New Enforcement Powers for UK Trade Sanctions Regulators

On September 12, 2024, the UK government published the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (the “Regulations”), granting the UK’s trade sanctions enforcement body, the Office of Trade Sanctions Implementation (OTSI), new implementation and enforcement powers effective from 10 October 2024. The Regulations also grant the Department for Transport (DfT) corresponding powers in relation to aircraft and shipping sanctions (i.e., sanctions relating to the movement, registration and ownership of aircrafts and ships).

This development is part of the UK government’s efforts to ramp up the enforcement of sanctions and should be taken as a signal to all businesses conducting activities with a UK nexus to continue efforts to ensure both awareness of and compliance with UK sanctions laws. The Regulations also aim to bring enforcement of trade, aircraft and shipping sanctions in line with the government’s approach to financial sanctions, which are implemented and enforced by a separate body, the Office of Financial Sanctions Implementation (OFSI).

This development heightens trade sanctions enforcement risks for UK companies and other businesses operating within the UK, particularly those involved in trading goods subject to UK sanctions, financial institutions, cross-border service providers, and companies in the aviation and shipping industries.

Trade sanctions to be implemented and enforced by OTSI

OTSI will be responsible for implementation and enforcement of, inter alia, the following trade sanction measures:

• Professional services trade sanctions (including legal advisory, engineering, accounting and management consultancy services).
• Trade control sanctions (e., restrictions on activities such as the supply or acquisition of sanctioned items between two overseas countries and related technical assistance and financial services). For example, these apply where a UK person acquires sanctioned items while overseas or makes such items available from a third country to Russia.

OTSI will also be responsible for implementing and enforcing rules around circumvention of the above measures, as well as related reporting and information disclosure obligations and compliance with the terms of trade sanctions licenses.

Penalties

OTSI has broad discretion when pursuing civil enforcement measures and can issue warning letters and / or strict liability monetary penalties. Penalties issued by OTSI may be published online, disclosing details of the specific violation and the parties involved.

If a breach of trade sanctions laws is committed by a business, OTSI has authority to impose a penalty on the business as well as the officers of the business on an individual basis. Per violation, OTSI can levy financial penalties of up to £1 million or 50% of the estimated value of the breach (whichever is greater). OTSI’s civil enforcement guidance provides that financial penalties can be mitigated by up to 50% where a business or individual submits a voluntary disclosure regarding a discovered violation.

Legal proceedings for an offence under the Regulations may be initiated within 12 months from the date that the prosecuting body becomes aware of sufficient evidence to justify the case. However, no proceedings can be commenced more than three years after an offence was committed.

Interaction of UK sanctions administrative and enforcement bodies

• The Regulations align the DfT’s authority to implement and enforce aircraft and shipping sanctions with the corresponding powers held by OTSI in relation to trade sanctions.
• His Majesty’s Revenue & Customs (HMRC) will continue to be responsible for criminal enforcement of all types of trade sanctions while the National Crime Agency (NCA) retains responsibility for criminal enforcement of aircraft and shipping sanctions. OTSI will refer cases to HMRC for criminal enforcement where it considers that a violation is too serious to merit a civil disposal.
• HMRC will also retain responsibility for civil enforcement of UK strategic export controls and trade sanctions relating to the import, export and/or transfer of goods and technology to or from the UK, as well as ancillary services such as the provision of technical assistance, brokering and financial services.
• The UK Export Control Joint Unit (ECJU) will remain responsible for issuing export licences for exports of controlled items from the UK, whereas OTSI will be responsible for licensing relating to professional services sanctions and trade control sanctions.
• OFSI will retain responsibility for issuing licences relating to financial sanctions.

Disclosure and Reporting

Notably, the Regulations also impose mandatory reporting obligations on certain parties in the financial, legal, shipping and aviation sectors who know or have reasonable cause to suspect that a person has breached trade sanctions or aircraft and shipping sanctions. This includes regulated financial institutions and legal service providers. In addition, the Regulations introduce new reporting obligations on aircraft operators, airport operators, persons that charter aircraft or ships by way of a business, masters and pilots of ships or fishing vessels, and harbour authorities.

OTSI will have general powers to compel information disclosures from any party falling within the UK’s sanctions jurisdiction. Failure to provide information requested by OTSI will constitute a criminal offence.