The UK has recently announced two significant legislative changes to its sanctions regime:
(1) On 12 September 2024 the UK introduced legislation to provide the new Office for Trade Sanctions Implementation (“OTSI”) with statutory powers. From 10 October 2024, OTSI will be able to impose civil penalties for trade sanctions breaches on a strict liability basis (i.e. there is no requirement for a person to have knowledge of committing an offence for civil penalty purposes).
(2) The UK has amended the legal advisory services prohibition to narrow its scope, and to introduce new exceptions which apply automatically, meaning the Legal Advisory Services General Trade Licence has become redundant and has been revoked.
Office for Trade Sanctions Implementation
The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (the “Regulations”) were laid before Parliament on 12 September 2024 and come into force on 10 October 2024. The civil penalties outlined in the Regulations will be enforced by OTSI, a newly created office that sits within the Department of Business and Trade. With the launch of OTSI, the UK’s sanctions regime will have two civil enforcement bodies in respect of sanctions breaches, with the Office for Financial Sanctions Implementation – which sits within HM Treasury – retaining responsibility for the civil enforcement of financial sanctions breaches.
The launch of OTSI is part of the UK government’s increased focus on goods-related sanctions. There continues to be particular concern regarding circumvention of sanctions against Russia and that components from the UK, and other allied countries, are still being found in Russian weaponry. With OTSI becoming active, we can expect a more active and robust approach to the enforcement of the UK’s trade sanctions regime.
For further information on the creation of OTSI, please see our earlier publication in December 2023.
Prior to 10 October 2024: Civil monetary penalties can be imposed for breaches of financial sanctions, and such penalties could be imposed on a strict liability basis (i.e. it was not a defence to say you did not know you were breaching UK sanctions) However, the enforcement of trade sanctions breaches is generally a criminal matter only, and the UK’s trade sanctions include a defence where a person didn’t know or have reasonable cause to suspect that they were breaching UK trade sanctions.
From 10 October 2024: New civil enforcement powers for breaches of most trade, aircraft and shipping sanctions will take effect; the power to impose civil monetary penalties will reside with OTSI. Knowledge defences under the UK trade sanctions are no longer available such that civil penalties can be imposed by OTSI on a strict liability basis – this means that a person can be subject to a civil fine for a UK trade sanctions breach even if they didn’t know or have reasonable cause to suspect that they were breaching UK sanctions. However, the knowledge defence will still be applicable in a criminal law context.
As with financial sanctions civil penalties, it is likely OTSI will publish guidance in due course as to how it will assess breaches of trade sanctions. This guidance could indicate whether or not OTSI will consider having compliance measures in place such as adequate policies/procedures/due diligence as a mitigating factor when assessing breaches. Consequently, in light of the increased risk landscape companies should consider whether their compliance processes for trade sanctions are adequate.
In addition, new reporting obligations regarding knowledge or suspicion of breaches of trade sanctions will be placed on certain types of entities (for example financial institutions); these replicate the reporting obligations in place in respect of the UK’s financial sanctions regime.
Civil enforcement in more detail
- Scope of those potentially liable: All UK persons (including businesses) and any persons (including businesses) in UK territory. In cases of a corporate breach, OTSI can hold officers (including managers) of the company personally liable and impose penalties if the breach is committed with the officer’s consent or involvement; or attributable to their neglect.
- Scope of enforcement powers: Civil monetary penalties imposed upon any person or business that must comply with UK sanctions.
- When will a civil monetary penalty be imposed: The OTSI may impose a penalty if, on the balance of probabilities, the individual / entity has:
- carried out an activity which is prohibited (regardless of if they had knowledge that the activity was prohibited or not); or
- failed to comply with an obligation which is required (regardless of if they had knowledge of the obligation or not),
by any of the UK’s sanctions regimes (therefore, including but not limited to the UK’s sanctions on Russia).
- Maximum amount of penalty: The greater of £1 million or 50% of the estimated value of the breach. Actual amount determined based on the case.
- Publication of breaches: OTSI may publish details of a case, whether or not they impose a civil monetary penalty. Information publicly disclosed could include the name of the company, person or entity the penalty is imposed upon; a factual summary of the case; and the penalty imposed.
- Appeals on penalties: Before imposing a monetary penalty, the Secretary of State must inform the person of their intention to do so. The penalised individual / entity will have the right to seek a review of the decision. Following the decision of OTSI to uphold the penalty, an appeal can be made to the Upper Tribunal, where the final decision will be made as to whether a penalty is imposed and the amount.
Legal Advisory Services
On 30 June 2023 a restriction on the provision of legal services by UK persons to Russia came into effect. It was prohibited for UK persons to provide non-contentious legal advice, to non-UK persons (e.g. non-UK companies), in relation to, or in connection with, matters the UK Russia sanctions regime seeks to restrict, subject to certain exceptions such as the provision of UK sanctions compliance advice. This was a particularly broadly drafted prohibition with a number of unintended consequences.
The UK government has now significantly amended its prohibition on the provision of legal advisory services per Regulation 54D of the Russia (Sanctions) (EU Exit) Regulations 2019/855 to narrow its scope. Now, legal advice is broadly only prohibited if a UK person is providing it to a non-UK person (including non-UK companies), and they know that it has the object or effect of enabling or facilitating something the UK sanctions regime seeks to restrict (noting that legal advice in a contentious context remains out of scope of the prohibition).
The amendments to the legislation also effectively replicate the General Trade Licence which had previously been available. Consequently, the General Trade Licence is redundant and the UK government has revoked it. On the face of the legislation, as exceptions to the legal advisory services ban UK persons are permitted to provide:
- legal advice on or in connection with compliance with global sanctions, Russian counter-sanctions and global criminal law.
- legal advice in relation to the application of punitive measures (e.g. U.S. secondary sanctions), as well as in relation to compliance with UK statutory or regulatory obligations.
Those who have been relying on the General Trade Licence should continue to retain the records that were required to be kept under the Licence for a period of 4 years beyond the end of the calendar year in which the record was created. However, no such new records are required to be created for new in-scope legal advice.
Authored by Aline Doussin, Kate Poppitt, Daniel Shapland, and Florence Yiu.
