UK Update: New Body Given Civil Enforcement Powers to Tackle Trade Sanctions Breaches

On 12 September 2024, the UK Government announced that new enforcement bodies will be given civil enforcement powers, including the power to impose monetary penalties, for breaches of trade, aircraft, and shipping sanctions.

The new powers come into force on 10 October 2024.

New enforcement bodies

The new powers will be exercised by the Office of Trade Sanctions Implementation (OTSI), which will take the lead on investigation and enforcement of trade sanctions breaches, and the Department for Trade (DfT), which has been given similar powers in relation to breaches of aircraft and shipping sanctions.

OTSI is taking over the civil enforcement of trade sanctions from HM Revenue and Customs (HMRC), which will still investigate and enforce breaches of the UK’s general export regime and will remain responsible for the criminal enforcement of trade sanctions.

New monetary penalties

Available penalties are identical to those currently available to the Office of Financial Sanctions Implementation (OFSI) in relation to breaches of UK financial sanctions. OTSI and DfT will be able to impose a civil penalty of up to £1 million or 50% of the value of the breach, or aircraft/ship, whichever is greater.

Penalties will be imposed on a strict liability basis, meaning that neither OTSI nor DfT will require to demonstrate that a person or organisation knew or should have known that they were acting in breach of trade sanctions (unlike for criminal enforcement). This means that there is no defence even if a person or organisation can demonstrate that they did not know or had no reasonable cause to suspect they were in breach. However, such evidence can mitigate the seriousness of any breach and in turn persuade the regulator to issue a reduced penalty, or no penalty at all.

Where a person or organisation voluntarily discloses a breach to OTSI or DfT, that could result in a reduction of any penalty by up to 50%.

OTSI and DfT will also have powers to publicise information on monetary penalties, including value and identity of those in breach, where it is considered in the public interest to do so. This is vastly different from the approach taken by HMRC, which has to date only provided information on the value of the penalty and a brief description of the breach, keeping the identity of the perpetrator and a more detailed description of the breach confidential.

New reporting obligations

Those with existing reporting obligations to OFSI will now also have the same reporting obligations to OTSI, where applicable. Duties to report suspected breaches are primarily imposed on the financial services and legal sectors, and those operating a money service business.

Duties are also imposed on airport operators, aircraft charter companies, aircraft operators and aircraft pilots, as well as harbour authorities, vessel charter companies, vessel masters and pilots in relation to reporting of suspected breaches of aircraft and shipping sanctions to DfT.

Iran: further measures announced

Hot on the heels of the announcement of OTSI’s and DfT’s new powers, further sanctions against Iran were introduced on 13 September 2024, targeting goods and technology of strategic concern to the UK. There are restrictions on the export, supply, and delivery, and making available to, or for use in, Iran certain goods and technology which could be used in Iran’s production and supply of unmanned aerial vehicles and missiles. The measures are designed to put further pressure on Iran’s defence industry.

Impact on businesses

Trade and financial sanctions risks and regulations are dynamic and fast paced, and require regular monitoring to ensure compliance. The recent announcement does not change the substance of the UK trade sanctions regime, but it does make significant changes to how they will be enforced. New enforcement bodies with new powers will want to make an impact and demonstrate their ability to investigate and enforce effectively and efficiently. UK businesses should review their risk assessments to take account of any trade, shipping or aircraft sanctions risks and update their procedures as required, while the financial and legal sectors will need to be aware that their duties to report suspected breaches have been extended to include trade sanctions.

By Burness Paull LLP, Scotland, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact ukscotland@transatlanticlaw.com

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