Licence regime updated as new UK trade sanctions implementation office launched

OTSI has been set up under the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 to enforce against non-compliance with certain parts of the UK’s trade sanctions on a civil basis. The regulations bringing the body into operation became effective on 10 October. The civil enforcement powers of OTSI align with the Office of Financial Sanctions Implementation (OFSI), which can enforce non-compliance with financial sanctions on a civil basis. OFSI publishes the names of those that receive a civil penalty with details of the facts that amounted to a breach, and OTSI has the power to do the same.

The launch of OTSI also means that there are now three licensing bodies in the Department for Business and Trade (DBT) responsible for administering licences to carry out activity prohibited under UK trade sanctions: OTSI, the Import Controls and Sanctions team and the Export Control Joint Unit (ECJU). OTSI is the licensing body for the provision of services that are not ancillary to the movement of goods.

Sanctions expert Stacy Keen of Pinsent Masons said that OTSI’s operation adds to the multitude of the UK government’s departments with responsibility for the civil enforcement of UK sanctions regimes and the granting of licence applications. 

“It is possible that an activity or transaction to lawfully proceed under a UK sanctions regime may require licences from OFSI, OTSI, the ECJU and possibly others. The licences needed will be fact specific and depend on the goods, technology, software and services to be provided and the counterparty, any other parties involved like banks, and their respective owners or controllers,” she said.

Depending on the footprint of the activity or transaction and the parties involved, licences, or the equivalent authorisations, may also be required from sanctions bodies outside of the UK, for example in an EU member state or in the US, Keen added. 

“Collaboration and coordination between UK government departments in considering licence applications would be of benefit to avoid unnecessary delays and bureaucracy,” said Keen.

According to Keen, OTSI’s ability to issue a civil fine does not extend to all UK trade sanctions. HMRC remains responsible for the enforcement of trade sanctions that fall within its remit as the UK’s customs authority and for the enforcement of trade sanctions measures that relate to strategic goods and technology, including military and dual-use goods and technology. HMRC has the power to ‘compound’ offences and offer a financial penalty in lieu of referring the matter for criminal prosecution.

The enforcement powers of OTSI have a degree of extra-territorial effect. All UK persons including UK nationals and incorporated businesses wherever they are in the world, and any person, including non-UK nationals and incorporated businesses, carrying out activities in the UK or the UK territorial sea will be within scope of the new regime.

The new rules introduced by the 2024 Regulations also provide scope for OTSI to hold company directors personally liable for certain trade sanction breaches in addition to the businesses they work for.

Alternative enforcement action to fines has become possible under the new regime, including public disclosure of breaches without any fine being imposed. The new rules further provide for additional reporting obligations for banks and other UK-regulated financial services firms, as well as new information gathering powers to enable OTSI to monitor for compliance with, and investigate potential breaches of, UK trade sanctions.

Financial services firms, money services businesses and legal service providers are now required to report suspected breaches of relevant trade sanctions to OTSI.

Regulation and compliance expert Melanie Ryan of Pinsent Masons said that UK banks are already familiar with the need to screen the trade and business financing deals they are involved in to make sure that they themselves are not in breach of trade sanctions, but the new regulations mean banks will now need to consider their customers’ compliance with trade sanctions and report where they identify or suspect that a breach has occurred.

“The reporting obligations do not extend to where they suspect a customer may or will breach trade sanctions, however they add to a suite of existing reporting duties that arise in other compliance areas such as financial sanctions and money laundering,” she said.

It will be a criminal offence for institutions to fail to comply with their reporting obligations, and they are subject to enforcement action by OTSI under the new civil enforcement regime.