The launch of the Office of Financial Sanctions Implementation marks a watershed moment in UK sanctions policy – but the devil will be in the detail, writes Steven Farmer
For the last two years, London has fired volley after volley of sanctions at Moscow. Each new wave has not only ratcheted up the economic pressure, but the rhetoric, too. “Hitting Putin where it hurts”, after all, is how one MP described the imposition of fresh sanctions in December 2023.
For all the swift action and strong words, questions have remained about how effectively the West is actually enforcing its sanctions. In the European Union, for instance, these concerns fuelled intense wrangling over the creation of an anti-circumvention tool, which would allow the bloc to restrict the sale and export of goods to certain third countries found to be facilitating breaches. This is, of course, if the bloc can secure unanimous backing for its use amongst its, at times, fractious member states.
On the UK side, enforcement for financial sanctions-related breaches, overseen by the UK’s Office of Financial Sanctions Implementation (OFSI) has, perhaps unsurprisingly, trailed when compared to the activities of its US cousin, the Office of Foreign Assets Control (OFAC). As City A.M. itself noted, where US authorities levied £1.54bn in fines for sanctions breaches in the last year alone, the UK has imposed £20.8m since 2019.
It is notable, then, that in the dying days of December, the UK government announced the creation of the Office of Trade Sanctions Implementation (OTSI). Set to launch early this year, OTSI will be responsible for civil enforcement of trade sanctions – those relating to import, export, transfer, movement, and acquisition of goods and technology and the involvement of UK citizens in these activities – including the power to issue civil monetary penalties. Much like OFAC, its priorities are to include clamping down on trade sanctions evasion, raising awareness of trade sanctions, detecting and responding to breaches and maintaining and building confidence in the UK’s trade sanctions. It will also have the power to refer cases to HM Revenue and Customs, for criminal enforcement.
The launch of OTSI marks a watershed moment in UK sanctions policy, it is hoped heralding a sharp increase in trade sanctions enforcement that would bring London up to par with Washington DC. However, like all regulators, much will depend of course on how well resourced it is and its ability to retain talent.
The government is yet to publish all the details of how OTSI will operate and much will depend on the new legislation which establishes it, but on the basis of the limited information available there are questions around whether the new agency will have the ability to adopt a materially different approach to enforcement than OFSI.
In particular, it is unclear if OTSI will not have any novel or additional investigative powers compared to those which exist; and no material announcements have been made with respect to the new penalty regime for breaches of trade sanctions. It therefore begs the question, will OTSI be more bark than bite?
While much still remains a mystery, the launch, however, represents a positive development. For one, UK businesses have often been faced with a lack of guidance on compliance with trade sanctions, particularly when compared with the more vocal EU and US authorities. The creation of OTSI should fix this, which is most welcomed. OTSI’s launch is also a clear indication that even if enforcement continues to lag behind in the UK, London remains committed to the Western approach of putting sanctions at the heart of its foreign policy.
Steve Farmer is a partner at Pillsbury