Enforcing UK trade sanctions: The OTSI and the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024
In December 2023, the UK government announced a new Office of Trade Sanctions Implementation ("OTSI") within the UK Department for Business and Trade. The press release accompanying the announcement explains that OTSI is to have responsibility for the civil enforcement of trade sanctions, particularly those against Russia, and that it will investigate potential breaches, issue civil penalties, as well as refer cases to HM Revenue and Customs ("HMRC") for criminal enforcement where needed.1
On 11 September 2024, the government made the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (the "Regulations").2 With the Regulations to take effect on 10 October 2024, OTSI will have civil powers to enforce breaches of certain UK trade sanctions from then. The Department for Transport will have responsibility for enforcement of aircraft and shipping sanctions.
Scope of application
Under the Regulations, OTSI will have responsibility for trade sanctions3 concerning the:
- provision or procurement of sanctioned trade services;
- movement, making available or acquisition of sanctioned goods outside the UK;
- transferring, making available or acquisition of sanctioned technology outside the UK;
- providing ancillary services to the movement, making available or acquisition of sanctioned goods outside the UK; and
- providing ancillary services to the transfer, making available or acquisition of sanctioned technology outside the UK.
OTSI's power to enforce the above trade sanctions under the Regulations are in addition to and separate from HMRC existing criminal enforcement powers. HMRC is to retain responsibility for the enforcement of trade sanctions and export controls falling within its remit, including those that concern:
- import or export of goods to, or from, the UK;
- transfer of technology to, or from, the UK
- provision of ancillary services relating to the import and export of goods and the transfer of technology to, or from, the UK; and
- goods and technology, which are subject to strategic export controls.
The requirements imposed by the Regulations apply within the territory of the United Kingdom as well as in relation to the conduct, wholly or partly, of a UK national or body incorporated under the law of any part of the UK that takes place outside the UK. Accordingly, the Regulations also apply to branches of UK companies that operate overseas.
Powers of enforcement and offences
Monetary penalties
The Regulations give OTSI the power to impose a monetary penalty on a person if it is satisfied, on the balance of probabilities (i.e., the civil standard of proof), that the person has breached a prohibition or failed to comply with an obligation imposed by or under sanctions regulations.4 In determining whether a person breached a prohibition or failed to comply with an obligation for which a monetary penalty can be imposed, the Regulations are clear that such breaches or failures are to be determined on a strict liability basis.5 Consequently, any defence that the person did not know, had no reasonable cause to suspect, or acted with a reasonable excuse, will be ignored.
Where it is possible to estimate the value of the breach or failure to comply with trade sanctions, the permitted maximum of the monetary penalty is the greater of £1 million or 50% of the estimated value of the breach or failure. Where it is not possible to estimate the value of the breach or failure, the permitted maximum is £1 million.6
Where a body corporate has breached a prohibition or failed to comply with an obligation imposed under sanctions regulations and the breach is committed with the consent or connivance of any director, manager, secretary, or other similar officer, or is attributable to any neglect on the part of such person, OTSI may also impose a monetary penalty on that person.7
Reporting obligations
The Regulations also introduce a requirement for a "relevant person" to inform OTSI as soon as practicable if they know or have cause to suspect that a person has breached or failed to comply with trade sanctions.8 The relevant person must report the information on which the knowledge or suspicion is based and any information it holds about the person,9 with failure to do so a criminal offence punishable on summary conviction in England and Wales by imprisonment for a term not exceeding six months or a fine (or both).10
With regard to trade sanctions, "relevant person" is defined to include those who hold permissions under Part 4A of the Financial Services and Markets Act 2000 to carry on one or more regulated activities, as well as undertakings that transmit money or cash cheques by way of business.11
Information acquisition powers
Perhaps most significantly, the Regulations provide OTSI with broad powers to acquire information. In particular, on the condition that OTSI believe that the person may be able to provide the information, it may request a person provide it with information that it may reasonably require to: (i) perform its functions under the Regulations; (ii) monitor compliance with or detect evasion of sanctions regulations; or (iii) investigate a suspected breach of a prohibition or failure to comply with an obligation imposed under sanctions regulations.12
It is for OTSI to specify the way in which and when the information requested is to be provided and, if unspecified, the information must in any event be provided within a reasonable time. Moreover, the Regulations empower OTSI to make requests including a continuing obligation to keep it informed as circumstances change, or on such regular basis as it may specify.13
OTSI's powers under the Regulations to acquire information are not limited to requests for information; the Regulations give it the power to require the production of specified documents or documents of a specified description. Where OTSI requests documents to be produced, it may: (i) take copies of or extracts from the documents produced; and (ii) request any person producing a document to give an explanation of it. On receipt of a document request from OTSI, that person must: (i) take reasonable steps to obtain the documents if not already in the person's possession or control; and (ii) keep the documents under their possession or control.14
A person commits a criminal offence under the Regulations if that person: (i) without reasonable excuse, refuses or fails within the time and in the manner specified to comply with an information request; (ii) knowingly or recklessly gives any information or produces any document that is false in a material particular in response to an information request; (iii) destroys, mutilates, defaces or conceals or removes any document with intent to evade an information request; or (iv) otherwise intentionally obstructs OTSI in the exercise of its information acquisition powers.15 The offence is punishable on summary conviction in England and Wales by imprisonment for a term not exceeding six months or a fine (or both).16
Approach to enforcement
The government has also published non-statutory guidance with the Regulations on how suspected breaches of trade sanctions are to be assessed and enforced by OTSI.17 Once it has determined that a breach has occurred, there are a number of potential outcomes:
- Warning letters – Which may include a continuing obligation to keep OTSI informed about certain information, such as the improvement of due diligence processes.
- Referrals – OTSI may refer an entity to a regulator where its business is in the regulated sector and may additionally make referrals to Companies House, the Insolvency Service, or HMRC where it feels HMRC's criminal enforcement powers are more appropriate.
- Civil monetary penalties – As explained above, OTSI may impose monetary penalties.
- Public disclosure – In contrast to HMRC's approach of maintaining confidentiality, OTSI may make a public disclosure where it judges it would be in the public interest to share information about a breach, for example because it would assist compliance officers.
OTSI will consider a range of mitigating factors when determining the appropriate enforcement action, including: (i) timely voluntary disclosure of suspected breaches by the responsible entity (which may lead to a reduction in the civil monetary penalty by up to 50%); (ii) compliance with OTSI requests for information during its investigations; (iii) compliance with recordkeeping requirements under sanctions regulations; and (iv) good knowledge of trade sanctions and relevant compliance systems proportionate to the size, exposure to sanctions and resources of the business.
Key observations
Although it will be some time before we see how OTSI intends to wield its powers, the following are the key points to bear in mind at this stage:
- Stricter enforcement – It is difficult to characterise the Regulations as anything other than a signal from the UK government of its intention to bring the enforcement of UK trade sanctions into focus. The Regulations largely replicate the powers granted to OTSI's older sibling, the Office of Financial Sanctions Implementation, evidencing a more serious approach to the enforcement of trade sanctions breaches.
- Policy reviews necessary – Amidst a culture of greater enforcement, companies should be taking active steps to review their sanctions and compliance policies and considering whether they adequately cover UK trade sanctions. In circumstances in which OTSI make clear that compliance with recordkeeping obligations, knowledge of trade sanctions and the presence of relevant, fit for purpose compliance systems may function as mitigating factors when determining the appropriate enforcement action, conducting policy reviews now should not only help ensure that sanctions breaches are less likely, but also that if there is a breach, the enforcement outcome is less severe.
- Reporting obligations must be well understood – Now that reporting obligations breaches can be considered to be criminal offences, banks and firms that offer financial services should take careful notice of the requirements of the Regulations.
Authors
Sue Millar, partner
Kirk Goodway, associate
1 New unit to crack down on firms dodging Russian sanctions, Department for Business and Trade press release, 11 December 2023, accessible via New unit to crack down on firms dodging Russian sanctions - GOV.UK (www.gov.uk).
2 The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024, accessible via The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (legislation.gov.uk).
3 Regulation 2 of the Regulations defines "excluded trade sanctions regulations" in connection with a breach of which OTSI may not exercise the powers set out in the Regulations.
4 Regulation 5(1) of the Regulations.
5 Regulations 6 and 7 of the Regulations.
6 Regulation 9 of the Regulations. See also Regulation 10 of the Regulations, which provides for the same methodology for calculation of the penalty, save that it is 50% of the estimated value of the ship or aircraft that is relevant (rather than 50% of the estimated value of the breach or failure to comply with trade sanctions).
7 Regulation 8 of the Regulations.
8 Regulation 15(1) of the Regulations.
9 Regulation 15(2) of the Regulations.
10 Regulation 22 of the Regulations.
11 Regulation 15(4) of the Regulations.
12 Regulations 17(1) and (2) of the Regulations.
13 Regulations 17(3) – (5) of the Regulations.
14 Regulation 20 of the Regulations.
15 Regulation 21 of the Regulations.
16 Regulation 22 of the Regulations.
17 UK government guidance, "How suspected breaches of trade sanctions are assessed by the Office of Trade Sanctions Implementation (OTSI)", published 12 September 2024, accessible via How suspected breaches of trade sanctions are assessed by the Office of Trade Sanctions Implementation (OTSI) - GOV.UK (www.gov.uk).
