never quite get there. There was a fear at the time OFSI came out that it was going to be something like OFAC and I think those fears have definitely not been fulfilled. OFSI has not been a very interventionist agency and it's not been involved in a lot of big enforcement cases.

That said, the enforcement, there is a steady uptake, maybe from a low base, but an uptake in enforcement activity. So we did have the Standard Chartered case last year which, I think there was a fine of around £20 million. Obviously nowhere near the eye-popping fines that you see in the US system.

And I do think that one of things that we see as practitioners in the UK that's a little bit different from, at least the European Union system, is that, in our sanctions regime we had this, I remember, with the European Union, that companies that are regulated under FISMA are required, if they see breaches in the normal course of their activity, had actual potential breaches in the normal course of their activity, to report this to OFSI.

And that does produce a steady stream of enquiries from OFSI to businesses saying what is it that you've done here, we got a notification from a financial service provider that you've associated with, that something is not quite right. Please tell us what's going on. So there is a steady stream of work going on from that perspective as well.

Clearly people in the UK are considering, under the new regime that came out a couple of years ago on enforcement, whether or not voluntary disclosures are as helpful to the business as they used to be. Because you don’t get full credit. Under the old system or at least under the system before we had the new system, you used to potentially get full credit for voluntary disclosure. Now that can still happen but there are now expectations that it will not be full relief from any penalty. So people are now thinking a little bit about that. So to answer your question. I think the UK is looking at enforcement seriously, you are seeing cases coming through the system and we are still doing a lot more than other older EU member states. I think that's probably a point to make. But we're nowhere near as close as the US and frankly I don’t think the UK government is really ever going to go beyond saying, what we'd like you to do is to comply. And if there's something that's egregious and we see that something has gone on, we will punish that or at least look at punishing that. But it's not a way of driving compliance. The UK is not going to punish people as a way of driving compliance. They would much rather that you would comply and encourage you to do that.

TC: Thank you Ross. I'm going to try and squeeze in one last question which is for Nancy and it relates to Iran. I'm going to put a slightly different spin on the question. The question relates to the fact that Iran's president elect is on the US sanctions list because of accusations of human rights violations. And then talks about the implications of that.

But I'm interested, Nancy, as to what practical changes we may see in relation to sanctions relief for Iran if a deal is done by the Biden administration. Will we go back to a JCPOA type arrangement or do you think there will be a different landscape going forward?

NF: So I think that's the million dollar question right. But I do think that there will be a close look at where Iran is currently in connection with its activities in terms of enriching uranium and what the Biden administration feels it needs to put in place to claw that back, which may result in certain balancing of interests and you may not get to the same place we were before because the US may feel that Iran went well beyond where they had agreed to in the JCPOA side and they need to get back to a new playing field so to speak.

But I think it's also interesting the question about the new Iranian president. And we've certainly seen parties stay on the list, including significant figures in Iran, despite any changes that might affect the Iranian people. So I do think that, I wouldn't expect him to be taken off the list. And I don’t know that his activities would necessarily be a barrier to the US trying to come up with a solution because the real purpose was to benefit the Iranian people. And so, taking that interest into account, I don’t think that the US would necessarily want to continue to punish the Iranian people with regard to the new president. So I think that they'll use the different tools in the toolbox to try to address the concerns that they continue to have while looking to find ways to, again, achieve that more broader policy objective.

TC: That makes sense. Thank you. And I think Iran, as has been the case for many years before this, remains a "watch this space", from a US sanctions perspective. Alright, well we have come to the end of our allotted time. Thank you so much for joining us. Let me also thank our speakers, Nancy Fischer, Ross Denton and Olivier Dorgans. We wish you all the best and if you have any further questions coming out of today's presentation, please do get in touch. Thank you.

RD: Thank you everybody.