UK Government Launches Office Of Trade Sanctions Implementation To Enforce UK Trade Sanctions

On 12 September 2024, the UK Government published the regulatory framework providing the scope and powers of the Office of Trade Sanctions Implementation (OTSI), the authority responsible for the implementation and enforcement of certain trade sanctions in the United Kingdom. Pursuant to the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (the Regulations),¹ which comes into force on 10 October 2024, OTSI will be empowered to impose civil monetary penalties for certain trade sanctions violations and to require information disclosure, similar to the Office of Financial Sanctions Implementation (OFSI). Certain persons in the financial, legal, shipping and aviation sectors will also be subject to reporting obligations.

The launch of OTSI demonstrates the UK Government's stated objective to "crack down" on "companies who are found to be dodging strict trade sanctions", including those targeting Russia.²

OTSI's place in HM Government

OTSI, which is part of the UK Department for Business and Trade (DBT), will be responsible for enforcement of sanctions prohibiting:

• the provision of certain services (such as professional and legal services);
• moving, acquiring and making available restricted goods outside of the United Kingdom;
• transferring, acquiring and making available restricted technology outside of the United Kingdom; and
• providing ancillary services (technical assistance, financial services, brokering services) in relation to movement of restricted goods and technology outside of the United Kingdom.

OTSI will also be responsible for enforcing suspected circumvention of these sanctions, compliance with requirements (such as notification) mandated by exceptions to the sanctions, and adherence to reporting requirements (see below).

OTSI will work in parallel with:

• His Majesty's Revenue and Customs (HMRC), which will continue to enforce export controls and trade sanctions with respect to physical exports/imports and transfer of technology into/out of the United Kingdom (and ancillary services);
• the Export Control Joint Unit (ECJU), which will continue to be responsible for issuing export licences, whilst OTSI will assume responsibility for licensing of legal and other professional services, as well as services ancillary to the trade activities (i.e. those outside of the United Kingdom) within its enforcement remit; and
• OFSI, which continue to enforce and license activities with respect to financial sanctions.

In addition, UK government guidance states that the Department for Transport will also gain civil enforcement powers under the Regulations in connection with aircraft and shipping sanctions³, although this article focuses on OTSI.

OTSI's Powers

1. Civil monetary penalties

OTSI will have the power to impose civil monetary penalties on UK persons (i.e. any UK nationals or UK companies) with respect to conduct anywhere, or any person with respect to conduct within the United Kingdom, in relation to the particular trade sanctions falling within OTSI's remit, as listed above. Like OFSI, OTSI may impose such penalties on a strict liability basis. This means that a person cannot avail him/herself of any defence that they did not know or have reasonable cause to suspect that an offence had been committed (many trade sanctions offences include express defences to this effect).

Also like OFSI, OTSI will be able to impose a maximum penalty of the greater of £1 million per violation, or 50% of the estimated value of the breach. OTSI may also publish details of cases in which it imposes a civil monetary penalty or when it asserts that a breach of sanctions has occurred but no civil monetary penalty is imposed (similar to OFSI's “disclosure” powers).⁴

The Regulations contain provisions to ensure that OTSI and HMRC's enforcement jurisdiction remain separate. Critically, enforcement of strategic export controls and sanctions that prohibit the unlicensed export of goods and technology, such as military and dual-use goods and technology, from the United Kingdom, and ancillary services (such as brokering and financial services) will remain with HMRC. Note, in addition, that HMRC remains responsible for the criminal enforcement of all trade sanctions.

2. Power to request information

As with OFSI, OTSI has the power to compel disclosure of information from an individual or organisation. If a person does not have documents requested by OTSI within their possession or control, that person must take reasonable steps to obtain such information. A failure to provide information requested by OTSI is a criminal offence and may result in a monetary penalty or imprisonment.

3. Reporting obligations

The Regulations require regulated financial institutions and certain other financial services providers, and legal and notarial services providers, to report if they know or have reasonable cause to suspect that third parties have violated trade sanctions falling within OTSI's enforcement powers. For legal services providers, there is an exception for information subject to legal professional privilege. However, official guidance published with the Regulations notes that OTSI may challenge a blanket assertion of legal professional privilege where it is not satisfied that such an assertion has been carefully considered.⁵

The Regulations also require certain persons to report to the Department of Trade suspicions that third parties have breached aircraft or shipping sanctions: an aircraft pilot in command, an aircraft or airport operator, an aircraft or ship charterer, a master or pilot of a ship or fishing vessel and harbour authorities.

Key takeaways

• The UK Government's continued investment in sanctions enforcement tools likely foreshadows greater enforcement of UK trade sanctions. The launch of OTSI signals a continued focus from UK Government to invest in and empower its sanctions enforcement agencies. While prior to OTSI's creation, violations of UK trade sanctions could only be subject to criminal enforcement, OTSI's civil monetary penalty powers provide a new tool in the UK's sanctions enforcement toolkit. OTSI will also give the UK more capacity to investigate and enforce trade sanctions. This will, in time, likely lead to greater enforcement of UK trade sanctions.
• Companies and financial institutions may increasingly be the subject of information requests in relation to compliance with UK sanctions. In light of OTSI's new powers, companies – particularly UK companies supplying goods and services abroad – and regulated financial institutions that provide financial services to such companies may increasingly be subject to information requests in relation to compliance with UK trade sanctions. Companies should take steps to ensure that responses to such information requests are complete and provided on a timely basis.
• Those subject to the new reporting obligations must make sure they have processes in place to identify, escalate and investigate potential violations.  Whilst there are long-standing reporting obligations under financial sanctions, those subject to new trade sanctions reporting obligations must understand what offences are covered by the trade sanctions within OTSI's remit - which are numerous and complex - and ensure they are confident that their business is equipped to identify potential violations in the course of their activities..

 Footnotes

1. The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024, available at: https://www.legislation.gov.uk/uksi/2024/948/made

2. New unit to crack down on firms dodging Russian sanctions press release, Department for Business and Trade, 11 December 2023, available at:  https://www.gov.uk/government/news/new-unit-to-crack-down-on-firms-dodging-russian-sanctions#:~:text=Government%20announces%20new%20unit%20to%20clamp%20down%20on%20companies%20eva

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