From Thursday October 10, 2024, the UK has an additional new sanctions regulator following the official launch of the Office of Trade Sanctions Implementation ("OTSI"). First announced in December 2023, its establishment was confirmed last month with the publication of The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (the "Regulations).
Sitting within the UK Department for Business and Trade ("DBT"), OTSI will be responsible for the civil enforcement of many UK trade sanctions and will act as a sister agency to the existing Office of Financial Sanctions Implementation ("OFSI").
What will OTSI enforce?
OTSI will have the power to investigate and bring civil enforcement action for breaches of certain trade sanctions, such as:
- the provision of prohibited services (e.g., prohibited professional and legal services under the UK's Russia sanctions regime);
- the movement, acquisition and making available of sanctioned goods and technologies outside of the UK;
- the provision of prohibited technical assistance, brokering services or financial services or funds in connection with sanctioned goods or technology outside of the UK;
- any suspected circumvention of the aforementioned trade sanctions; and
- compliance with any associated notification or reporting requirements.
OTSI will not be responsible for the criminal enforcement of the above trade sanctions, which will stay with HM Revenue & Customs ("HMRC"). HMRC also retains responsibility for enforcing export controls (such as military and dual-use controls) and trade sanctions with respect to physical exports/imports and transfer of technology out of/into the United Kingdom (i.e., those which fall within its remit as the UK's customs authority). The Export Control Joint Unit ("ECJU") within DBT will remain responsible for granting export and trade sanctions licences.
Other agencies will be responsible for certain specified trade-related civil enforcement, namely OFSI retains responsibility for the Russian oil price cap mechanism and OFCOM is responsible for the civil enforcement of the internet services prohibitions under the UK's Russia and Belarus sanctions regimes. The Department for Transport will be responsible for the civil enforcement of shipping and aircraft sanctions.
Civil Enforcement Powers
OTSI will be able to determine most breaches of trade sanctions on a strict liability basis, meaning that any defence that a person did not know or have cause to suspect that an offence had been committed will not protect them (this is not the case for some offences, for example circumvention of trade sanctions for which OTSI would need to prove that the person acted knowingly). This standard now mirrors the standard for the civil enforcement of the UK's financial sanctions regime following changes in June 2022.
OTSI will be able to impose monetary penalties, with the maximum monetary penalty for breaching trade sanctions regulations being either £1 million or 50% of the estimated value of the breach – whichever is greater. For aircraft and shipping sanctions, the Department of Transport can impose monetary penalties up to £1 million or 50% of the estimated value of the aircraft or ship used in connection with the breach (again, whichever is greater). OTSI therefore has the power to issue very substantial fines on entities falling afoul of the regulations.
OTSI can also publicise information about the imposition of a civil monetary penalty. This aligns OTSI with OFSI's approach and is a divergence from HMRC, which publishes limited information about its enforcement.
OTSI has published guidance about how it will assess suspected breaches of trade sanctions, which includes non-exhaustive mitigating factors that it may consider when enforcing an established breach. These factors include: timely disclosure of any breaches; compliance with OTSI information requests; good record-keeping compliance; no previous record of having breached sanctions; and having proportionate compliance systems in place relative to the size, sanctions exposure and resources of a business.
Information Gathering Powers
OTSI has been granted broad powers to request information, including where it may reasonably require information for the purposes of exercising its functions; monitoring compliance with, or detecting evasion of trade sanctions, or investigating a suspected breach or failure to comply with a trade sanctions obligation. It can also request information about a person's compliance with a trade licence. There are associated offences for failure to comply with these information provisions.
Reporting Obligations
Finally, there are new reporting requirements in relation to suspected breaches of the trade, shipping and aircraft sanctions. For trade sanctions, these requirements apply to (among others) financial institutions and legal practitioners. For aircraft and shipping sanctions, the requirements apply to aircraft operators, people chartering aircrafts or ships by way of business, masters or pilots of vessels, and harbour authorities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
