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UK Tightens Sanctions Regime Vs Russia, Builds New Unit

Tom Burroughes

8 January 2024

The UK government has set up a new unit to tighten enforcement of sanctions against Russia so that illicit funds aren’t used to support military operations against Ukraine. 

Nusrat Ghani, the industry and economic security minister, yesterday unveiled the Office of Trade Sanctions Implementation, or OTSI. It will increase powers to issue penalties for trade sanctions breaches and refer cases for criminal enforcement to HM Revenue & Customs.

The unit’s remit will involve activity by companies who may be avoiding sanctions by sending products through other countries. 

“Our package of sanctions, the most severe ever imposed on a major economy, is working – goods imports from Russia to the UK have already plummeted by 94 per cent,” Ghani said in a statement. “But we are leaving no stone unturned in our commitment to stopping Putin’s war machine. That means clamping down on sanctions' evaders and starving Russia of the technologies and revenues it needs to continue its illegal invasion." 

The news comes as the UK is expected to announce fresh sanctions targeting the latest items Ukraine has found on the battlefield such as machine parts and electronics, as well as products that raise revenue to fund Russia’s military.

Some £20 billion ($25.12 billion) of UK-Russia goods trade is now covered by sanctions.

”The formation of the Office of Trade Sanctions Implementation (OTSI) is no surprise. As sanctions have increased in scope to focus not just on financial sanctions but trade sanctions as well, so have methods of sanctions evasion. These range from simple tactics such as transferring ownership to an associate or more complex techniques that involve the creation of shell companies in countries under different regulations," Hera Smith, director and practice lead for financial crime compliance, Moody’s Analytics, said. 

"The 'tougher penalties' introduced alongside the OTSI further emphasise the pressure on UK compliance teams to stay vigilant. Sanctions detection is a complex area of compliance, and no organisation wants to suffer reputational damage or significant fines for doing business with a sanctioned entity," Smith continued. "For compliance teams trying to remain ahead of developing enforcement regimes, the challenge can be met by adopting innovative due diligence processes that are supported by the right data and technology. Valuable insights from public registries, legal documents, and adverse media can all greatly enhance compliance, especially when different data sources are combined into actionable and understandable forms. Compliance teams need to find robust ways to perpetually adapt to ever-changing sanctions regimes and increased sanctions enforcement," Smith concluded.  

The move also coincides with concerns that Ukraine’s efforts to retake territory taken by Russian forces since February 2022 have stalled. In the US, for example, there appears to be resistance, such as among Republican lawmakers, to back further heavy financial commitments to the government in Kyiv.

The UK, the US, European Union, Switzerland – in an historic breach with its neutrality – and other select countries have imposed sanctions on Russia. Other nations, however, such as India, parts of the Middle East, Africa and Latin America, have either not imposed sanctions or been circumspect on their approach.

When the UK introduced sanctions in early 2022, it also mothballed the Tier 1 Investor Visa regime for high net worth individuals. Russian nationals were among the most enthusiastic applicants for these visas. There has been a steady rumble of concern that the UK, and other developed nations, had been a soft touch for dirty Russian money. 

"The enforcement of trade sanctions has previously sat solely with HMRC, so this step will increase the UK Government's capacity to take enforcement action against those who breach trade sanctions," Sophie Law, Senior Associate at Ashurst, the global law firm, said. "Sanctions evasion and circumvention, in particular trade sanctions targeting Russia, have been a particular recent focus for the UK government: we have seen a number of recent publications from UK bodies highlighting circumvention/evasion typologies, as well as lists of `high risk' battlefield/military items. The UK government also announced earlier this year that an extra £50 million in funding would be made available to improve enforcement of the UK’s sanctions regime. Today's announcement is consistent with an increased focus on trade sanctions, and will almost certainly lead to more enforcement action in this area in 2024."