On 12 September 2024, the UK government published the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024, which will enter into force on 10 October 2024, together with statutory guidance describing the new measures. The regulations set out new enforcement powers in relation to UK trade sanctions, which will be implemented primarily by the newly-established Office of Trade Sanctions Implementation (“OTSI”), which sits within the Department of Business and Trade (“DBT”).
Separately, the UK has also amended restrictions in the UK Russia (Sanctions) (EU Exit) Regulations 2019 relating to the provision of legal advisory services, including to introduce broadened exemptions covering the provision of compliance-related advice.
I. OTSI’s Responsibilities and Place in the UK’s Sanctions Enforcement Structure
The Government announced the establishment of OTSI in December 2023, and has gradually built up OTSI at an operational level over the ensuing months. OTSI will serve effectively as a trade sanctions equivalent to the UK Office of Financial Sanctions Implementation (“OFSI”). Most of its enforcement powers, and associated processes, closely parallel those that have been implemented by OFSI since OFSI first secured administrative enforcement authority in 2017 (pursuant to the UK Policing and Crime Act 2017).
The new regulations, and associated statutory guidance, assign to OTSI civil enforcement authority for trade sanctions relating to:
- providing restricted “trade services”;
- moving, acquiring and making available sanctioned goods and technologies outside of the United Kingdom; and
- providing ancillary services (such as financial and brokering services) to the movement of sanctioned goods and technology outside of the United Kingdom.
OTSI’s responsibilities also extend to:
- enforcing suspected circumvention of the above trade sanctions;
- enforcing the requirements of exemptions to those sanctions (such as notification requirements); and
- issuing and enforcing the conditions of licences in relation to the foregoing restrictions.
It is our understanding that OTSI will soon establish its own online licensing system, and will therefore not utilize the “SPIRE” online system currently in use for trade sanctions licensing, as implemented by DBT’s Export Joint Control Unit (“ECJU”).
OTSI’s administrative and enforcement powers will sit alongside those of HM Revenue and Customs (“HMRC”) and ECJU. HMRC and ECJU will retain enforcement and administrative/licensing responsibilities in the following areas:
- HMRC will retain its lead role in the criminal enforcement of trade sanctions, in cases involving wilful misconduct (together with other agencies, such as the UK Serious Fraud Office and the Crown Prosecution Service).
- HMRC will also retain enforcement responsibilities – including under its compound penalty powers under the Customs and Excise Management Act – regarding sanctions measures that focus on the import and export of restricted goods, software, and technology to or from the UK, and associated restricted services. ECJU will retain administrative and licensing jurisdiction in those areas.
- ECJU and HMRC will also retain their pre-existing roles in relation to UK dual-use and military export controls.
In addition, the National Crime Agency (“NCA”) and Office of Communications (“OfCom”) will retain their pre-existing roles in relation to the enforcement of UK shipping and aircraft sanctions and internet services sanctions, respectively. Likewise, OFSI will continue to retain its full administrative and enforcement powers in relation to UK financial sanctions. Finally, guidance published by DBT indicates that for aircraft and shipping-related sanctions, civil enforcement will rest primarily with the Department for Transport (“DfT”) rather than OTSI.
There ultimately remains a lack of full clarity concerning aspects of the division of responsibility between OTSI and HMRC/ECJU, particularly in the context of restricted “trade services.” For example, certain aspects of the UK sanctions regulations restrict the provision of “technical assistance” and other services in connection with goods that are subject to sanctions-related export or import controls. It appears that HMRC and ECJU will retain jurisdiction over those aspects of the UK sanctions for transactions having a nexus to UK territory, whereas OTSI may assume jurisdiction involving activities occurring outside UK territory. At the same time, OTSI will appear to hold the administrative and enforcement remit in relation to UK-Russia sanctions concerning the provision of “professional services,” including business/management consulting, accounting/auditing, IT consulting, engineering, and certain other services. That might result, in practice, in overlapping licensing requirements, and enforcement jurisdiction, in a number of scenarios (as an example, a given activity might involve “technical assistance” relating to restricted goods within ECJU/HMRC jurisdiction, while also involving “engineering” or “IT consulting” professional services within OTSI’s apparent jurisdiction).
II. Main Enforcement Powers
OTSI and DfT’s main enforcement powers are similar to those available to OFSI in the case of financial sanctions.
Jurisdictional Reach
Consistent with other UK sanctions measures, OTSI’s and DfT’s enforcement jurisdiction will extend to conduct within UK territory (including the UK territorial sea), and to the worldwide conduct of UK persons.
Civil Monetary Penalties
As with OFSI’s civil enforcement powers, OTSI and DfT can impose a maximum civil fine of the greater of £1 million or 50% of the estimated value of a breach. OTSI and DfT may impose a fine if it establishes a violation on the “balance of probabilities” – i.e., where it is more likely than not a person breached sanctions – and it may do so on a strict liability basis. Thus – again, consistent with OFSI’s powers – OTSI and DfT need not prove that a person knew or reasonably suspected that they had breached sanctions.
OTSI and DfT are empowered to publish reports of enforcement actions, including in cases where no civil monetary penalty has been imposed. That authority has been used by OFSI on a regular basis since OFSI obtained similar powers in 2017 – OFSI typically publishes case descriptions that specifically name the party engaged in a confirmed breach.
The new regulations impose a separate liability standard on persons in corporate director, manager, secretary, or equivalent roles – such as partners in partnerships – allowing for the imposition of civil penalties against those persons (in addition to the entity itself) where those breaches occur with the “consent or connivance” of those individuals, or as a consequence of “any neglect” on their part.
The new regulations also introduce an administrative enforcement and appeals process, which again is largely modelled after the process currently in effect in relation to OFSI enforcement.
Powers to request information
Like OFSI, OTSI and DfT can compel individuals and businesses to disclose information in connection with its investigations. OTSI and DfT can request a wide range of information and documentation, including sales contracts, commercial invoices, due diligence reports, and risk assessments (among other information).
Reporting Obligations
The new regulations require certain parties to report information that they know or suspect relates to breaches of sanctions measures under OTSI’s or DfT’s enforcement remit. That obligation is similar to existing standards in relation to OFSI and UK financial sanctions. In the case of breaches within the scope of OTSI’s jurisdiction, it extends to: (1) entities holding permissions under the UK Financial Services and Markets Act; (2) external legal counsel and notaries; and (3) entities operating currency exchange, money transmission, or cash checking businesses. In the case of aircraft and shipping-related sanctions, the reporting obligation extends to pilots, aircraft operators, airport operators, aircraft or ship charterers, and harbour authorities. As with regard to the OFSI reporting regime, information that is legally privileged is exempt from the foregoing reporting requirements.
Voluntary Self Disclosures
The new regulations do not address voluntary self-disclosures. However, the accompanying statutory guidance provides that “DBT and DfT value voluntary disclosure. Voluntary disclosure of a breach of trade sanctions may be a mitigating factor when case workers assess the case. It may also have an impact on any subsequent decision to impose a monetary penalty or the level of that penalty.”
III. Amendments to UK-Russia Legal Advisory Services Prohibition
As described in our September 2023 client alert, in June 2023 the UK introduced a new prohibition, into the UK-Russia sanctions regulations, on the provision of legal advisory services in connection with certain Russia-related transactions. That prohibition was framed in broad terms, and ostensibly captured legal advice concerning compliance with non-UK legal regimes, including for example U.S. or EU sanctions. A number of external legal practitioners, including our firm, immediately raised concerns with the Government concerning the scope – and unintended consequences – of the prohibition. That led the Government to issue, in August 2023, an interim general licence allowing for the provision of restricted compliance-related advice, and to initiate consultations concerning longer-term amendments to the prohibition.
On 5 September 2024, the Government issued the Russia (Sanctions) (EU Exit) (Amendments) (No. 4) Regulations 2024, which introduce various amendments to the Russia sanctions legal services prohibition. Among other changes, the amendments introduce an important new exemption covering the provision of legal services “to any person on or in connection with – (a) compliance with, and the consequences of non-compliance with, any relevant law, (b) the discharge of obligations under any relevant law, or (c) the potential or actual, application of punitive measures.” The new exemption broadly captures a range of compliance-related advice that UK practitioners have historically provided concerning Russia, and would for example cover advice in relation to U.S. or EU sanctions or export controls, non-UK foreign corrupt practices advice, and advice concerning non-UK anti-money laundering measures.
As a consequence of the new amendments to the legal services provisions, the Government has revoked the above-referenced general licence.
If you have any questions concerning the matters discussed in this alert, please contact the members of our International Trade Controls practice.
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