Protecting Against the Effects of the Extraterritorial Application of Third Country Legislation (Amendment) (EU Exit) Regulations 2019

Lord Stevenson of Balmacara Excerpts

Tuesday 26th March 2019 Lords Chamber

[Lord Purvis of Tweed (LD)]

My Lords, I do not think there will be any difficulty on these Benches about ensuring the continuity we will require in order that there is certainty for British businesses that they can operate on the correct side of international law. The only areas that I hope the Minister will clarify—her introductory remarks were quite helpful—concern, first, the application process that will be required if we are to have a stand-alone position outside European regulations. The applications for authorisations will have to be made to the Secretary of State, as the regulations state. Will the Minister indicate what process such applications will involve?

The second area, which the noble Baroness will not be surprised that I raise, concerns the matter of another judiciary within the United Kingdom. While, as part of Scottish criminal law, this will be a reserved power, nevertheless the criminal penalties that may well apply on the potential breach of some of these things by Scottish businesses would have to be prosecuted by the Scottish courts. One of the examples the Minister raised, that of Iran, is very relevant for the very large Scottish oil and gas industry that trades across the whole region, including within Iran. It is a relevant point, given the not-so-subtle threats from the United States that it will consider breach of its sanctions policy by those British businesses that continue to trade with Iran under a perfectly legal framework. If we are to have a stand-alone approach, absolute certainty, clarity and reassurance would be very helpful. The Government indicated that no consultation was necessary in bringing forward the statutory instrument. I was slightly surprised about that, given that we have two distinct judicial systems in the UK.

The Government also indicated that before the UK leaves the EU, guidance on how a blocking regulation would apply to the UK would be published. Given that when this instrument was drafted the intention was that, potentially, we would leave on Friday without an agreement, can the Minister say whether this guidance has been published? If it has not, when will it be, to offer that reassurance?

Finally, the Explanatory Memorandum states:

“The Blocking Regulation currently provides that the Commission is to regularly report on the effects of the extraterritorial third country legislation. This will become a requirement on the part of the Secretary of State in the retained version”.


Through what mechanism do the Government intend to do that? Will it be through Written Statements to Parliament, or will a public document be laid before Parliament to provide that transparency? I hope that the Minister can clarify all those aspects.

[Lord Stevenson of Balmacara (Lab)]

I, too, am very grateful to the Minister for her very full introduction to this SI. It took us into areas new to me, such as the intersection between foreign policy and trade policy. That is an interesting issue and the noble Lord, Lord Purvis, was right to focus his remarks on how these things will work in practice. I look forward to the Minister’s response.

When the Minister introduced the SI, she pointed out that much of the regulation that has been transposed was originally introduced in 1996 in response to the extraterritorial reach of certain sanctions imposed by the US in relation to Cuba in the 1990s. Obviously, it has been updated since then, particularly with reference to Iran. It set a train of thought in my mind about how exactly our current foreign policy meshes with these regulations. With particular reference to Iran, the commentary I have been reading seems to suggest that the package of measures that is being transferred across would encourage the European Investment Bank and banks in the UK—possibly even the Bank of England—to finance activities in Iran and to strengthen ongoing sectoral co-operation and assistance to Iran. That would include financial assistance through development corporation or partnership instruments, and encouraging the UK to explore the possibility of one-off bank transfers to Iran’s central bank, which would allow Iranian authorities to receive oil-related revenues.

I suppose this is all right—I do not really understand very much of this; it is way above my head—but when the Minister responds perhaps she could explain exactly how that meshes with our current policy towards Iran, which I understand is not as sympathetic or supportive as might be suggested by the rather large cash transfer opportunities which were being discussed.

This statutory instrument follows on from activities that have been going on in Europe for a number of years in relation not just to Cuba but to the other countries that were mentioned. It requires companies to notify the Commission within 30 days whenever renewed US extraterritorial sanctions directly or indirectly affect the economic or financial interests of the company in question. Various other things apply. EU companies can recover damages in EU courts from persons causing damage as a result of the sanctions, and it nullifies the effect of any court judgments or decisions of administrative bodies that are based on the reinstated US sanctions. My question here is: has anything happened in that regard? Do we have details on the number of companies that have notified the Commission within 30 days, as required? How much money has been recovered, and how many times have the courts been subject to recovery requests? I am sure that it will not affect the way in which we respond to the SI, but it would be interesting to have on the record whether this has been an active process or one that is more observed in the absence of activity than in the reality.

My attention was drawn to a quote from what is in some senses a rather unusual source, since I do not often quote this person. The UK Foreign Secretary at the time that this instrument was brought in, Boris Johnson, said that he thought it was rather difficult to protect European businesses due to the extraterritorial effect of US sanctions and the difficulties companies have when they touch the live wire of the American financial network—they find themselves sanctioned almost immediately. So my third request for more information is to ask whether the former Foreign Secretary is right that this has been rather difficult for companies to access and use.

I suppose I am leading to this question: what rationale do the Government give for continuing this transfer? It would clearly be inappropriate to have a situation in which an EU regulation had legal effect in the UK when we had not properly transferred it. If the ends do not justify the means, I am rather surprised that the Government are taking this step forward, so could the Minister reassure me when she comes to respond that this is a necessary instrument, that it fits with our current foreign policy operations and thoughts and that there is no concern in that respect?

[Baroness Fairhead]

I thank noble Lords for their contributions in this short but useful debate. I hope I have been clear about the Government’s commitment to the continuation of these regulations. To address the point made by the noble Lord, Lord Stevenson of Balmacara, about why we are doing this, we believe that if we do not retain and amend this legislation, we will no longer be able to offer protection to UK businesses from the harmful effects we consider to be illegal under international law. We would in effect be acknowledging the superiority of the sanctions regime of a third country relative to our own. Successive Governments since the 1980s have agreed that this is unacceptable and our Government is no exception.

The noble Lord, Lord Stevenson, also highlighted some of the real challenges of these regulations. Yes, they provide protection, but there is also a challenge for companies who find themselves in that spot between being blocked from complying and failing to comply, and therefore being in breach of sanctions. This instrument is not a perfect solution. In application it is probably to be used more as a tool to dissuade companies and individuals from complying with extraterritorial sanctions. In terms of usage, only about 14 applications have been received by the Commission. I hope that answers the hard point of the questions.

The noble Lord, Lord Purvis of Tweed, asked some questions about the application process for the exemptions. At the moment businesses apply to the European Commission for exemptions; we will try to make that a bit more straightforward by providing a dedicated mailbox for our businesses to apply for exemptions once the SI enters into force. We hope that that will be a much more readily accessible approach.

On the question of when guidance will be published, over the coming months we will start with the EU guidance and update it to make sure that it complies with the UK context.

In terms of the devolved Administrations, I think that the noble Lord, Lord Purvis, acknowledged that this is a reserved power. We have kept the devolved Administrations informed of the policy on this matter and have sent them the Explanatory Memorandum. In terms of criminal proceedings in Scotland, this has been permitted under the 1996 order, so I hope that that is relatively straightforward.

My final response is to the noble Lord, Lord Stevenson. He asked how this fits in with current foreign policy with regard to Iran in particular. There are sanctions that we support against Iran. However, as I have said before to the House, we believe that the Joint Comprehensive Plan of Action is the best plan to make sure that we prevent Iran obtaining nuclear weapons. We believe that protecting trade with Iran, supported by this blocking regulation, is important to show that we are committed to legitimate trading with Iran. We are firm believers in the importance of the JCPOA.

[Lord Stevenson of Balmacara]

I am sorry to interrupt the Minister’s flow and I am grateful to her for giving way. I was trying to make a slightly different point, which is not the broader case about the JCPOA but on the British national currently held in detention in Iran for whom diplomatic efforts have been made to create a major issue with Iran. I do not see how this instrument helps. The point I was trying to make is that other issues are at play here.

[Baroness Fairhead]

I do not deny that other issues are at play. For the purpose of this debate, the question is whether the blocking regulation supports our approach to the JCPOA, and I think it absolutely does.