UK Asked to Publish Trade Enforcement Details Similar to How US Does
The U.K. should mirror the enforcement practices of U.S. agencies by publicizing the details of sanctions and export control penalties, which would help British companies better comply with trade restrictions, industry officials and a researcher told U.K. lawmakers this week. The U.K. should sharply raise penalties on businesses that violate sanctions to convince industry to invest more heavily in trade compliance, the researcher said.
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“Fundamentally, it's about educating the private sector and making sure the private sector knows what is expected of it,” Tom Keatinge, director of the Center for Finance and Security at the Royal United Services Institute, said during a U.K. Parliament Foreign Affairs Committee hearing this week. He said U.K. companies need to understand that committing a trade breach means they will “face consequences.”
“We have not delivered consequences on industry in this country to create a teachable moment,” Keatinge said.
The U.K.’s Office of Financial Sanctions Implementation has reported increases in enforcement actions in recent years (see 2312190053), including when it announced in November four fines totaling more than $2 million against exporters for breaching the country’s export controls (see 2411040041). And although the U.K. has published details about certain sanctions violations cases in which the party isn’t hit with a monetary penalty (see 2308310023), the government typically doesn’t publish detailed information about a government investigation into an entity that receives a civil or criminal fine.
Keatinge, who previously worked as an investment banker, said that practice should change. “I know for my own time at J.P. Morgan, when one of my competitors got blown out of the water by the U.S. authorities, you worked all night to understand why that was and to make sure it didn't happen to you,” he said. “And we have not created those teachable moments in the U.K. over the last three years.”
Freya Page, director of global outreach at risk intelligence firm Kharon, said U.K. penalties against companies for trade sanctions violations “do not work” because they aren’t made public. She specifically said most criminal cases are kept confidential, especially when they’re settled out of court, and so U.K. companies struggle to take stock of the consequences they could face for a faulty compliance program.
“We know that enforcement drives compliance, and particularly in this area where we're looking at businesses who are evading through third countries, you need to get that message across,” Page said. “But if you cannot make those cases public, you have no lessons that the industry is learning. There is nothing to take from it.”
Maya Lester, a U.K. sanctions lawyer, said there has “been almost no criminal enforcement of sanctions breaches” by the U.K.’s National Crime Agency. And the U.K.’s main civil sanctions enforcement agency, the Office of Financial Sanctions Implementation, hasn’t imposed fines “in very many cases,” although Lester said OFSI has “indicated that there are more to come.”
She said the U.S. has a “much better system of enforcement,” partly because it's better resourced and often brings in prosecutors from DOJ for larger violations, leading to “very serious, eye-watering fines in the sanctions sphere that really make people sit up.” Lester also said the U.S. is better at using its enforcement actions as an opportunity to help other companies bolster their compliance programs.
“What they do very well is they use enforcement decisions as an opportunity to teach lessons, and they have very well-drafted, you know -- here are 10 reasons why we chose this particular company as a target,” Lester said. “That's just not been a feature of OFSI’s practice so far.”
She also noted that OFSI’s enforcement focus may be disproportionately aimed at the wrong set of businesses. The agency mainly pursues enforcement based on self-disclosures, so companies that are most likely to be fined may be those with existing compliance programs that already know to self-report possible trade breaches.
Page said the U.K. should carry out a “review” of its sanctions enforcement powers. She specifically pointed to the U.K.’s recently launched Office of Trade Sanctions Implementation (see 2410100010 and 2409130015), which oversees trade restrictions for controlled goods and services moving or being provided outside the U.K. but which Page said could be more useful helping out on domestic sanctions issues, such as exports leaving British borders. The U.K. is “cutting at the wings, really, of what OTSI can really do," she said.
The U.K. also should try to consolidate its sanctions enforcement units into one “sanctions hub,” possibly within the Foreign, Commonwealth and Development Office, “where information can better be shared,” Page said. She also said this could help the U.K. hire and retain career civil servants to only work on sanctions policy issues, saying working within one government sanctions hub would “allow for good career development.”
Within the U.S. government, historically “you don't see the churn [of civil servants] every 18 months to two years that we have here in the U.K.,” Page said. “You get people that stay there and actually become [sanctions] specialists, and we should be encouraging of the specialists across the civil service. I think that would really do us well."