Key takeaways
- In October 2024 the UK government will launch the Office of Trade Sanctions Implementation (OTSI) to bolster the enforcement of UK trade sanctions.
- On 12 September 2024 the UK government laid before Parliament the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (the Regulations). They were accompanied by new statutory guidance – see here and here.
- The Regulations outlines OTSI’s civil enforcement powers, including the power to impose monetary penalties for breaches of aircraft, shipping and trade sanctions.
- This is a significant development in the UK’s sanctions framework, particularly for those subject to the Regulations’ new reporting requirements.
Evolution of UK sanctions regime
The enforcement and management of UK trade sanctions has historically been overseen by two bodies within the Department for Business and Trade: the Export Control Joint Unit (ECJU) and the Import Licensing Branch (ILB). The ECJU’s primary responsibility is the administration of export licensing, and the ILB’s, import licensing for certain industrial goods subject to import sanctions.
Separately, His Majesty’s Treasury operates the Office of Financial Sanctions Implementation (OFSI), responsible for the implementation and enforcement of financial sanctions in the UK.
The creation of OTSI is aimed at bolstering the enforcement of aircraft, shipping and trade sanctions, against the backdrop of the UK’s extensive sanctions introduced against Russia. This is consistent with the UK government’s foreign policy focus on broadening and tightening its Russian sanctions regime.
OTSI’s enforcement powers
The Regulations introduce new civil enforcement powers to support the enforcement of aircraft, shipping and certain trade sanctions. Relevant trade sanctions include the export, supply, delivery, making available, transfer or acquisition of restricted goods, as well as related ancillary services (e.g. financial assistance and brokering).
Notably, a carve-out has been included to the effect that OFSI remains responsible for the enforcement of Russian Oil Price Cap restrictions.
OTSI’s powers include the power to:
- Impose monetary penalties for violations, with a maximum penalty up to the greater of £1 million or 50% of the estimated value of the breach (or in the case of aircraft and shipping sanctions, 50% of the estimated value of the aircraft or ship)
- Make information requests
- Issue warning letters and publish reports on sanctions breaches
Consistent with UK financial sanctions, civil penalties for breaches or failures to comply with trade sanctions will be assessed on a ‘strict liability’ basis. Further, liability for failure to comply may extend to corporate officers, such as directors or managers, if a breach is committed with their consent, connivance or neglect.
Reporting requirements
The new regime also imposes reporting obligations in relation to suspected breaches. Failure to comply with reporting obligations (or information requests) is a criminal offence, punishable by a fine and/or imprisonment not exceeding six months.
Ongoing reporting obligations apply to ‘relevant persons’, the definition of which varies, depending on the underlying restriction:
For the purposes of the trade sanctions, it includes:
- Any person that has permission under Part 4A of the Financial Services and Markets Act 2000 to carry on one or more regulated activities (permission to carry on a regulated activity)
- Legal and notarial services providers, although reporting obligations and requests for information do not apply to privileged information
- Any business that operates a currency exchange office, transmits money or cashes cheques that are payable to customers
This replicates (in part) the categories of persons subject to reporting requirements in relation to asset-freeze restrictions.
With respect to aircraft and shipping sanctions, it includes:
- Aircraft: airport operators, aircraft operators, pilots in command or any person that charters an aircraft for business
- Shipping: harbour authorities, masters or pilots, or any person that charters a ship for business
Mitigating factors
In instances of a suspected breach, voluntary disclosure is encouraged, which may be considered as a mitigating factor when evaluating a case, including the decision whether to impose a monetary penalty or reduce the penalty.
Other mitigating factors stated in the guidance include:
- Compliance with requests for information that OTSI may send out to reporters of suspected breaches during its investigations
- Compliance with any relevant recordkeeping obligations under sanctions regulations
- No record of previously having breached sanctions legislation
- Good knowledge of trade sanctions and relevant compliance systems proportionate to the size, exposure to sanctions and resources of the business
Conclusion
These developments align with the UK’s broader sanctions strategy, intensifying pressure on companies to ensure comprehensive compliance. Companies engaged in trade or shipping activities are encouraged to strengthen internal compliance frameworks to manage the heightened enforcement risk. This includes monitoring trade routes, aircraft and shipping operations closely to avoid inadvertent violations of UK sanctions. In particular, parties falling within the newly established reporting requirements should put in place internal procedures to ensure compliance with these new measures.