HMRC sanctions response provides insight to enforcement approach

The HMRC responses follow a letter sent by the Treasury Select Committee last month. The responses also provide insight into the approach to enforcement of trade sanctions and HMRC’s areas of focus from an organisational perspective driven at prioritising sanctions compliance.

The Treasury Select Committee requested details on the enforcement of trade sanctions following scrutiny of the enforcement of the UK regime – previously the focus of an oral evidence committee session (40 pages/304 KB).

The responses outline the split between UK government departments of the enforcement of the UK sanctions regime.

HMRC is responsible for the civil enforcement of trade sanctions on the import and export or transfer of goods, technology and software from the UK and the provision of associated services, including the provision of brokering, and financial assistance related to these activities. OTSI is responsible for the civil enforcement of trade sanctions on the provision or procurement of sanctioned services’; moving, transferring, making available, or acquiring ‘sanctioned goods, technology or software’ outside the UK; and providing ancillary services to the movement or transfer of sanctions goods technology or software outside of the UK.

Cases considered “serious” by OTSI will be referred by it to HMRC for consideration on whether to criminally investigate the matter, in accordance with its criminal investigation policy. Serious or deliberate breaches of sanctions will generally be considered for criminal investigation.

Following the completion of a criminal investigation, HMRC decides whether a matter should be referred for criminal prosecution. HMRC is not itself responsible for deciding if a case will be criminally prosecuted. This decision is made by the independent prosecution authorities across the UK: the Crown Prosecution Service in England and Wales; the Crown Office and Procurator Fiscal Service in Scotland; and the Public Prosecution Service Northern Ireland.

Enforcement of trade sanctions by HMRC

The responses also give insight into HMRC’s recent investigation and enforcement activity.

Between 2021 and 2024, the number of investigations opened by HMRC into potential sanctions offences rose from 0 to 29, the vast majority of which related to Russian sanctions. HMRC currently has 30 live criminal investigations into breaches of sanctions, 27 of which relate to Russia sanctions. In October 2024, one of the live investigations into a breach of Russia sanctions was referred to the Crown Prosecution Service and is awaiting a charging decision. HMRC said: “Sanctions investigations can be complex and lengthy, and therefore the time it takes to investigate a breach and progress a case to prosecution can be considerable.”

This increase in Russia sanctions investigations is expected as the restrictions in the UK’s Russia sanctions regime incrementally ramped up from February 2022. Although the number of investigations may seem relatively low, it can be months if not years before non-compliance can end up on the radar of HMRC or the party involved in the underlying activity.

HMRC explained the ways in which it may be alerted to non-compliance, including:

• conducting targeted risk- and intelligence-based checks on goods entering and leaving the UK to identify potential breaches;
• businesses self-reporting breaches to HMRC through the voluntary disclosure process;
• identifying irregularities through tax and customs compliance audits;
• receiving actionable intelligence from UK law enforcement authorities, the intelligence community and international counterparts;
• the Export Control Joint Unit (ECJU) in the Department for Business and Trade identifying irregularities through the audits they do on businesses’ compliance with export controls (which may overlap with sanctions), and referring irregularities to HMRC.  

If the ECJU identifies non-compliance it will issue a letter recommending that the exporter report the matter to HMRC. This recommendation comes with a ‘hammer’ in that if the exporter does not report the matter – or the ECJU reports it first – the ‘mitigation’ attached to making a voluntary disclosure may not be available.

In addition to referring non-compliance for a criminal prosecution, HMRC has a range of enforcement options at its disposal including seizures, compound settlements and warning letters.

HMRC has a discretionary power to "compound" non-compliance. This discretionary power, in essence, means that HMRC can offer an offender the opportunity to avoid prosecution in return for the payment of an administrative penalty. HMRC commonly uses this power to deal with export control, duty and excise breaches. An offender that does not accept a compound penalty is referred for a criminal prosecution.

Compound settlements are used primarily where businesses have voluntarily disclosed non-compliances to HMRC that were inadvertent or due to weaknesses in internal controls; and the business co-operated with HMRC investigation and sought to remedy any underlying failings.

A question put forward by the Treasury Committee asked about HMRC’s reasoning why it did not publish information on breaches following the conclusion of a compound settlement. HMRC responded it considered whether to name a party to a compound settlement on a case-by-case basis. According to HMRC: “where a business has taken steps to bring themselves into compliance having made an inadvertent sanctions breach, HMRC will generally not name them if doing do could have a disproportionate impact on their reputation, and ability to trade domestically and internationally. This approach helps maintain and incentive for businesses to self-report and rectify non-compliance with trade sanctions through the voluntary disclosure process”.

There is a disconnect between HMRC’s approach in publishing details of non-compliance following the imposition of a penalty, and the approach taken by OTSI and OFSI. HMRC generally publishes limited information, being the fine and nature of the underlying items to which the non-compliance relates, while OFSI publishes the name of the person receiving the penalty and the details of the non-compliance. OTSI is expected to follow the approach of OFSI. There are benefits to both approaches – anonymity following the imposition of a penalty is a key benefit for the recipient and this may be a factor that would weigh in favour of submitting a voluntarily disclosure, while publishing details of non-compliance can give guidance on potential unappreciated risks and improvements to be made to compliance measures. It is possible that both benefits can be achieved by publishing lessons learned while not naming the recipient of a penalty.

HMRC’s areas of focus from driven at prioritising sanctions compliance

Finally, the responses focused on HMRC’s areas of focus from an organisational perspective driven at prioritising sanctions enforcement.

For instance, HMRC has recruited 40 additional criminal investigators to detect and enforce trade sanctions offences, alongside policy and legal advisers and analysts to develop HMRC’s and wider government’s understanding of sanctions compliance risks.   The strategic exports and sanctions enforcement team in HMRC’s Fraud Investigation Service (FIS) leads on sanctions enforcement in HMRC. As of January this team had 101 full-time equivalent staff, of whom 41 are dedicated to sanctions enforcement work, the majority of which relates to Russia sanctions. These staff are supported by staff in non-sanctions specific roles but who assist with non-compliance detection.

Funding for HMRC’s overseas network of fiscal crime liaison officers has been increased to drive intelligence gathering on sanctions compliance for the purposes of building HMRC’s understanding of risk and enforcement, as well as undertaking capacity-building work in international circumvention hot spots in partnership with other government bodies. Circumvention is a focus area for enforcement.

Additionally, HMRC has delivered a sanctions awareness programme for frontline personnel in HMRC and Border Force to equip officers with the skills to identify potential breaches of sanctions. Approximately 500 staff have attended these events since January 2024. Training has also been delivered to civil investigators within OTSI.