Posted: 08/10/2024
In October 2024, the UK government plans to launch the Office of Trade Sanctions Implementation (OTSI) within the Department for Business and Trade (DBT). OTSI will be responsible for civil enforcement of certain trade sanctions and have powers to impose monetary penalties, a power that was previously held by HM Revenue & Customs (HMRC).
To equip the office with new civil enforcement powers, on 12 September 2024, the UK government laid a new statutory instrument: The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024. These regulations will cover trade, aircraft and shipping sanctions. Statutory guidance on the regulations was published by the Foreign, Commonwealth & Development Office, DBT, Department for Transport (DfT), and OTSI.
The regulations make it a criminal offence to fail to comply with new reporting obligations and information requests made by the Secretary of State. A new civil penalty regime for aviation and transport-related sanctions will also be enforced by the DfT.
The regulations introduce civil enforcement powers for breaches of trade, aircraft and shipping related sanctions. Thus, trade sanctions are being brought in line with financial sanctions, where the Office of Financial Sanctions Implementation (OFSI) has had power to impose civil penalties since 2017. Furthermore, this also changes the onus for enforcing trade sanctions, which was previously with HMRC.
OTSI’s enforcement powers will come into effect from 10 October 2024 and will apply to:
The regulations have updated the UK’s sanction enforcement responsibilities across five different departments, as set out below:
OTSI is now responsible for civil enforcement of most trade sanction offences. It imposes monetary penalties on corporate bodies, as well as their officers. In cases where criminal investigation is required, OTSI can also refer the case to other law enforcement agencies, such as HMRC.
The DfT will have civil enforcement powers, restricted to aircraft and shipping related sanction breaches.
HMRC retains criminal enforcement powers. Additionally, it will also refer to prosecution any grave trade sanctions offences that it investigates on OTSI’s referral. HMRC also retains its remit as the UK’s customs authority, as enforcement of trade measures is reserved to HMRC within the regulations. These include sanctions which relate to certain goods and technology, such as military and dual-use goods, subject to strategic export controls.
HM Treasury and Ofcom continue to yield power over financial sanctions and prohibitions on maritime transportation of oil and petroleum, as well as providing internet services.
OTSI now has powers to impose civil penalties on a strict liability basis and, accordingly, only has to prove a breach of trade restrictions on the balance of probabilities.
OTSI will have the power to impose monetary penalties for a civil breach, such breaches being determined on a ‘strict liability’ basis.
The maximum monetary penalty for breaching sanctions is either £1 million, or 50% of the estimated value of the breach, whichever is higher. This also holds for a breach of shipping or aircraft sanctions, where: ‘The permitted maximum is the greater of £1 million or 50% of the estimated value of the aircraft or ship used in connection with the breach or failure to comply, where it is possible to estimate the value of that aircraft or ship.’
While DBT and DfT value voluntary disclosure, OTSI now (as with OFSI) has the power to compel disclosure. Failure to provide information requested by OTSI is a criminal offence and could result in a monetary penalty or even imprisonment. There is however an exception for legal service providers, under ‘legal professional privilege’.
Regulated financial institutions and certain other financial services providers, and legal and notarial services providers, are now obliged to report if they know or have reasonable cause to suspect that third parties have violated trade sanctions falling within OTSI's enforcement powers.
The guidance provides: ‘The regulations make it clear that reporting obligations and requests for information do not apply to information to which legal professional privilege is attached. DBT and DfT expect legal professionals to carefully ascertain whether legal privilege applies, and which information it applies to. DBT and DfT may challenge a blanket assertion of legal professional privilege where it is not satisfied that such careful consideration has been made.’
The regulations provide OTSI with powers to request information for the purposes of:
The Export Control Joint Unit will continue to issue export licences, whilst OTSI will be responsible for the licensing of legal and other professional services, as well as services ancillary to the trade activities (ie those outside of the United Kingdom) within its enforcement remit.
OFSI will continue to enforce and license activities with respect to financial sanctions.
The apparent intention under the new regulation is to ensure that both the civil and the criminal enforcement mechanisms of sanction breaches are strengthened. Whether this will result in an increase in the number of trade sanctions investigations and penalties, and its overall effectiveness, remains to be seen.
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