[co-author: George Walker]*

On 11 December 2023, the UK Government announced plans to create the Office of Trade Sanctions Implementation (OTSI), a new governmental body that will be responsible for inter alia the civil enforcement of UK trade sanctions, including those against Russia.¹ OTSI’s remit will include investigating activity by companies who may be seeking to avoid sanctions by sending products via third countries. It is anticipated that OTSI will launch in early 2024.

This announcement follows an increasing focus on trade sanctions enforcement, circumvention and evasion in the UK. In 2023 to date, HM Revenue and Customs (HMRC) has issued eight compound penalties in connection with trade sanctions violations totalling more than £2.1 million.² Moreover, on 6 December 2023, the Office of Financial Sanctions Implementation (OFSI) and National Crime Agency, among others, issued a cross-agency red alert warning that Russia is attempting to circumvent sanctions to purchase restricted goods and services.

OFSI has wielded the power to impose civil penalties for financial sanctions since 2018, but there is no corresponding civil penalties regime for trade sanctions. This latest development underlines the increasing emphasis on trade sanctions as a key tool in the UK Government’s response to the Russian invasion of Ukraine.

The role of OTSI

OTSI will be responsible for: (i) the civil enforcement of trade sanctions, including the power to issue civil monetary penalties; (ii) trade sanctions business engagement and guidance; and (iii) monitoring of compliance with trade sanctions to detect breaches, including investigating suspected trade sanctions breaches.³ Criminal enforcement of trade sanctions will remain the responsibility of HMRC.

OTSI’s stated priorities are to: (i) raise awareness of trade sanctions; (ii) support businesses with compliance with trade sanctions; (iii) detect and respond to suspected breaches, including taking enforcement action where justified; and (iv) maintain and build confidence in the UK's trade sanctions regime.⁴

According to Industry and Economic Security Minister Nusrat Ghani, who announced the creation of OTSI on 11 December 2023⁵, OTSI “will have a range of enforcement tools available including levying monetary penalties on those that break the rules and sanctions dodgers” and will “complement the work of other government departments” such as OFSI, the Department for Transport and the Home Office in implementing and enforcing UK sanctions.

Minister Ghani also stated that the UK Parliament will soon be considering the UK Government’s latest trade sanctions package, which includes further export bans, import bans and financial restrictions targeting Russia. This will likely include inter alia a ban on export of a range of machine parts and electronics being used by the Russian military in Ukraine.

Key Takeaways

1. The UK is set to introduce a civil monetary penalty regime for trade sanctions violations. Once OTSI is launched in early 2024, it is anticipated that OTSI will be granted civil monetary penalty enforcement powers in a similar way to OFSI. This will likely enable the imposition of penalties on companies that violate UK trade sanctions, without the need to meet a criminal burden of proof.
2. The UK remains focused on sanctions circumvention and evasion in collaboration with international partners. Minister Ghani stated that OTSI’s expanded enforcement toolkit will be crucial to the UK’s efforts – working alongside international allies – to “clamp down on trade via third countries to Russia”. Minister Ghani also emphasised that the UK is working closely with US and EU sanctions coordinators and countries seen as transshipment points – such as Turkey, Kazakhstan and Armenia – to “highlight the risks of circumnavigating trade sanctions and together support one another to enforce sanctions effectively”.
3. Corporates and financial institutions should take steps to ensure their sanctions compliance programmes appropriately assess, escalate and mitigate trade sanctions risks. There has been a considerable expansion of UK trade sanctions since Russia’s invasion of Ukraine in February 2022, including restrictions on related financial services. Corporate and financial institutions alike should review their existing sanctions compliance procedures to ensure that they appropriately identify and assess trade sanctions risks.

*Trainee Solicitor

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