The Trend Continues: Strong Compliance Systems and Voluntary Disclosures Are Key
Recently, the UK government has established a new agency, the Office for Trade Sanctions Implementation (OTSI), which will officially commence operations on October 10, 2024. As part of the Department for Business and Trade, OTSI is tasked with reinforcing trade sanctions, particularly those related to Russia, ensuring compliance and investigating potential violations.
OTSI’s Role
OTSI will be responsible for the civil enforcement of trade sanctions, issuing monetary penalties for breaches, and providing guidance to businesses on regulatory compliance. It will focus on non-criminal breaches, with HMRC (His Majesty’s Revenue and Customs) continuing to manage criminal investigations for more severe infractions.
Relevance for Businesses
The regulations enforced by OTSI are relevant to all UK persons, including both individuals and businesses, regardless of whether they are operating within the UK or abroad. This means that any entity with a UK nexus, including businesses operating globally, must comply. The regulations also apply to any person or business located within the UK or within its territorial waters.
Breaches and Consequences
When OTSI determines a breach, potential outcomes include issuing a warning letter, referring the case to regulators or other agencies, public disclosure of the breach, or imposing a civil monetary penalty. The penalties for sanctions breaches can be substantial, with fines of up to £1 million or 50% of the value of the breach, depending on which is higher.
According to guidance accompanying the new agency’s powers, OTSI considers several mitigating factors when deciding enforcement actions for sanctions breaches. These include voluntary disclosure of the breach, compliance with requests for information and recordkeeping, no prior breaches, and a “relevant compliance systems proportionate to the size, exposure to sanctions and resources of the business”. Voluntary disclosure can lead to a penalty reduction of up to 50%.
The Takeaway
For businesses, the establishment of OTSI means stricter enforcement of trade sanctions, with significant penalties for non-compliance. Companies, especially those operating globally or in high-risk sectors like military goods or dual-use technologies, must ensure full compliance with these regulations. However, the OTSI regulations reflect a broader trend seen across regulatory frameworks: robust and effective compliance systems and voluntary reporting of breaches are paramount to mitigating the consequences of breaches.
The key message is therefore clear: businesses must implement effective compliance systems to navigating the complexities of trade sanctions and promptly disclose breaches to mitigate enforcement actions and penalties.