OTSI - new trade sanctions civil enforcement powers in effect from October 2024

On 12 September 2024, the UK Government announced that the new Office of Trade Sanctions Implementation ("OTSI"), which sits within the Department for Business and Trade, would be operational from 10 October 2024.  The creation of the new office was initially announced in December 2023 and OTSI's launch had originally been anticipated in early 2024 (see our previous post for further detail). OTSI is intended to help businesses comply with sanctions, as well as investigating potential breaches, issuing civil penalties and referring cases to HM Revenue and Customs ("HMRC") for criminal enforcement where needed. OTSI's website also indicates that, "in due course", it will become the licensing body for the provision and procurement of standalone services such as professional and business services.

New legislation (the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024) (the "Regulations") granting OTSI the power to impose civil sanctions for breaches of certain trade, aircraft or shipping sanctions on a strict liability basis was published, and on the same day OTSI's website was updated to add various guidance notes relating to the implementation and enforcement of the Regulations.

From 10 October 2024, OTSI will have the power to impose civil monetary penalties in respect of non-compliance with certain trade, aircraft and shipping sanctions, including those imposed in respect of Russia. OTSI will also have the power to request information to assist in the investigation of, and enforcement against, breaches of trade, aircraft and shipping sanctions. Responsibility for the criminal enforcement of breaches will remain with HMRC (in respect of trade sanctions) and the National Crime Agency (in respect of aircraft/shipping sanctions), however.

Criminal offences will be introduced in respect of breaches of new reporting and information obligations introduced by the Regulations (and summarised further below), and OTSI will have the power to publish reports where a breach of trade sanctions has occurred, regardless of whether a civil monetary penalty has been imposed.

Many of the new civil enforcement powers granted to OTSI mirror those of the Office of Financial Sanctions Implementation ("OFSI") in relation to breaches of financial sanctions. 

Certain trade sanctions are excluded from OTSI's remit, however, on the basis that responsibility for civil enforcement in respect of these already exists and sits with HM Treasury and Ofcom (in respect of excluded trade sanctions relating to the provision of maritime transport for certain oil and oil products and the provision of internet services in Russia and Belarus) or HMRC (e.g. in respect of military and dual-use goods and technologies and other goods subject to strategic export controls).

We provide further detail on OTSI's powers and the key provisions of the Regulations below. Companies will no doubt be watching closely to see how OTSI exercises its powers (once operational) and will welcome further guidance from OTSI on the often complex area of trade sanctions compliance.

Strict liability in civil enforcement

Similar to civil enforcement by OFSI in respect of breaches of financial sanctions, civil monetary penalties for breaches of relevant trade sanctions are to be imposed on a 'strict liability' basis where OTSI considers on a civil standard (i.e. on the balance of probabilities) that a breach has occurred (Regulation 5). Any defence under relevant trade sanctions that a person did not know or have reasonable cause to suspect that they were committing a breach of trade sanctions is disapplied (Regulation 6) by the Regulations, as is any requirement for knowledge or reasonable suspicion under relevant aircraft and shipping sanctions (Regulation 7). OTSI will, therefore, be able to apply a civil monetary penalty if it can show, on the balance of probabilities, that there has been a breach of a relevant trade/aircraft/shipping sanction.  

Before imposing a monetary penalty, however, OTSI must inform the person concerned of its intention to do so, providing reasons for the decision and the penalty amount, and allow the person to make representations (Regulation 11). Guidance published by the Department for Business and Trade and OTSI on 12 September 2024 suggests that OTSI may consider a number of factors in mitigation when determining the type and amount of penalty to apply, including timely disclosure (whether voluntary or mandatory), compliance with information requests, a lack of previous sanctions breaches and good knowledge of trade sanctions and compliance systems proportionate to the size, sanctions risk profile and resources of the business.

As with OFSI, OTSI will also have the power to publicly name companies which it considers have, on the balance of probabilities, breached relevant trade/aircraft/shipping sanctions, even if no monetary penalty has been imposed.

These changes will be of particular interest to companies with international supply chains and those which export, given the increased potential sanctions exposure involved in these activities. Such companies will now have the potential to incur civil liability  where an inadvertent breach of trade sanctions is committed, including potentially in cases where due diligence has been carried out and where there was no "reasonable" cause to suspect a breach.

Value of monetary penalty

OTSI may impose a monetary penalty up to a maximum of the greater of £1 million or 50% of the estimated value of the breach of trade sanctions where it is possible to estimate the value of the breach. The maximum penalty for a breach of relevant trade or shipping sanctions is the greater of £1 million or the estimated value of the ship/ aircraft involved in the breach if it is possible to estimate said value.

Personal liability for officers

OTSI will have the power to impose civil monetary penalties against the officers of a corporate body, partners in a partnership or members in a body managed by members, as well as the relevant entity in instances where a breach or failure to comply with the relevant trade/aircraft/shipping sanctions is committed with the consent or connivance of the individual or is attributable to their neglect (Regulation 8).

Reporting and information obligations

Reporting obligations

From 10 October 2024, "relevant persons" will be required to report any knowledge or reasonable suspicion of a breach of trade sanctions to OTSI as soon as practicable where the information on which such knowledge or suspicion has come to them in the course of carrying on business (Regulation 15). Such reports should be made through OTSI's online reporting portal or by email using an email address specified in statutory guidance. "Relevant persons" are defined in the Regulations as:

• a person with permission under Part 4A of the Financial Services and Markets Act 2000 to carry out a regulated activity;
• undertakings that, by way of business, operate a currency exchange office, transmit money or cash cheques made payable to customers; and
• firms or sole practitioners that provide legal or notarial services by way of business.

Similar reporting obligations apply to specified persons in respect of breaches of aircraft/shipping sanctions (i.e. those involved in chartering or operating aircraft/ships and operating ports/airports).

The nature of the obligations for reporting to OTSI in respect of trade sanctions are broadly the same as those for reporting to OFSI in respect of financial sanctions, though the defined relevant persons differ between the two.  Perhaps reflective of the difference in scope between trade and financial sanctions, "relevant persons" are more narrowly drawn for the purposes of the OTSI obligations.

Information obligations

OTSI will have the power to require the production of information, including documents, to assist it in the exercise of its functions under the Regulations, the monitoring of compliance and the investigation of suspected breaches of relevant trade/ aircraft/ shipping sanctions (Regulations 17-20). Any recipient of a request for documents must take reasonable steps to obtain the documents requested, even if not in their possession or control (Regulation 20). Examples of the types of documents which OTSI may request are set out in new guidance.

The Regulations introduce a new criminal offence under which any person failing to comply with the reporting and information requirements under the Regulations will be liable for a fine and/or up to six months imprisonment.