New UK Trade Sanctions Enforcement Body Goes Live October 10, 2024

OTSI’s Remit
OTSI, an agency created in December 2023, sits within the UK Department for Business and Trade and will be responsible for the implementation and enforcement of trade sanctions, including:

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

OTSI’s powers will also extend to enforcement of the circumvention of the above measures and will include 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 offense.

Potential Penalties
OTSI will impose penalties on parties who are found to have breached trade sanctions on a strict liability basis. In less serious cases, parties in violation of trade sanctions may only receive a warning letter from OTSI, while more serious cases will trigger fines. Parties having breached trade sanctions rules may also face reputational damage, as OTSI has the authority to publish details about the penalties that it has issued online, including details of the specific violation and the parties involved.

Both businesses and individuals acting on behalf of them can be held liable for violating trade sanctions. Maximum fines per violation are the greater of: (i) up to £1 million; or (ii) 50% of the estimated value of the breach. 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.

OTSI has 12 months after the date that it becomes aware of sufficient evidence to justify a case to initiate legal proceedings under the Regulations. However, no proceedings can be commenced more than three years after a violation of trade sanctions occurred.

UK Regulatory Landscape
The Regulations will not only empower OTSI to pursue civil enforcement activities, as outlined above, but will also grant corresponding powers to DfT in relation to aircraft and shipping sanctions (i.e., sanctions relating to the movement, registration and ownership of aircrafts and ships).

The new OTSI and DfT powers will slot into the activities of the existing array of regulatory bodies that are responsible for the implementation and enforcement of sanctions in the UK, as explained below:

• His Majesty’s Revenue & Customs (HMRC) will continue to be responsible for criminal enforcement of all types of trade sanctions. OTSI will refer cases to HMRC for criminal enforcement where it considers that a violation is too serious to merit a civil disposal.
• The National Crime Agency (NCA) will retain responsibility for criminal enforcement of aircraft and shipping sanctions and DfT will refer cases to NCA where criminal enforcement is needed.
• HMRC will continue to be responsible 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 authorizing exports of controlled items from the UK.
• OTSI is also responsible for authorizing the provision and procurement of sanctioned professional and business services that are not ancillary to the movement of goods.
• The Office of Financial Sanctions Implementation (OFSI) will retain responsibility for authorizing sanctioned financial activities.

New Mandatory Reporting Obligations
The Regulations 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. Aircraft operators, airport operators, persons that charter aircraft or ships by way of a business, masters and pilots of ships or fishing vessels, and harbor authorities, will also face new mandatory reporting obligations.

Conclusion
These changes have been long anticipated since the UK introduced and expanded its trade sanctions against Russia following the start of the war in Ukraine, and since the creation of OTSI in December 2023. These developments bring enforcement possibilities relating to trade sanctions in line with those available for financial sanctions in the UK and signify the UK government’s continued focus on enforcing sanctions rules.