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The U.K. government is set to launch a new Office of Trade Sanctions Implementation (OTSI) to crack down on those violating sanctions rules, as global sanctions regulations grow increasingly stringent. OTSI, which will officially open on October 10, aims to investigate and penalize sanctions breaches with both financial and criminal consequences. The establishment of this office comes as governments around the world enhance tools to detect and punish individuals and entities that flout sanctions laws.
The creation of the OTSI was announced last December by Anne-Marie Trevelyan, former Conservative sanctions minister. Trevelyan highlighted that this new body would "further strengthen the U.K.’s sanctions system and allow us to maximise the impact that trade sanctions have on those who continue to flout the global rules.”
OTSI’s launch coincides with a heightened focus on sanctions enforcement, particularly after the U.K.'s Financial Conduct Authority (FCA) fined Starling Bank £29 million ($38.5 million) for serious failings in its financial crime screening processes. Starling Bank has since reported multiple potential breaches of financial sanctions, illustrating how deficiencies in such controls can lead to significant financial and reputational consequences.
This increased focus on sanctions has been referred to as a new "era of sanctions" by LexisNexis Risk Solutions in its September publication, *Taking the Pulse of Major Sanctions Lists*. The report found that between January and June 2024, 2,340 new designations were added to sanctions rules—an increase of 14% compared to the same period in 2023. Major sanctions issuers, including the United Nations, the European Union, the U.S. Office of Foreign Assets Control (OFAC), and the U.K.'s Office of Financial Sanctions Implementation (OFSI), contributed to this surge. While most of these sanctions target Russia, other countries like Iran, along with jurisdictions linked to terrorism and human rights violations, have also been affected.
The European Union imposed two additional sanctions packages in the first half of 2024, targeting more than 200 persons or entities in each package. Additionally, the EU amended its list of entities subject to sectoral sanctions, adding 61 new names. In the U.S., 69 updates resulted in 1,575 new designations, while the OFSI modified 253 sanctions designations through 38 updates.
This wave of sanctions enforcement will take center stage at the upcoming Compliance Week Europe, a two-day conference in Amsterdam beginning October 15. The event will bring together over 200 governance, risk, and compliance (GRC) professionals from various industries to discuss how they are adapting to the rapidly changing regulatory landscape.
Katarina Pranjic, head of regulation and policy at LexisNexis Risk Solutions, pointed out that OTSI is a direct response to increasingly sophisticated methods used to evade trade sanctions. She highlighted specific concerns such as complex supply chains, “bridging jurisdictions,” and the use of shell companies and third-country intermediaries. "It’s too early to be certain, but the establishment of OTSI is likely to lead to an increase in investigations and civil enforcement actions," Pranjic said, adding that companies must ensure their compliance processes are robust and well-documented. "Ignorance will not be a valid defense."
OTSI’s mandate covers a broad range of activities, including procuring sanctioned services, “moving, making available, or acquiring sanctioned goods outside the U.K.,” and providing services related to those goods. The office’s focus will include sectors involved in trade with sanctioned countries, particularly those handling dual-use technologies or strategic goods. Financial service providers facilitating international transactions and companies with complex supply chains that intersect with sanctioned entities will also be under scrutiny.
In terms of enforcement, OTSI will have the authority to fine violators up to £1 million ($1.3 million) or half the estimated value of the illicit trade, whichever is greater. The office will also introduce new reporting obligations for relevant parties, with failure to comply potentially constituting a criminal offense. Additionally, OTSI will be able to notify other U.K. authorities, such as HM Revenue & Customs, the Insolvency Service, regulators, professional bodies, and Companies House about sanctions breaches.
According to John Chesshire, owner of JC Audit Training and a sanctions expert for the Chartered Institute of Internal Auditors, businesses must ensure their due diligence programs are not just on paper but fully implemented in practice. He stressed the need for appropriate training for corporate compliance teams and keeping up with regulatory developments. Chesshire remained cautious, noting, "Will these changes make a real difference? The jury is out for now, in my opinion." He also pointed out the clear similarities between OTSI and the existing OFSI, as well as the focus on Russia.
Oliver Bodmer, product management director at Swiss stock exchange SIX, added that the increased regulatory attention on physical goods trade has added further complexity for companies. "There is no room for error," he stated, referencing the substantial growth in the number of sanctioned entities. Bodmer highlighted that since 2022, financial markets have seen over a 600% increase in the number of sanctioned entities and their associated financial products.
As the global geopolitical landscape continues to evolve, companies will need to adapt swiftly to maintain compliance. The message is clear: compliance teams must stay vigilant and proactive as the scope of sanctions continues to expand.
By fLEXI tEAM
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