On 12 September, the UK Government announced new powers for the civil enforcement of trade sanctions pursuant to the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024, the “Trade Enforcement Regulations“). From 10 October 2024, the Government will be able to impose penalties of up to GBP 1 million or 50% of the value of breaches of trade sanctions (whichever is greater) in relation to certain breaches of UK trade sanctions.
The new powers will be exercised by the Office of Trade Sanctions Implementation (“OTSI”), whose establishment was first announced in December 2023 (see our previous blog post here) and is modelled on the existing Office of Financial Sanctions Implementation (“OFSI”). OTSI is taking over partial responsibility for trade sanctions enforcement from HM Revenue & Customs (“HMRC”), which will retain an important investigation and enforcement role.
Separately, the Department for Trade (“DfT”) will have similar civil enforcement powers in relation to UK aircraft and shipping sanctions.
The Trade Enforcement Regulations also contain important new reporting obligations under trade, aircraft and shipping sanctions.
We will be hosting a webinar in the near future to discuss OTSI’s new enforcement powers and the broader UK sanctions enforcement landscape in further detail.
New monetary penalties
For any breaches of trade sanctions within its competence, OTSI will have the power to impose civil monetary penalties of up to the greater of GBP 1 million or 50% of the estimated value of the breach.
OTSI will be able to impose penalties on a “strict liability” basis, meaning that (unlike for criminal enforcement), there will be no defence where the UK person did not know and had no reasonable cause to suspect a breach. Where a breach is disclosed voluntarily, OTSI may reduce the final monetary amount by up to 50%, at its discretion.
OTSI will have the power to publicise information and details of monetary penalties imposed where OTSI judges it would be in the public interest to do so. This is a marked departure to the approach that HMRC has taken to civil enforcement of export controls and trade sanctions to date; HMRC has consistently kept administrative settlements of export controls and trade sanctions matters confidential (other than to announce the value of the penalty and nature of goods involved, but not the identity of the perpetrator or any significant details of the breach).
OTSI will also have the power to issue warning letters, refer cases to HMRC for criminal investigation and report individuals and businesses to their regulators (to the extent they have one) and share information with other organisations, such as Companies House.
These powers reflect the existing powers that OFSI holds in the financial sanctions context, including in particular the penalties available and the availability of strict liability enforcement.
OTSI’s jurisdiction over trade sanctions
OTSI is a recently-established body within the Department for Business and Trade, the Government department responsible for trade sanctions matters. OTSI’s enforcement remit covers the following activities by UK persons and anyone in the UK:
- The supply and procurement of sanctioned goods and technology outside the UK;
- The supply and procurement of sanctioned services both from and outside the UK; and
- Providing ancillary services related to the supply and procurement of sanctioned goods and technology outside the UK.
This role was historically held by HMRC. HMRC will remain responsible for enforcing trade sanctions to the extent they relate to:
- the import or export of goods and the transfer of technology to or from the UK;
- the provision of ancillary services relating to transfers of goods and technology to and from the UK; and
- goods and technology subject to strategic export controls (i.e., military and dual-use items).
HMRC will also remain responsible for criminal enforcement of all trade sanctions measures.
Reporting obligations
The Trade Enforcement Regulations also introduce new reporting obligations on financial institutions, certain money services businesses, law firms and notaries (“relevant persons”) to report suspected breaches of trade sanctions to OTSI.
This obligation applies where “relevant persons” have knowledge or reasonable cause to suspect that a breach of trade sanctions has occurred and have obtained such knowledge/cause for suspicion in the course of carrying out their business. Failure to comply with a reporting obligation is an offence which could result in a civil monetary penalty or a criminal prosecution.
This obligation is similar to (albeit narrower than) existing reporting obligations on financial institutions and a number of other “relevant firms” under UK financial sanctions.
Aircraft and shipping sanctions
The Trade Enforcement Regulations provide for a similar enforcement regime in relation to the UK’s aircraft and shipping sanctions (i.e., sanctions designating particular aircraft and vessels).
Civil enforcement of aircraft and shipping sanctions will be handled by DfT. Its powers strongly resemble those granted to OFSI and OTSI, including:
- civil penalties of up to the greater of GBP 1 million or 50% of the estimated value of the ship/aircraft used in connection with the breach (whichever is greater);
- voluntary disclosure reductions of up to 50%; and
- publication of monetary penalties (which, according to DfT guidance will ordinarily include details of the person(s) the penalty is imposed on and other facts of the case including the type of breach, details of the assets in breach and if a transport sanctions licence had been requested).
The Trade Enforcement Regulations also introduce a reporting requirement for a “relevant person” to report suspected breaches of aircraft or shipping sanctions. A “relevant person” for the purpose of aircraft and shipping sanctions includes: (i) airport and aircraft operators; (ii) charter companies; (iii) pilots in command of aircraft; (iv) harbour authorities; and (v) ship masters and pilots.
Impact
These changes do not substantively change the sanctions that the UK has imposed, but they will no doubt have a significant impact on the UK enforcement landscape in the coming years. Businesses operating in the UK should be aware that from 10 October, breaches of trade sanctions may attract significant penalties on a strict liability basis, and that financial institutions will be required to report potential non-compliance, providing a source of information that may trigger proactive investigations by OTSI and/or HMRC. Businesses should ensure their sanctions compliance procedures remain up to date, and in particular that they appropriately address the risks posed by trade, aircraft and shipping sanctions.
