Background
Breach of UK trade sanctions is currently a criminal offence which carries the risk of both monetary penalties and imprisonment. Generally, trade sanctions breaches – unlike financial sanctions breaches – are not subject to strict liability and so lack of knowledge is a defence.
The UK government has announced the creation of a new trade sanctions enforcement body, the Office for Trade Sanctions Implementation (“OTSI”). OTSI will be responsible for the civil enforcement of the UK’s trade sanctions regime and have new powers to impose monetary penalties. HMRC will retain responsibility for enforcing trade sanctions criminal offences.
As a result of the creation of OTSI, the UK’s sanctions regime will have two civil enforcement bodies in respect of sanctions breaches, with the Office for Financial Sanctions Implementation (“OFSI”) – which sits within His Majesty’s Treasury – retaining responsibility for the civil enforcement of financial sanctions breaches.
Broadly, UK financial sanctions concern asset freeze, securities, investment and loan restrictions. Trade sanctions concern UK goods, services and technology export/import restrictions.
OTSI
The creation of OTSI is the culmination of a cross-government review which has considered how the UK’s sanctions implementation and enforcement can be made more effective.
OTSI will sit within the Department for Business and Trade and will be responsible for investigating trade sanctions breaches. Where there are breaches, OTSI will have a range of enforcement tools, which will include the ability to levy monetary penalties and to refer cases to HMRC for criminal enforcement.
Details of OTSI’s new powers to level monetary penalties have not yet been confirmed; however, the UK government’s announcement stated that they will be “tougher” than those currently available. When announcing the new sanctions, Minister Nus Ghani stated “we need an expanded toolkit of enforcement powers for trade sanctions breaches – just as we have for financial sanctions”. Consequently, it is conceivable they could include a new strict liability standard in respect of trade imports/exports, which would align with the legal position as regards most financial sanctions.
We expect OTSI to begin enforcing trade sanctions in early 2024, when its new legal powers are in place.
In addition to its enforcement powers, OTSI will - like OFSI - provide additional support and guidance to businesses in order to support sanctions compliance. However – and unlike OFSI – trade licences will continue to be issued by the ECJU.
The creation of OTSI demonstrates a particular focus of the UK government on goods-related sanctions. There has been particular concern that components from the UK, and other allied countries, are still being found in Russian weaponry. With the creation of OTSI, we can expect a more active and robust approach to the enforcement of the UK’s trade sanctions regime.
Next steps
Companies should ensure that they have:
- robust sanctions compliance policies and procedures in place;
- the correct customs classifications for the products that they are exporting, and
- sanctions clauses in contractual relationships, to help to ensure that their products are not diverted in breach of UK trade sanctions.
Please contact any of the listed Hogan Lovells lawyers for further information or assistance.
Authored by Daniel Shapland and Aline Doussin.
