New UK trade sanctions civil enforcement regime introduced

Under the new civil regime, those that breach certain UK trade sanctions face being fined up to £1 million or 50% of the estimated value of the breach or failure to comply, whichever is greater. Fines will be able to be imposed on the balance of probabilities and will apply on a strict liability basis, with it being no defence for the ‘accused’ to demonstrate that they did not know or had no reasonable cause to suspect that an offence had been committed.

The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 provide for a new Office of Trade Sanctions Implementation (OTSI) to enforce compliance on a civil basis, but sanctions expert Stacy Keen of Pinsent Masons said HM Revenue and Customs (HMRC) will continue to have an important role to play in enforcing trade sanctions, within the existing framework that provides for civil and potential criminal enforcement.

The powers of OTSI will 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.

“OTSI’s ability to issue a civil fine does not extend to all UK trade sanctions,” Keen said. “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.”

“HMRC’s methodology for calculating the value of a compound penalty is different to that followed by OFSI and OTSI. An HMRC compound penalty is typically calculated based on three times the value of the prohibited goods or services, with a significant discount being offered if the matter is voluntarily disclosed and there is full cooperation with HMRC’s investigation. Another key difference in the approach to enforcement is that HMRC does not publish the names of those that accept a compound penalty or details of the breach beyond, generally, the type of goods. services and their destination,” she said.

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 is also 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.

The new regulations will have a degree of extra-territorial effect when they come into force – all UK persons including businesses wherever they are in the world, and any person including businesses in the UK or the UK territorial sea, will be within scope of the new regime.

Currently, all UK trade sanctions are administered by the Export Control Joint Unit within the Department for Business and Trade and enforced on a civil basis by HMRC. They include restrictions on exporting, supplying, delivering or making available listed goods and technology; restrictions on providing financial, insurance and technical services related to listed goods and technology; as well as restrictions on brokering (including arranging and negotiating) the provision of restricted goods and services. Further specific trade sanctions have been imposed in relation to Russia and many other countries.

In an explanatory memorandum issued alongside the regulations, the UK government said: “Under current legislation, a breach of a prohibition or a failure to comply with a requirement under trade, aircraft and shipping sanctions legislation is a criminal offence. Whilst this remains a strong deterrent, criminal enforcement may not be a proportionate approach to enforcement in all cases. The civil enforcement regime has been designed to strengthen His Majesty’s Government’s enforcement capability.”