Fragmented and incoherent: the UK’s sanctions policy Contents

2Cross-Government co-ordination

A fragmented system

24.The fragmented and dispersed nature of sanctions policy across Whitehall may be another factor contributing to the absence of a clear Government strategy. In a written submission, for example, the United Nations Association in the UK warned that “Without a cross-departmental strategy, supported by a joint unit or similar, sanctions policy risks becoming piecemeal and reactive.”29

25.Although the Foreign and Commonwealth Office is responsible for sanctions policy making, implementation and enforcement fall to a number of different Government departments, including the Home Office, the Department for International Trade, the Department for Business, Energy and Industrial Strategy, and the Department for Transport.30 Since 2017, financial sanctions have been implemented and enforced by the Office of Financial Sanctions Implementation (OFSI), which is based in HM Treasury.31 Qudsi Rasheed, the FCO’s Sanctions Envoy, explained further in oral evidence:

There is a cross-Government board of senior officials that sits on a periodic basis to look at questions such as the sanctions Bill as it went through Parliament, the drafting of legislation, and difficult or controversial issues. Pretty much every Department that works on sanctions is represented on that board, including the NCA and others.32

Cross-Whitehall confusion

26.The cross-Whitehall nature of sanctions policy implementation can lead to confusion and can make the area difficult to manage for NGOs and private sector bodies who must navigate sanctions regimes in order to avoid breaking the law. In the case of humanitarian licensing to allow NGOs to move money across borders where local banks may be sanctioned, for example, Dr Justine Walker of UK Finance told us:

These are all cross-cutting issues. They don’t sit with any one Department. You can go and have a very good conversation with DFID, and they will be very sympathetic, and then you say to them, “Well, why are you not providing an up-front licence to the programmes you are funding? Why are you not using the tools that are available to you?” They say, “Well, do we have to?” Then you will speak to OFSI, the sanctions enforcement body, and you will ask them to issue guidance on this, and they will be very reluctant to issue detailed guidance, because they are worried that people will then look to evade it.

You will then ask the Foreign and Commonwealth Office, and they will say, “Well, our sanctions are designed to change the behaviour of the Government of Syria and to ensure that they are not using chemical weapons on their people and innocent civilians.” So the foreign policy objective is very clearly what is driving their viewpoint, but they are then not focusing on the wider objectives that we also have, of getting money in.33

27.Qudsi Rasheed told us that there is “quite a good system of co-operation” between Government departments on sanctions.34 Asked how he might change the system to improve coherence, he said

It is probably slightly premature to give recommendations at this stage. One of the challenges you always have in this area is that, although there is an instinct towards integration being better because we are more joined up, actually, in the area of sanctions, there is quite a lot of different expertise. You have the policy design and objective, which sits with the Foreign Office; you have the implementation, which probably sits with line Departments in different ways; and then you have enforcement, which sits with other Departments, such as the NCA and HMRC at times. It is that balance between the two.35

Sir Alan Duncan, meanwhile, lauded what he described as “very close cross-Whitehall co-operation” on sanctions and said that he had not come across any “argy-bargy” or “territorial defensiveness” between different Whitehall departments.36

28.As economic tools of foreign policy, sanctions necessarily require the input of experts across several Government departments and close co-operation to ensure effective implementation. While we welcome the Government’s assurances that co-operation between departments is currently working well, we believe there is room for improvement, which should in turn support the development of a more coherent overall strategy on sanctions. In particular we believe it would benefit Government coherence to have a single senior civil servant primarily based in the FCO who is accountable for sanctions policy and implementation. The Government should appoint a Senior Responsible Officer (SRO) for sanctions policy who will be personally accountable to the National Security Council.

Improving the Office of Financial Sanctions Implementation

29.The Treasury Select Committee assessed the performance of OFSI to date in its March 2019 report on Economic Crime - Anti-money laundering supervision and sanctions implementation.37 The Committee concluded that it was “necessary for the Government to review the effectiveness of OFSI”, and called on the Government to conduct such a review in 2019, two years after OFSI became operational.38 The Government did not agree to implement that recommendation.39

30.In a written submission to this inquiry, Tom Keatinge and Emil Dall of RUSI wrote that OFSI “has yet to show its full potential in terms of being a central coordinating body for sanctions guidance, implementation and monitoring”, and that “this needs to change”.40 Mr Keatinge expanded on this assessment in oral evidence and compared OFSI unfavourably to its US counterpart, the Office of Financial Assets Control (OFAC). He told us that

looking at it over time the US has made a strategic application of sanctions as part of the financial hegemony it has enjoyed until relatively recently and continues to some extent to enjoy now. If we are going to be global Britain and so on, the question that needs to be answered is how we are going to use our central position in the global financial sector. How are we going to make people be as concerned about OFSI as they are by OFAC? To me, that is a question we have not answered.41

31.Maya Lester QC agreed that “could do better” was “probably the general feeling” about OFSI’s performance, although she cautioned that it has only been operational for a short time.42 Given the opportunity that the establishment of this new agency might have provided for the Government to engage more effectively with financial institutions, lawyers and others involved in implementing sanctions, she highlighted a “great deal of frustration on the part of the private sector with the lack of real proactive engagement on sanctions enforcement”.43

32.We presented these criticisms to Sir Alan Duncan and asked if he was satisfied with OFSI’s performance. He said:

I don’t really think that I am in a position to judge; I think it is for others. It is a Treasury body, not a Foreign Office one. It is money rather than conduct, if you like… I don’t think I know one way or the other, so the premise, of course, is yes.44

We also asked the Minister and the FCO Sanctions Envoy, Qudsi Rasheed, whether the Government had considered creating a single body with responsibility for both designing and implementing financial sanctions, following the model of OFAC in the United States. Mr Rasheed said that questions about whether a single body would be better or worse are “definitely the right questions to ask”, but that it would be “premature” to come to a judgment before weighing the arguments on both sides.45 Asked for his view, Sir Alan said:

I am sure some clever person will come up with a plan to improve [the current structures] and we will say, “We should have thought of that,” and we will improve it, but at the moment I would say it is in a pretty good condition.46

33.Two years after the Office of Financial Sanctions Implementation (OFSI) became operational, reviews of its performance so far have been mixed at best. We agree with the Treasury Select Committee that the Government should now review the effectiveness of OFSI, and we regret that the Government has not yet taken up that Committee’s recommendation. That review should establish and assess the potential costs and benefits of placing responsibility for financial sanctions design and implementation within a single body, as opposed to the current bifurcated system, and should come to a judgment on whether that should be done. The review should also address as a matter of urgency how OFSI can improve its engagement with the private sector bodies on the front line of sanctions implementation, including through consultation with those bodies. We urge the Government to complete and publish this review before the end of 2019.

29 United Nations Association - UK (FSP0011)

30 Foreign and Commonwealth Office (FSP0015); United Nations Association - UK (FSP0011)

31 Foreign and Commonwealth Office (FSP0015)

37 Treasury Committee, Twenty-Seventh Report of Session 2017–19, Economic Crime - Anti-money laundering supervision and sanctions implementation, HC 2010, paras 205-213

38 Treasury Committee, Twenty-Seventh Report of Session 2017–19, Economic Crime - Anti-money laundering supervision and sanctions implementation, HC 2010, para 213

40 Royal United Services Institute (FSP0012)

41 Q7

Published: 12 June 2019