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Brexit and the invasion of Ukraine have led to a substantial increase in the cost and complexity of managing UK sanctions, with the Foreign, Commonwealth & Development Office (FCDO) faced with a surge in staffing, Byline Times has learnt.
A Freedom of Information (FOI) request by Byline Times revealed that the number of FCDO staff dedicated to global sanctions enforcement has risen by over 300% in the last three years, pushing annual payroll costs to around £8 million.
This financial strain is a direct result of the UK’s departure from the European Union, which has forced the country to shift from a centralised EU sanctions framework to an independent regime managed entirely from London. It is also a consequence of a rise in sanctions against Russians following President Putin’s full scale invasion of Ukraine.
The Rising Costs of Independence
Before Brexit, the UK was part of a shared EU sanctions framework, which spread the operational and financial burden across all EU members. In contrast, since leaving the EU in January 2020, the UK has had to establish its own independent sanctions regime. According to the FOI request, the FCDO has had to expand its sanctions team from a modest 20-29 staff in 2021 to an estimated 110-120 by mid-2024—a 300% increase in personnel.
Prior to Brexit, sanctions work in the FCDO was not handled by a dedicated team. As the FCDO confirmed, “our work on sanctions in 2016 would have been split between a number of different staff and teams.”
The Sanctions and Anti-Money Laundering Act 2018, however, changed all this. That act provided the statutory framework for the UK’s new independent sanctions system, covering policy formulation, enforcement, and measures against individuals, companies, and states and meant many more Whitehall bureaucrats have had to be thrown at the issue.
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Peters & Peters
It has also led to a rise in lucrative work for some British lawyers. As Michael O’Kane, a Senior Partner at Peters & Peters, explained in a recent German legal podcast, “the white-collar crime space has become a little occupied now by issues relating to sanctions”.
He listed clients for his London firm from a range of human-rights concern countries such as Egypt, Libya, Syria, Zimbabwe, Belarus, Myanmar and — most recently — many from Russia.
It is understood that, in 2023, Peters & Peters netted about three-quarters of a million pounds profit from such sanctions work.
FCDO Strain Under Financial Pressures
The increased sanctions-related costs coincide with broader financial pressures on the FCDO. In a recent letter from Sir Philip Barton, Permanent Under-Secretary of State for the FCDO, to the House of Commons Public Accounts Committee, he outlined the “damaging impact on relationships with partner governments and other donors and the overall damage to the FCDO’s reputation as a reliable donor” due to significant Government budget cuts.
Financial constraints have also led the FCDO to sell off key diplomatic assets, such as the sale of the British embassy in Tokyo for £686 million, in a bid to address funding shortfalls.
A source inside the FCDO has told Byline Times that the new Labour government is looking for even more cost-saving measures as the Government tries to address the so-called ‘black hole’ in the UK’s economy, meaning the rise in sanctions costs is resented by those faced with redundancies and more.
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Challenges of Effective Sanctions Management
The UK’s independent sanctions regime has, moreover, faced significant hurdles in enforcement.
Admittedly, the National Crime Agency (NCA) recently seized £780,000 in sanctioned funds tied to Russian oligarch Petr Aven under the Proceeds of Crime Act 2002, but sanctions enforcement has proven resource-intensive and complex. Some of the money seized from Aven, the former head of Russia’s largest commercial bank, went on “the payment of salaries to over 20 members of Aven’s household staff.”
Before this seizure, however, there was very little in the way to show for all the investment in sanctions. As solicitor O’Kane explained in the podcast (recorded before Aven’s arrest): “there have been hundreds of reported breaches… and you would think that would lead to maybe not hundreds of cases but tens of cases. But so far… over two years since Russia invaded Ukraine, there has yet to be any Office of Financial Sanctions Implementation (OFSI) enforcement action, either civil fine, or warning, or prohibition, or a publication in relation to anybody for breaching those measures.”
Other sanctioned companies, such as the Belarusian firm Alutech, have also allegedly bypassed UK sanctions by continuing to import banned products into the country, allegedly undercutting British businesses.
Labour MP Dame Siobhain McDonagh raised concerns in Parliament last May that Alutech was evading sanctions by shipping goods through Russia. British companies, particularly Alunet Systems and JD UK, have claimed significant losses as a result, including £10 million in revenue and layoffs. The issue has been referred to HM Revenue and Customs, but investigations are ongoing.
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Sanctions: What are They Good For?
Against this backdrop, a Parliamentary inquiry has been launched into the effectiveness of UK sanctions on Russia, aiming to determine whether these sanctions are truly hindering Russia’s ability to finance its military efforts in Ukraine.
As of June 2024, 1,707 individuals and 334 entities were under UK sanctions, with about 45% coming from Russia. But despite these numbers, a Parliamentary report has raised questions about the effectiveness of the bans, stating that “the International Monetary Fund has forecast that Russia’s economy will grow faster than most of the world’s advanced economies in 2024.”
There is also the question as to whether all this post-Brexit extra legal work on UK Sanctions is, in the end, mirroring what was once done cheaper and more centrally. As British barrister Maya Lester KC explained in the above podcast, the courts in the UK “have had quite careful regard to EU judgements and EU sanctions. They regard UK sanctions as being born out of EU sanctions reflecting them.”
In defence, an FCDO spokesperson told Byline Times: “Since Putin’s invasion of Ukraine in 2022, our sanctions system has, alongside the EU and other partners, delivered the most severe package of sanctions ever imposed on a major economy.”
But, as Dame McDonagh told Parliament: “we can have the toughest regime on paper, but if Russia and Belarus are finding ways round it in practice and costing UK businesses, we have not done the right thing.”