Regulatory Outlook

Regulatory Outlook | Sanctions and dual-use export control | July 2021

Published on 20th Jul 2021

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Current issues

New recast EU Dual-Use Regulation to come into force

The European Commission has been proposing for some time to amend and recast the legislation underpinning the current European dual-use export control regime, the EU Dual-Use Regulation. The proposed changes aim to harmonise, simplify, and introduce a new “human security” dimension to the existing European dual-use export control regime.

The European Parliament and the European Council finally adopted the recast regulation in May 2021. Once the recast regulation is published in the EU Official Journal it will enter into force 90 days later.

The adoption of the recast regulation is the first significant example of divergence between UK and EU dual-use export controls. The UK government is not committed to remaining aligned with those new rules and so it might be tempting for UK exporters to do nothing for now. But given the wider scope of the new restrictions, businesses operating within the EU would be well advised to assess whether the new rules cover their EU operations. For example, the new rules extend the controls on brokering services to brokers that are not resident or established in an EU Member State.

Assessments will be particularly important for UK exporters dealing in "cyber-surveillance items" – that is, dual-use items specially designed to enable the covert surveillance of natural persons by monitoring, extracting, collecting or analysing data from information and telecommunication systems. This type of technology forms a central pillar of the new rules and is subject to extensive "catch-all" restrictions.

ECJU makes substantial amendments to IT security OGELs

The Export Control Joint Unit (ECJU) has made substantial amendments to two key information security open general export licences (OGELs). The purpose of these revised OGELs is to allow the export of "low risk" information security items deploying encryption to a wide range of destinations.

ECJU publishes new guidance on dual-use controlled technology

The ECJU has published updated guidance on the definition and scope of the regulations around transferring military or dual-use controlled technology. Importantly for businesses, the guidance includes a series of case study examples of how it would expect different exporting scenarios to be treated. Those examples cover a manufacturer of night vision sights for small arms, right through to a cloud service provider.

New sanctions case law development on the EU's Blocking Regulation and Iran

The EU Blocking Regulation and the equivalent UK legislation prohibit EU/UK nationals without authorisation from "complying" directly or by "deliberate omission", with certain US sanctions that target Iran (or Cuba). Unfortunately, this can leave UK/EU entities with interests in Iran between a rock and a hard place: the demands of the US sanctions system on the one hand, and those of the EU/UK on the other.

On 12 May 2021, the Advocate General delivered his opinion in the Court of Justice of the European Union (CJEU)'s Bank Melli case, which provides that where the Blocking Regulation has been infringed, it confers on the "wronged" Iranian counterparty a right of action to, for example, compel performance of the contract and that EU persons must objectively justify termination of a contract with an Iranian entity (that is, show that it was not driven by US sanctions).

Businesses will be looking to see whether the opinion is followed by the CJEU and whether this could herald a harder line in the enforcement of the EU Blocking Regulation by authorities. Decisions about how to deal with conflicting US and EU/UK sanctions demands are likely to become more acute and future Iranian related transactions will be subject to increased scrutiny (as will dealing with existing commercial relationships).

New UK global anti-corruption sanctions

On 26 April 2021, the UK brought in a new Global Anti-Corruption Sanctions regime. The regulations give the government the power to sanction individuals and entities in relation to serious cases of corruption, including bribery. Much like the new Global Human Rights list, the regime is not confined to specific countries and currently targets 22 individuals from a number of states (including the UAE, Guatemala and Russia). These new cross-border regimes, and in particular the designation, for example, of UAE residents, demonstrate the need for businesses to have adequate procedures in place to ensure sanctions compliance.

Dates for the diary

Second-half 2021: Recast EU Dual-Use Regulation expected to come into force.

Second-half 2021: UK government expected to publish the 24th edition of its Annual Report on Strategic Export Controls. The report provides a snapshot of strategic export controls policy and export licensing decisions for the 2020 calendar year (read the 2019 version here).

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