In recent months there have been a number of significant developments in the UK sanctions space. This blog post summarises a few of them.

1. Office of Trade Sanctions Implementation

In efforts to make sanctions implementation and enforcement more robust, the UK government launched the Office of Trade Sanctions Implementation (OTSI) on 10 October 2024.

OTSI is focused on the United Kingdom’s trade sanctions rules. Its stated aim in government publications is to “support businesses with compliance, helping them to understand sanctions and giving them the confidence to meet their obligations.” It has already issued various guidance and policy papers on its website.

OTSI is now the licensing body for the provision and procurement of stand-alone services. This means that corporates and professional services firms seeking a licence to provide, for example, professional and business services that are prohibited under Regulation 54C of the Russia (Sanctions) (EU Exit) Regulations 2019 (the Russia Regulations) must now apply to OTSI. The Export Control Joint Unit will continue to manage licences for goods and ancillary services, as well as administering export controls and licensing for military and dual-use items.

Significantly, OTSI also has enforcement powers, which allow it to issue penalties up to £1 million or 50% of the value of the breach, whichever is higher. It can also send out warning letters where monetary penalties are not deemed to be appropriate. In the operation of its enforcement powers, OTSI will work in partnership with His Majesty’s Revenue & Customs (HMRC), which will continue to lead on the criminal enforcement of trade sanctions. Where there is evidence of circumvention or high levels of recklessness and serious evasion, OTSI may refer matters to HMRC for consideration of criminal prosecution.

The powers granted to OTSI are set out in the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024.

2. OFSI issues its first civil fine under the Russia Regulations

The Office of Financial Sanctions Implementation (OFSI) issued its first monetary penalty for breach of the United Kingdom’s financial sanctions against Russia on 29 August 2024.

The £15,000 fine was issued to Integral Concierge Services Limited (ICSL), a company that provided property management services to a designated person who was subject to an asset freeze in the United Kingdom. Between 2022 and 2023, ICSL made or received 26 payments (totalling £15,487.30) in connection with services that it was providing to the designated person.

OFSI issued the penalty under section 146 of the Policing and Crime Act 2017 for contravention of Regulations 11(1) and 13(1) of the Russia Regulations. Since 15 June 2022, OFSI has had the power to impose civil monetary penalties on a strict liability basis. OFSI was therefore only required to prove that ICSL “knew or had reasonable cause to suspect” that its conduct constituted a breach of the Russia Regulations for the conduct that took place prior to 15 June 2022; ICSL’s conduct after that date breached the Russia Regulations regardless of ICSL’s knowledge or intent.

This penalty indicates that OFSI is starting to actively use its enforcement powers. Corporates should ensure that they are taking seriously their obligations under the United Kingdom’s sanctions regimes. OFSI stated in its report of the penalty that since ICSL knew that it served a Ukrainian and Russian (i.e., high-risk) client base, it should have sought a better understanding of the UK sanctions rules that applied. Other aggravating factors included the high cumulative total of the payments and their repeated nature and the fact that ICSL’s conduct blunted the intended effect of the UK sanctions regime (i.e., encouraging Russia to cease its illegal actions in Ukraine) by reducing the disruption that ought to have been caused to the designated person through the asset freeze.

3. Changes to licensing rules regarding the provision of services to persons connected with Russia

From 31 October 2024, the Statutory Guidance on Regulation 54C of the Russia Regulations will be amended so that the provision of intra-corporate services will no longer be listed as a specific licensing consideration.

Regulation 54C prohibits a person with a UK nexus (i.e., individuals and legal entities who are within or undertake activities within the territory and territorial sea of the United Kingdom, all UK nationals, and legal entities established under UK law, wherever they are in the world) from providing certain services to a person connected with Russia (i.e., individuals resident or located in Russia or persons incorporated or domiciled in Russia). The prohibited services are (a) accounting services, (b) advertising services, (c) architectural services, (d) auditing services, (e) business and management consulting services, (f) engineering services, (g) IT consultancy and design services, and (h) public relations services.

The Regulation 54C prohibition is subject to exceptions and licences. The guidance for this provision previously specified that a licence may be granted for services provided to a person connected with Russia by its UK parent company or UK subsidiary of that parent company, but from 31 October 2024, this will no longer be a licensing ground.

A UK company can still apply for a licence to provide prohibited services to its Russian subsidiary, but it must demonstrate how the provision of such services aligns with the overarching purposes of the sanctions, as set out in Regulation 4 of the Russia Regulations.

4. Clarification of the rules on provision of legal advisory services

On 6 September 2024, sections of the Russia Regulations that relate to the provision of legal advisory services were amended. Regulation 54D prohibits the provision of legal advisory services to non-UK persons that would facilitate the breach of sanctions. The recent amendments clarified the scope of these restrictions.

Specifically,

• Regulation 54D was clarified to state that a person must not provide legal advice if they know that providing this advice would facilitate the breach of sanctions rules.
• Regulation 60DB (which sets out exceptions to Regulation 54D) was expanded, most notably to permit legal advice to be given relating to both UK and non-UK sanctions rules.
• The General Licence dated 11 August 2023, which previously permitted legal advice to be given regarding non-UK sanctions rules, was revoked on the basis that it is redundant in light of the amended regulations.
• In Schedule 3J, the definition of “legal advisory services” was amended to confirm that it does not include advice regarding (i) proceedings before administrative agencies, courts or other duly constituted official tribunals in any jurisdiction and (ii) services in connection with the management of claims under a contract of insurance or reinsurance.