Until now, sanctions compliance for law firms has been focused primarily on financial sanctions, ensuring that clients or counterparties are not designated individuals or entities. However, trade sanctions, which target entire sectors and restrict the movement of goods, services, and technologies, now also have to be considered.
The Office of Trade Sanctions Implementation (OTSI), which is part of the Department for Business and Trade (DBT), has issued new guidance detailing its enforcement powers.
OTSI is responsible for the civil enforcement of specific trade sanctions, in a similar way to the Office for Financial Sanctions Implementation (OFSI). These powers come from the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024, effective from 10 October 2024. It includes the authority to impose monetary penalties up to £1m or 50% of the breach’s estimated value, whichever is higher. These penalties can be applied on a strict liability basis, determined by the balance of probabilities. Legal professionals are now required to report suspected breaches of trade sanctions to OTSI.
Trade sanctions are restrictive measures imposed by governments or international bodies to limit or prohibit trade with specific countries, sectors, or individuals. Unlike financial sanctions, which freeze assets or restrict financial dealings with designated persons or entities, trade sanctions focus on the movement of goods, services, and technologies.
Trade sanctions may involve:
- Export Restrictions: Banning or limiting the export of certain goods or technologies to specific countries or entities. For example, high-tech components may be restricted from being sold to certain nations.
- Import Restrictions: Prohibiting the import of goods or services from a particular country or entity.
- Sectoral Sanctions: Targeting entire industries or sectors of the economy, such as oil, defence, or technology, to disrupt the economy or political power of a specific country or regime.
Trade sanctions are often used as a diplomatic tool to influence foreign governments or organisations, typically in response to actions such as violations of international law, human rights abuses, or acts of aggression. They can affect a range of activities, from corporate structuring and mergers to international trade and legal services.
Key risks for the legal sector
Areas of legal work that could be affected by trade sanctions include:
- Legal advisory services – Providing advice on corporate structures, contracts, or transactions that could involve sanctioned entities or jurisdictions.
- Trust and company services – Setting up companies, trusts, or other legal structures that may be used to evade trade sanctions.
- Client due diligence and risk assessment – Ensuring firms conduct proper checks when dealing with high-risk clients or transactions.
- Litigation and dispute resolution – Managing cases involving sanctioned individuals, entities, or assets, where compliance with trade sanctions is required.
- Commercial transactions – Handling mergers, acquisitions, or financial arrangements involving restricted goods, technology, or services.
Law firms should be particularly mindful of the mandatory reporting obligations introduced by these regulations as they are now required to report suspected breaches of trade sanctions to OTSI. Failure to comply with these reporting obligations can constitute a criminal offence.
What should law firms do now
- Review and update risk assessments: Firms should expand their compliance frameworks to include trade sanctions, particularly in high-risk areas like corporate services, litigation, and cross-border transactions.
- Staff training: Fee earners should be made aware of the risks associated with trade sanctions and the firm’s procedures.
- Due diligence and ongoing monitoring: Include trade sanctions screening for all clients and counterparties during the onboarding process and regularly thereafter (with a particular focus on international clients). This includes verifying identities and cross-referencing against the Foreign, Commonwealth & Development Office sanctions list.
- Review and update reporting procedures: Firms should have a clear policy on reporting breaches to OTSI whilst maintaining client confidentiality.
Further guidance
For full details, see:
How to report a suspected breach of trade sanctions
Trade, aircraft and shipping sanctions, civil enforcement: guidance
How suspected breaches of trade sanctions are assessed by OTSI
