Dan Hudson: OTSI means focus and scrutiny on trade sanctions

16 October 2024

Seladore partner Dan Hudson comments on the UK Government’s recent creation of the Office of Trade Sanctions Implementation (OTSI) and decision to investigate UK-linked firms suspected of sanctions breaches. 

The recent revelations that dozens of UK-linked firms have been under investigation for suspected breaches of Russian oil sanctions – and the lack of financial penalties to date – are likely to ramp up pressure on enforcement agencies to take stronger, more visible action.

UK trade sanctions laws, under the Russia Sanctions Regulations 2019, among other diverse restrictions, not only ban the import of Russian oil into the UK, but, as part of G7’s co-ordinated action, also impose restrictions on the maritime transport of Russian oil and oil products to third countries. This includes restrictions on ancillary services and financing (including by banks) for such transport.

The use of internationally agreed price caps is designed to ensure that oil and petroleum products can continue flowing whilst prohibiting UK-based persons or businesses from facilitating the transportation of Russian crude, petrol, diesel and other oil or petroleum products to third countries which are priced above the cap levels, thus dampening profits going back to Russia.

The very recent creation of the Office of Trade Sanctions Implementation (OTSI) which will take the lead in civil enforcement of trade sanctions (under The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024), further underscores the government’s increased focus on sanctions enforcement. With these powers and its new mandate, OTSI is well positioned to take stronger action regarding violations of trade sanctions, such as breaches of the Russian oil restrictions. This includes any bank or other financing of such breaches. For companies exposed to these risks this signals a need for heightened vigilance.

As posted by OTSI yesterday, the G7 has published updated guidance for industry on preventing Russian evasion of export controls and sanctions.

This growing scrutiny (in terms of allegations and heightened enforcement focus) is likely to result in businesses reassessing their compliance and investigation procedures – particularly those operating in sectors like oil trading, oil transportation, and maritime financing and insurance, which face elevated risks.