UK Government Announces New Civil Enforcement Powers on Trade Sanctions and Launch of Office of Trade Sanctions Implementation

Key Takeaways

• On 12 September 2024, the UK government published the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (the “Regulations”), which will come into force on 10 October 2024.
• The Regulations empower the Office of Trade Sanctions Implementation (OTSI) to impose financial penalties up to £1 million or 50% of the estimated value of the breach/value of the aircraft or ship, whichever is higher.
• The Regulations also introduce new reporting obligations in connection with trade sanctions, aircraft sanctions and shipping sanctions.
• The UK government also announced plans to launch the newly formed OTSI in October 2024. OTSI will be responsible for the civil enforcement of certain trade sanctions.

New Civil Penalties for Non-Compliance With Trade, Aircraft and Shipping Sanctions

Under the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (the Regulations), the Office of Trade Sanctions Implementation (OTSI) has the power to impose significant civil monetary penalties for breaches of trade sanctions regulations made pursuant to section 1 of the Sanctions and Anti-Money Laundering Act 2018. The UK’s Department for Transport (DFT) will oversee the civil enforcement of aircraft and shipping sanctions, with similar powers to OTSI.

• For breaches of trade sanctions, OTSI may impose financial penalties up to £1 million or 50% of the estimated value of the breach, whichever is higher. Where it is not possible to estimate the value of the trade sanctions breach, financial penalties of up to £1 million can be imposed.
• For breaches of aircraft and shipping sanctions, DfT can impose financial penalties up to £1 million or 50% of the estimated value of the aircraft or ship used in connection with the relevant breach.

OTSI will consider a range of mitigating factors when determining the level of financial penalty, or whether a financial penalty is appropriate at all, including compliance with requests that OTSI may send out during investigations of suspected breaches and timely voluntary disclosure of the suspected breach (which could lead to a reduction in the financial penalty of up to 50%).¹Additional Guidance regarding civil penalties, mandatory reporting and responding to OTSI information requests has also been published.²

Importantly, for businesses, OTSI has the power to publish comprehensive details of any breaches of trade sanctions, even where a civil monetary penalty is not ultimately imposed; this includes details of the entity, a summary of the facts and, where applicable, why OTSI imposed a civil monetary penalty.

Unlike criminal enforcement, breaches of sanctions caught under the Regulations will be assessed on a strict liability basis, and OTSI only needs to be satisfied on “the balance of probabilities” (i.e. more likely than not) that a breach has occurred³. Businesses should be aware that it is no defence that they did not know, or had no reasonable cause to suspect, that a sanctions offence had been committed.

Pre-existing criminal penalties will continue to exist alongside the civil penalties drawn up under the Regulations, and the UK government will be able to consider which is the most appropriate, and proportionate, enforcement route in individual circumstances. Criminal enforcement of non-compliance will continue to be enforced by His Majesty’s Revenue and Customs (for breaches of trade sanctions) and the National Crime Agency (for aircraft and shipping sanctions). The Regulations bring the treatment of trade, aircraft and shipping sanctions closer to that of financial sanctions in the UK, and comes closer to the US’ Office of Foreign Assets Control (OFAC) approach to enforcing compliance with sanctions regimes.

Reporting Obligations

The Regulations also introduce reporting obligations on “relevant persons” to inform the Secretary of State where they know, or have reasonable cause to suspect, a person has breached trade, aircraft or shipping sanctions, along with the information on which their knowledge or suspicion is based⁴.

• For the purposes of trade sanctions, “relevant persons” include (i) those providing financial services; (ii) money service businesses and (iii) businesses providing legal or notarial services.
• For the purposes of aircraft and shipping sanctions, “relevant persons” include pilots, operators, aircraft operators, those chartering aircrafts or ships by way of business, masters or pilots, and harbour authorities.

Failure to report information required by the Regulations is an offence. OTSI may also issue information requests to those it believes may be able to provide them with information or documents regarding sanctions breaches. Failure to respond adequately to these requests will also qualify as an offence.

The introduction of mandatory reporting obligations on legal and financial services providers could become an important source of information regarding potential breaches for OTSI. Given OTSI’s power to proactively make information requests, it will be important for businesses to implement robust trade compliance policies which reflect OTSI’s enforcement powers.

Launch of Office of Trade Sanctions Implementation

The Regulations will coincide with the launch of OTSI in October 2024. Announced in December 2023 to “further strengthen the UK’s sanctions system”, OTSI will sit alongside the Office of Financial Sanctions Implementation (OFSI) and creates a dual-pronged approach to the civil enforcement of sanctions regimes in the UK⁵.

In line with the trend of intra-agency cooperation and strength across the globe, the Regulations empower OTSI to disclose information relating to trade sanctions breaches to “any other regulatory body (whether or not in the United Kingdom)”. We expect to see OTSI working closely with a range of sanctions coordinators globally to ensure trade sanctions operate effectively in cross-border matters.

The OFSI has already announced it is planning to issue civil monetary penalties with regards to financial sanctions before the end of 2024. Companies should also be prepared for trade sanctions enforcement, given OTSI will be able to proactively take enforcement action in respect of trade sanctions once its powers are active at the start of October.

Akin remain available to advise on the implementation of the Regulations, or any other UK, EU, Swiss or U.S. sanctions-related queries you may have.

_{1 OTSI has published guidance, including a list of potentially mitigating factors and alternatives to financial penalties, here (the Guidance).} 

_{2 The full list of Guidance published by OTSI regarding the civil enforcement of trade sanctions is available here.}

_{3 This follows the approach to enforcement of financial sanctions, provided for under the Economic Crime (Transparency and Enforcement) Act 2022.}

_{4 Note that reporting obligations only apply to the extent the relevant person came across the information or other matter on which their knowledge or cause for suspicion in the course of business.}

_{5 The Regulations provide that the civil enforcement of aircraft and shipping sanctions will broadly be overseen by the Department for Transport, which will have similar powers to OTSI and OFSI.}