On 11 December 2023, the UK’s Industry and Economic Security Minister announced the creation of a new UK agency dedicated to implementing and enforcing trade sanctions. The Office of Trade Sanctions Implementation (OTSI) will operate as a sister unit to the existing Office of Financial Sanctions Implementation (OFSI).
Role
OTSI will be responsible for the implementation and civil enforcement of trade sanctions and will have the power to impose financial penalties in cases of breach. The UK Government has indicated that it will also have an advisory role, with “trade sanctions business engagement and guidance” listed amongst OTSI’s responsibilities.
Until now, investigations into trade sanctions breaches have been carried out by His Majesty’s Revenue and Customs (HMRC). While OTSI will be tasked with civil enforcement, more serious breaches will be referred to HMRC for criminal enforcement. It appears that the Export Control Joint Unit will retain responsibility for granting export licenses, as the OTSI announcement is silent on this point. The new agency is expected to be operational by early 2024, once regulations are in place to allow it to issue monetary penalties.
OTSI will sit within the UK’s Department of Trade and Business. According to the UK Government its formation signals a “crack down” on companies that breach trade sanctions, however its intended remit appears to be broader than civil enforcement, offering guidance and support to the market and clarifying the Government’s expectations in relation to trade sanctions.
Why is a new agency necessary?
OTSI’s creation comes at a time when the UK Government is continuing to enhance its trade sanctions regime. On 14 December 2023, a new sanctions package was announced containing new sanctions on certain Russian exports and imports, plus tightened sanctions on £662 million of exports that are already subject to restrictions.
The existing UK sanctions agency, OFSI, has a remit to ensure that the UK’s financial sanctions are properly understood, implemented and enforced. To date, however, no UK entity has been focused exclusively on trade sanctions.
OTSI’s introduction may have been at least in part motivated by a joint Red Alert (primarily aimed at the UK’s financial sector) that was issued on 6 December 2023 by UK agencies including the National Crime Agency, warning that Russia was using complex supply chains and alternative supply routes to acquire sanctioned products. The alert urged increased vigilance in monitoring transaction activity for trade sanctions evasion and identified common techniques used to circumvent trade sanctions on the export of high-risk goods.
What to expect
While OTSI’s introduction indicates an increased focus on trade sanctions breaches, it is unlikely that we will see dramatic changes to the UK enforcement landscape in the short term. OTSI will not have any additional investigative powers compared to HMRC, and no changes have been announced to the penalty regime in respect of breaches.
The UK private sector and industrial trading partners can though be optimistic that OTSI’s creation should result in more useful commercial guidance being issued on the application and scope of UK trade sanctions legislation. Since the introduction of the UK’s Russia Regulations, OFSI has published helpful guidance on complying with the financial sanctions rules, as well as publishing annual reviews setting out its work and priorities. More of the same from OTSI would be a welcome development.
This blog post was co-authored by Paralegal Katy O’Connor.
