2023 was another significant year for UK sanctions. The UK government has continued to implement new sanctions against Russia in response to its illegal war in Ukraine, including through new designations, broadened financial and trade sanctions prohibitions, tightening export controls, and focusing on the prevention of circumvention and evasion. We have already seen additional sanctions imposed against Russia in February 2024 to mark the passing of two years since Russia’s invasion of Ukraine began. The UK has also strengthened other country-specific and thematic sanctions regimes in response to continued and evolving geopolitical tensions, cyber-crime, and human rights abuses. This has included notable actions under the UK’s Belarus, Iran, Myanmar (Burma), Syria, Cyber, Counter-terrorism, and Global Human Rights sanctions regimes. Enforcement action by UK sanctions authorities has been minimal to date, but the UK government has given several indications that its increased focus on sanctions enforcement means that further enforcement actions are on the horizon.

In this article, we reflect on the main legislative, policy, and enforcement developments for UK economic sanctions in 2023 and key recent developments in early 2024. For a review of the year in sanctions developments in other jurisdictions, please see our separate client alerts on OFAC, Part 1 (OFAC’s major activities and programmatic updates); OFAC, Part 2 (OFAC’s enforcement actions); and the EU.

I. Ownership and control guidance

Businesses continued to grapple with ownership and control determinations when applying UK sanctions in 2023, particularly in the context of Russia. In March 2023, the Office of Financial Sanctions Implementation (OFSI) issued long-awaited further guidance on ownership and control of entities by sanctioned persons in its guidance on enforcement and monetary penalties for breaches of financial sanctions (“Enforcement Guidance”). This supplements previous guidance set out in OFSI’s financial sanctions general guidance. The updated Enforcement Guidance confirms that, where OFSI determines that a sanctions breach has occurred, it will take into account the degree and quality of due diligence conducted on ownership and control as an aggravating or mitigating factor when assessing that breach. OFSI will also consider whether the level of due diligence conducted was “appropriate to the degree of sanctions risk and the nature of the transaction.” The updated Enforcement Guidance makes clear that the significance of any ownership and control determinations when assessing sanctions breaches will be determined on a case-by-case basis. Despite the guidance providing some practical examples of the types of due diligence measures that may be potentially mitigating, the absence of specific examples in the guidance has left financial institutions nervous as they face difficult judgment calls, particularly in cases involving live transactions where limited information is available to help make the determination. The Enforcement Guidance applies across all UK sanctions regimes. For further detail and comment on the updated Enforcement Guidance, please see our prior client alert on this topic.

Legal certainty has not been achieved by the domestic courts considering what the correct interpretation of the ownership and control test, as it is set out in Regulation 7 of The Russia (Sanctions) (EU Exit) Regulations 2019 (“Russia Regulations”) should be. In October 2023, in Mints v PJSC National Bank Trust, the Court of Appeal’s judgment made non-binding, obiter comments that the ownership and control test did not include an exception for persons exercising control through political office and, therefore, Russian President Vladimir Putin (a designated person under the Russia Regulations) could be deemed to control everything in Russia as “the apex of a command economy.” The High Court attempted to distinguish the reasoning in Mints when considering ownership and control in the case of Litasco SA v Der Mond Oil and Gas Africa SA, Locafrique Holdings SA in November 2023. The High Court found that a private entity was not owned or controlled by President Putin as there was no evidence that the entity, via its parent company, was state-owned or functioned as an organ of the Russian state. The Court interpreted ownership and control as being “concerned with an existing influence of a designated person over a relevant affair of the company…not a state of affairs which a designated person is in a position to bring about.” The UK Supreme Court granted permission to appeal in the case of Mints in January 2024 which could, when heard, ultimately settle the interpretation of this legal concept unless and until there is a legislative fix which the Foreign, Commonwealth & Development Officer (FCDO) have publicly stated they are actively considering.

In response to these judgments, FCDO issued an email statement in October and further guidance (with OFSI) in November on public officials and control. The guidance states (among other things) that the UK government will look to designate owned or controlled entities in their own right where possible, and that would apply where a public official was exercising control over a public body. The UK government does not generally consider a designated public official to exercise control over a public body in which they hold a leadership function, such that the affairs of that public body should be taken to be carried out in accordance with their wishes, unless there is sufficient evidence to demonstrate that the public official does exercise control over that public body within the meaning of the relevant regulations. Similarly, there is no presumption that a designated public official controls a private entity simply because that private entity is based or incorporated in the jurisdiction in which the official “has a leading role in economic policy or decision-making.” Further evidence would be required to demonstrate that the test for control in the relevant regulations was met. The guidance expressly confirms that, for the purposes of the Russia Regulations, the UK government does not consider that President Putin exercises indirect or de facto control over all entities in the Russian economy by virtue of his position.

II. Significant expansion of several country-specific sanctions regimes

A. Russia

As in 2022, sanctions against Russia as a result of its continued war in Ukraine have been a central focus for the UK. In particular, the UK government, in coordination with its international partners, has focused on targeting Russia’s key revenue streams and constraining Russia’s ability to obtain goods to sustain its war efforts. According to OFSI’s latest annual review, approximately £22.7 billion worth of assets were reported as frozen under the Russia sanctions program from February 2022 to October 2023.

Designations: As of the end of 2023, the UK had designated 1,681 individuals and 129 entities under its Russia sanctions regime. Some notable designations in 2023 included a package of 92 new designations in February 2023 aimed at Russia’s military-industrial complex; 86 new designations in May 2023, targeting Russia’s energy, defense, finance, metals, and transport sectors to impact Putin’s ability to fund and wage war; 29 new designations in November 2023 of targets operating in and supporting Russia’s gold, oil, and strategic sectors; and 46 new designations in December 2023 of Russian and third-country targets, including entities from China, the UAE, Serbia, Turkey, Uzbekistan, and Belarus, continuing to supply and fund Russia’s war efforts. In March 2023, the UK also designated under Regulation 18C of the Russia Regulations (the trust services prohibition introduced in December 2022) all people and entities on the Russia sanctions list subject to an asset freeze, prohibiting the provision of trust services to or for the benefit of those designated persons.

Expansion of financial sanctions prohibitions and licensing grounds: Correspondent banking and payment processing prohibitions in Regulation 17A of the Russia Regulations were extended to 27 additional entities in December 2023, prohibiting UK credit or financial institutions from establishing or continuing correspondent banking relationships with those entities or credit or financial institutions owned or controlled directly or indirectly by them. Under further legislative amendments, from December 2023, UK credit and financial institutions are also now prohibited from processing payments in any currency to, from, or via these entities. Previously, only Sberbank had been sanctioned under Regulation 17A, and the payment processing prohibition only applied to sterling payments. OFSI subsequently issued guidance via a blog post on these changes.

In December 2023, the UK government also added further licensing grounds to Schedule 5 of the Russia Regulations, allowing OFSI to grant, in certain circumstances, a license to enable anything to be done by a UK entity to divest, wholly or partly, of its funds or economic resources located in Russia to the government of Russia or a designated person, or to divest of the Russian government or designated persons as investors in the UK entity by acquiring their interests. Under the amended provisions, OFSI can also grant licenses to UK entities to enable another person to make such divestments. With respect to trade sanctions licenses, updates to the Russia sanctions statutory guidance made in October 2023 indicated that licensing the making available or transfer of oil refining goods and technology, energy-related goods, luxury goods, jet fuel, G7 dependency goods, and Russia’s vulnerable goods for use in Russia, or to a person connected with Russia, if the activities are necessary for the purpose of divestment from Russia, are likely to be in line with the purpose of the Russia sanctions regime. The same indication was given with respect to related ancillary services.

Expansion of trade sanctions: The UK government has reported that, in the first year following Russia’s invasion of Ukraine, imports to the UK from Russia fell by 94% and exports to Russia by 74%. Trade sanctions were significantly expanded in 2023 to further target Russia’s revenue streams and ability to obtain goods used on the battlefield.

To mark the first anniversary of the Russian invasion of Ukraine, the UK announced in February 2023 an export ban on “every item Russia had been found to be using on the battlefield to date” and import bans on 140 goods. These sanctions were implemented through amendments to the Russia Regulations in April 2023, which include export bans on a range of battlefield goods, including aircraft and vehicle parts, radio and other electronic equipment, biotechnology, and 3D printing machinery. Related ancillary services are also prohibited. Existing prohibitions on the import and acquisition of iron and steel goods, and provision of ancillary services, were extended to iron and steel goods processed in a third country (i.e., outside Russia, the UK, or the Isle of Man) that incorporate iron or steel products originating in Russia. Prohibitions were also added on the import or acquisition of additional goods (including iron and steel products and revenue generating goods) originating in or consigned from Russia, on the supply and delivery of certain revenue generating goods from Russia to a third country, and on related ancillary services.

In December 2023, the UK government announced further amendments to the Russia Regulations introducing sanctions on further goods, technology, and sources of funding with potential to support Russia’s war efforts. The trade sanctions package introduced export prohibitions on additional categories of goods with potential for military or industrial application, including certain chemicals and metals. Prohibitions were also placed on the import and acquisition of certain Russian metals and on the supply and delivery of metals from Russia to a third country, although a corresponding trade license was issued relating to the acquisition of metals in certain circumstances. Ancillary services prohibitions were extended to luxury goods to align the UK regime with similar EU measures.

The government also introduced a diamond ban, in force from January 1, 2024, prohibiting the import and acquisition of Russian diamonds and diamond jewelry, and the supply and delivery of diamonds and diamond jewelry from a place in Russia to a third country.

In addition to expanding trade sanctions under the Russia Regulations, the UK government in coordination with its international partners, including the United States, EU, and Japan, in May 2023 published a list of “Common High Priority Items.” The list provides guidance for businesses to ensure they undertake due diligence given the heightened risk of sanctions evasion and circumvention in relation to the listed high priority items. The list, which will be periodically updated, contains items that Russia is using in its weapons systems, all of which are subject to UK sanctions. These items also likely represent an enforcement priority for the UK government.

Oil Price Cap and maritime services prohibitions: 2023 marked the first anniversary of the oil price cap policy established by the G7+ “Price Cap Coalition” (consisting of the G7, the EU, and Australia). For further detail on the price cap policy and initial implementation of the oil price cap, please see our prior client alert on this topic. In February 2023, the prohibitions on UK ships and services involved in the maritime transportation of Russian oil that came into force in December 2022 were extended to Russian refined oil products. OFSI also issued updated UK Maritime Services Ban and Oil Price Cap Guidance (“Price Cap Guidance”) on the extension of the prohibitions to Russian refined oil products, amended General License INT/2022/2469656 to implement price caps on relevant oil products set at $100 and $45 (depending on the product), and issued related wind-down license, General License INT/2023/2660772. OFSI issued further updates to the Price Cap Guidance periodically throughout 2023.

In June 2023, OFSI issued General License INT/2023/3074680, permitting trading in derivatives and futures related to the supply or delivery by ship of Russian oil or oil products, and related payment processing, which would otherwise breach brokering services prohibitions under Regulation 46ZA9 of the Russia Regulations.

The Price Cap Coalition issued an advisory in October 2023 to highlight risks arising from the development of a “shadow” maritime oil trade and recommend best practices to assist in managing those risks. To further strengthen compliance with the maritime services ban and oil price cap and reduce circumvention, the UK government introduced changes to the attestation model to be implemented through a general license, which came into effect on February 19, 2024, amending the tier system and requiring attestation forms to be provided on a per-voyage basis and ancillary costs to be recorded by certain tiers. The wind-down general licenses that had been issued by OFSI in relation to the maritime services bans on Russian oil and oil products were revoked at the same time.

Services ban: During the course of 2022, the UK introduced a series of novel trade measures prohibiting UK Persons from directly or indirectly providing certain services, including but not limited to accounting, business and management consulting, advertising, architectural, auditing, engineering, IT, and public relations services to persons connected to Russia. Guidance issued and updated by the Department of Business and Trade (DBT) sets out examples of the limited activity for which a license is likely to be issued while firmly stating that, pending a license decision, the applicant should not engage in any prohibited activities. The delay for licenses is significant as the Export Control Joint Unit (ECJU), the authority responsible for administering trade sanctions licensing, lacks the resource to manage the volume of applications it receives, leaving businesses nervous and cautious about the continuation of often-critical services that may require a license.

Legal services ban: In June 2023, in an extension to its professional and business services prohibitions, the UK introduced a ban on the direct or indirect provision of non-contentious legal advice to non-UK persons in relation to, or in connection with, certain financial or trade activities which, if they were to take place within the UK, would be prohibited under the Russia Regulations. This prohibition applies to all persons within the UK’s territory and to all UK persons, wherever they are in the world. The amended legislation includes exceptions to the prohibition where (among other things) the legal advisory services are for the purpose of providing legal advice on compliance with the Russia Regulations. Given the narrow scope of this exception, which does not apply to compliance with other UK or foreign sanctions programs, in August, DBT issued General Trade License (Russia Sanctions – Legal Advisory Services), which significantly broadens the scope of permissible legal advisory services, including services in relation to compliance with or risk of punitive measures under other UK and non-UK sanctions regimes and counter-sanctions.

Use of licenses to mitigate unintended consequences: The UK government has continued to use general licenses to mitigate unintended consequences flowing from sanctions imposed against Russia and Belarus (see below for further details on Belarus). In addition to the above, for example, OFSI in May 2023 issued General License INT/2023/3024200 (also applicable to the UK’s Belarus sanctions program) to allow a UK person to receive payment in certain circumstances from a designated person in fulfilment of prior contractual obligations without breaching relevant asset freeze prohibitions. OFSI has stated that it is “extremely important” that UK persons are not disadvantaged by financial sanctions against Russia (and Belarus).

Focus on circumvention and evasion: In 2023, in coordination with the EU and the U.S., the UK government’s top priority has been tackling circumvention and evasion of sanctions against Russia. OFSI has doubled in size since February 2022, and bilateral secondments between U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and OFSI officials are in place to improve coordination between the two agencies. OFSI issued guidance for high value dealers and art market participants in April 2023, detailing several circumvention typologies. In May 2023, DBT issued trade sanctions circumvention guidance on due diligence, the stages of the procurement cycle and types of entities likely to be used to acquire goods covertly, and key risk indicators for circumvention. In November 2023, coinciding with new sanctions against those operating in and supporting Russia’s gold market, the National Crime Agency (NCA), FCDO, and the Joint Money Laundering Intelligence Taskforce (JMLIT) issued Red Alert: Gold-based Financial and Trade Sanctions Circumvention to financial institutions and other regulated entities on how gold is being used to undermine UK sanctions against Russia. The NCA, OFSI, and JMLIT issued a further circumvention-focused Red Alert in December to UK businesses, and the financial sector in particular, on suspected common evasion techniques used to evade sanctions on the export of high-risk goods being used by Russia on the battlefield.

Additional reporting obligations: To strengthen transparency of frozen assets and assist HM Treasury’s ability to monitor compliance with and detect evasion of UK sanctions, the government announced in June 2023 and enacted in December 2023, new reporting obligations under the Russia Regulations. Since December, relevant firms must report any funds or economic resources held for the Central Bank of Russia, Russian Ministry of Finance, or Russian National Wealth Fund (or any person owned or controlled directly or indirectly by these entities, or person acting on behalf of or at the direction of these entities). Designated persons must now also proactively provide OFSI (or face a strict liability penalty for non-compliance) with information on their UK assets or, if a UK person, their worldwide assets. This will be extended to Belarus in 2024.

Reparations: The UK amended its Russia Regulations in June 2023 to allow regulations to be made for the purposes of promoting the payment of compensation by Russia for damage, loss, or injury suffered by Ukraine as a result of Russia’s invasion, strengthening the legal basis for maintaining sanctions against Russia until compensation is paid to Ukraine. At the same time, the UK government announced that it would introduce a “voluntary process” under which UK designated persons could donate their frozen assets for the reconstruction of Ukraine, although that process has yet to be legislated for.

B. Belarus

Coordinated with the timing of new EU sanctions imposed against Belarus, the UK significantly expanded its sanctions program against Belarus in 2023 in response to Belarus’s continued facilitation of Russia’s aggression against Ukraine. New sanctions legislation was announced by the UK government in June 2023, amending The Republic of Belarus (Sanctions) (EU Exit) Regulations 2019. These amendments include:

• expanded designation criteria, including those holding the right, directly or indirectly, to nominate at least one director, trustee, or equivalent of a government of Belarus-affiliated entity or other specified entity; persons who work for, or are affiliated to, the government of Belarus in specified positions; and immediate family members of or those obtaining a financial or other material benefit from involved persons;
• the introduction of export bans on banknotes, machinery-related goods and technology, and chemical and biochemical weapons-related goods and technology, and related ancillary services bans;
• import bans, including on gold (and associated products), wood, rubber, and cement; and
• internet services prohibitions requiring social media services, internet services, and application stores to take reasonable steps to prevent certain use by designated persons.

The UK added new licensing grounds to its Belarus sanctions guidance at the end of June 2023 to permit individual licenses to be granted to designated persons for purposes such as basic needs, medical goods, humanitarian assistance activities, production of food and legal fees. OFSI also issued several general licenses under its Russia sanctions regime that also apply to the Belarus sanctions regime, including a correspondent banking payments general license (INT/2023/3566356) and the prior obligations general license (INT/2023/3024200) referred to above.

The UK government also made further designations under its Belarus sanctions program in the second half of 2023, including designations in August and December 2023 of Belarusian defense organizations manufacturing military technology and facilitating Russia’s war in Ukraine.

C. Iran

The UK expanded the scope of its sanctions regime against Iran in 2023 – alongside its international allies – in response to Iran’s hostile behavior and human rights abuses. Most significantly, in July 2023, the UK government announced a new UK sanctions regime against Iran to greatly expand the UK’s sanctions powers. The Iran (Sanctions) Regulations 2023 (“New Iran Sanctions”), which came into force in December 2023, and revoked The Iran (Sanctions) (Human Rights) (EU Exit) Regulations 2019 (“Iran Human Rights Sanctions”), allows for designation not only for involvement in a serious human rights violation, but also where a person is or has been involved in the commission of hostile activity by the government of Iran or an armed group backed by the government of Iran (or, for any of these categories, persons owned or controlled directly or indirectly by, acting on behalf or at the direction of, or who are members of, or associated with, a person who is or has been so involved). “Hostile activity” includes threatening, planning, or conducting attacks on persons or assets in the UK or any other country, or against ships, activity intended to cause the destabilization of any country, espionage, carrying on business in the Iranian defense sector, facilitating these activities, and assisting circumvention of the New Iran Sanctions.

The New Iran Sanctions introduce several new prohibitions. A person designated under the New Iran Sanctions is subject to director disqualification sanctions. Similar to the EU’s new Iran-related sanctions framework, the New Iran Sanctions also introduce trade prohibitions against UAV goods to target Iran’s drone program, which is significantly enhancing Russia’s military capabilities in Ukraine and contributing to increased regional instability. Additionally, these new measures introduce powers to impose transport sanctions on ships owned, controlled, chartered, or operated by a designated person or involved in activity to contravene, circumvent, enable, or facilitate circumvention of the provisions of the New Iran Sanctions. The 173 entries on the consolidated list under the Iran Human Rights Sanctions regime were amended and transferred to the New Iran Sanctions regime.

In December, in coordination with the U.S., the UK designated under the New Iran Sanctions seven individuals and one entity with links to Hamas and Palestinian Islamic Jihad.

The UK also made new designations under the Iran Human Rights Sanctions throughout 2023 in response to Iran’s human rights abuses. These included:

• designation of individuals and entities for the repression of and violence against the Iranian people in January (first and second occasion), February, March, and April 2023;
• 13 further designations in July 2023 for human rights abuses, including the sanctioning of prison governors overseeing torture and inhumane treatment, the Islamic Revolutionary Guard Corps Cyber Defense Command for monitoring and reporting opponents of the Iran government’s regime, and the Supreme Council of the Cultural Revolution, for its setting and enforcing the mandatory dress code for woman and use of unreasonable force for non-compliance; and
• designations in September 2023 to mark the one-year anniversary of the death of Mahsa Amini in September 2022, in coordination with the EU, U.S., Canada, and Australia.

Due to Iran’s non-compliance with the Joint Comprehensive Plan of Action (JCPoA), a range of UN, UK, and EU sanctions due to be lifted on October 18, 2023 under the JCPoA were maintained. In October 2023, the UK therefore continued the designations of 78 persons under The Iran (Nuclear) (EU Exit) Regulations 2019.

D. China

Other than a limited number of designations of Chinese individuals and entities, including designations made under the Russia Regulations for supporting Russia’s war efforts and designations for human rights abuses, the UK did not adopt any sanctions against China or Chinese entities in 2023. China has firmly opposed these sanctions, warning that they will result in firm counter measures by China. In 2021, UK sanctions imposed against Chinese government officials were met with China counter-sanctions against UK persons.

In its Integrated Review Refresh 2023, published in March 2023, the UK government refers to China as posing an “epoch-defining challenge” to international order in terms of security and values, requiring the UK government to take new action to protect itself, its democracy, and its economy. The review notes China’s deepening partnership with Russia and cooperation with Iran as being of particular concern for the UK government. However, while the review states that the UK will increase its national security protections against perceived threats from China, cooperation and alignment with the UK’s international partners, and diplomatic engagement with China, the review does not mention imposing broader China-related sanctions.

E. Myanmar (Burma)

The UK government, in coordination with the EU and its other international partners, has continued to target Myanmar’s military junta through sanctions in 2023, following the military coup in February 2021. To mark the two-year anniversary of the coup, in January 2023, the UK imposed sanctions against two individuals and two entities involved in the Asia Sun group, which supplies fuel to the Myanmar Air Force. Two further individuals and one entity were designated in March 2023 for their involvement in supplying the Myanmar military regime with military equipment and materials used to attack civilians.

Sanctions Coordinators from the UK, U.S., EU, and Canada met in May 2023 to discuss sanctions against Myanmar since February 2021 and ongoing international coordination efforts. An example of this coordination came in October 2023, when the UK announced coordinated sanctions with the U.S. and Canada of arms dealers and financiers connected with the Myanmar military regime. The designations in the UK consisted of five individuals and one entity involved in the supply of restricted goods or technology, materials relating to those goods or technology, and/or financing to the Myanmar security forces.

F. Syria

In 2023, the UK issued several general licenses to ensure that humanitarian aid could reach Syria. Following the earthquake that struck Syria and Turkey in February 2023, causing widespread damage, like the U.S., OFSI issued General License INT/2023/2711256 to facilitate immediate humanitarian relief in Syria. This license specified that relevant persons may perform “activities necessary to facilitate humanitarian assistance in relation to earthquake relief efforts in Syria and Turkey” without breaching asset freeze and accounts and correspondent banking prohibitions in The Syria (Sanctions) (EU Exit) Regulations 2019, provided that the relevant persons believe the activities are necessary to ensure timely delivery of relief and there is no reasonable cause to suspect otherwise. This license expires in August 2024.

Also in February 2023, the ECJU issued General Trade License: Syria Sanctions – Earthquake Relief Efforts in Syria, extending the existing humanitarian exceptions to the petroleum prohibitions to all those conducting earthquake relief efforts in Syria and Turkey. The ECJU renewed this license in June 2023, and it will remain valid until revoked.

The UK government also made further designations under its Syria sanctions regime in 2023, including designations of individuals in March, June, and December for supporting or benefiting from the Syria regime and/or repressing the civilian population in Syria. In March 2023, the UK also designated 11 individuals involved in illicit drug trade, which the FCDO said funds the Assad regime.

III. Significant developments in thematic sanctions regimes

A. Cyber

Last year saw what OFSI referred to in its Annual Review 2022-23 as the “first wave of coordinated action against international cyber crime” resulting in significant designations by the UK under The Cyber (Sanctions) (EU Exit) Regulations 2020. In February and September 2023, the UK, alongside OFAC, sanctioned members of the Russia-based cybercrime group behind Trickbot/Conti ransomware attacks that targeted UK infrastructure. These sanctions followed a large-scale investigation by the NCA. OFSI also published guidance on ransomware and sanctions in February 2023, providing an overview of the UK’s cyber sanctions regime, due diligence, and other mitigating steps to prevent attacks, and the UK government’s approach to enforcement of cyber sanctions breaches. The UK government made further cyber designations in December 2023, sanctioning two Russian individuals said to be involved in the Callisto Group, a cyber-hacking group with connections to the Russian intelligence service, the FSB.

B. Counter-terrorism

The UK government took actions under both its domestic and international counter-terrorism sanctions regimes in 2023. In April 2023, the UK government designated Nazem Ahmad, a Lebanon-Belgium national suspected of financing Hizballah and with assets in the UK. OFSI published guidance in May 2023 on how a person designated under the domestic regime, The Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019, may apply to OFSI to request a variation or revocation of that designation.

Through its international counter-terrorism regime, The Counter-Terrorism (International Sanctions) (EU Exit) Regulations 2019, the UK, in coordination with the U.S., imposed new sanctions against those associated with Hamas, following the crisis in Israel and the Occupied Palestinian Territories that began in October 2023. In November 2023, the FCDO announced designations of four senior Hamas leaders and two individuals funding Hamas. A further seven individuals associated with Hamas were designated by the UK government in December 2023, also announced by the FCDO as having been coordinated with the U.S.

OFSI issued General License INT/2023/3749168 for humanitarian activity in Israel and Occupied Palestinian Territories under the international counter-terrorism sanctions regime in November 2023. This General License permits relevant persons to conduct relevant activities, provided they believe that carrying out those activities is “necessary to provide humanitarian assistance, other activities that support basic human needs and facilitate the timely provision of that assistance or those activities in relation to the conflict in Israel and the Occupied Palestinian Territories” and there is no reasonable cause to suspect otherwise.

C. Human rights and gender-based violence

To mark Human Rights Day and the 75th anniversary of the Universal Declaration of Human Rights in December 2023, the UK, in coordination with the U.S. and Canada, announced 46 new sanctions designations targeting persons involved in trafficking people in Cambodia, Laos, and Myanmar, and individuals associated with the governments, judiciaries, and prosecuting authorities of Belarus, Haiti, Iran, and Syria for their involvement in repressing citizens of those countries.

The UK also announced sanctions against individuals in March, to mark International Women’s Day, and in June, for involvement in sexual and gender-based violence against women and girls.

IV. Humanitarian exemptions

In 2023, the UK continued to issue humanitarian exemptions and licenses to ensure that legitimate humanitarian aid can continue despite sanctions imposed in that jurisdiction. General licenses issued by OFSI in 2023 for the provision of humanitarian aid in Syria and Israel and Occupied Palestinian Territories are referenced above. In advance of the EU’s staggered approach to implementation of UN Security Council resolution 2664 (2022), the UK introduced exemptions in its UN sanctions regimes under The Sanctions (Humanitarian Exception) (Amendment) Regulations 2023 in February 2023. As set out in the Explanatory Memorandum to the amending regulations, these new regulations introduce a standardized humanitarian exception to the asset freeze prohibitions in all of the UK’s UN sanctions regimes, except the Afghanistan regime, which has its own tailored humanitarian exception. The exception provides a broad humanitarian carve-out that does not violate UN asset freeze measures. These include activities carried out by specified organizations that are necessary “to ensure the timely delivery of humanitarian assistance” or “activities that support basic human needs.” OFSI updated its charity sector guidance in February 2023 to reflect these changes.

V. Guidance on the UK Blocking Regulation

In June 2023, DBT published guidance on “Protection of Trading Interests legislation” (the “UK Blocking Regulation”), which protects UK persons from the extraterritorial effect of proscribed sanctions. The guidance sets out an explanation of protected persons under the UK Blocking Regulation, what to do if one’s interests are affected, the process for obtaining an authorization to comply with proscribed sanctions, a list of proscribed sanctions, and an explanation of UK businesses to which the UK Blocking Regulation will apply.

VI. Enforcement trends

There have historically been low levels of sanctions enforcement in the UK, with 2023 being no exception, but the UK government has given several indications that this will change in the near future. OFSI took only one public enforcement action in 2023, although this marks its first public enforcement action under the Russia Regulations and OFSI’s first use of its disclosure enforcement powers, used where a monetary penalty is disproportionate, but a warning letter is not sufficiently severe. In August 2023, OFSI reported that Wise Payments Limited was found to have made funds available to a designated person without the use of a license in 2022 when a £250 cash withdrawal was made from a business account held by Wise in the name of a company owned or controlled by a designated person. While OFSI’s Enforcement Guidance notes that making a disclosure is reserved for genuinely exceptional circumstances, this enforcement action demonstrates OFSI’s willingness to impose penalties even where the sum involved in the breach is low. There was intense industry backlash in response to the reasoning and use of OFSI’s disclosure powers in this case.

HM Revenue & Customs (HMRC) also took limited public enforcement action against trade sanctions breaches in 2023. In August, HMRC issued a £1 million penalty to a UK company for unlicensed trade of goods in breach of the Russian Regulations. A UK exporter paid a further compound settlement in August totaling over £67,000 for the attempted export of goods in breach of the Russia Regulations.

On February 1, 2024, UK prosecutors charged the first Russian individual with sanctions evasion and money laundering. Looking ahead, OFSI’s Annual Review 2022-23 signals that further public enforcement actions may be in the pipeline. The review notes that OFSI has increased its enforcement capabilities through legislation, increased headcount in its enforcement team, and strengthened cooperation on sanctions enforcement with international partners and cross-governmental partner organizations, such as the NCA and Financial Conduct Authority. The review further cites that OFSI recorded 473 suspected breaches of financial sanctions (excluding oil price cap and counter-terrorism breaches) in the UK 2022-23 financial year, a significant increase from 147 in 2021-22. OFSI also reported that, as of April 2023, its Enforcement Unit had 172 cases under live investigation, many of which remained ongoing as of December 2023.

Further, the UK’s Integrated Review Refresh in March 2023 announced a new Economic Deterrence Initiative with up to £50 million in funding over two years that is intended to improve sanctions implementation and enforcement. As a key component in delivering that Economic Deterrence Initiative, in December, the UK government announced the creation of the Office of Trade Sanctions Implementation (OTSI) to further crack down on trade sanctions evasion and strengthen enforcement. Once fully launched, following the introduction of a new legal framework expected in 2024, OTSI will be responsible for implementation and civil enforcement of trade sanctions and has indicated that the responsibility for licensing will be separated, with OTSI managing services prohibitions and the ECJU responsible for goods. For further detail on OTSI, please see our prior client alert on this topic.

VII. Conclusion and outlook for 2024

Following another significant year of UK sanctions developments, not only against Russia but across UK sanctions regimes, companies with any UK nexus, however small, will need to continue to tighten their internal controls in response to ongoing complexity of UK sanctions and increased regulatory scrutiny on evasion and enforcement. The focus for businesses should be on ensuring their sanctions compliance program is sufficiently robust to manage these emerging risks and can adapt to a legislative and enforcement landscape that continues to evolve at pace.

Looking ahead to 2024, the UK government is expected to continue its focus on sanctions evasion and enforcement to deter non-compliance. OTSI should become fully operational, following the introduction of its legislative framework, and take up its new role in implementing and enforcing trade sanctions. The UK government in February 2024 published its UK Sanctions Strategy, providing an overview of the government’s approach to imposing sanctions to support its foreign, domestic, and security policy priorities. The Strategy highlights the government’s plans to improve effective implementation, reduce opportunities for evasion, and enhance enforcement through continued cooperation with the EU, G7 states, and third countries, and increased sanctions capabilities across UK government departments. The Strategy also flags new sanctions measures that may be to come in 2024 or beyond, including the introduction of director disqualification sanctions under the UK’s autonomous sanctions regimes, a tailored humanitarian exception across UK sanctions regimes, an increased range of penalties that can be imposed for sanctions breaches, provision of targeted technical assistance for third countries (in coordination with the EU and U.S.), and increased investment in HMRC’s investigation and prosecution capabilities to enforce “the most serious” sanctions breaches.

The UK government has already introduced new sanctions measures in 2024 to mark the end of the second year following Russia’s invasion of Ukraine. On February 22, 2024, the UK government imposed designations against 52 individuals under its Russia and Belarus sanctions programs. Like previous packages introduced in 2023, these new sanctions continue to focus on targeting actors identified as providing Russia with military goods and revenue streams to fund the war. It includes companies manufacturing munitions and defense systems, those facilitating the evasion of sanctions against Russian oil, diamond companies, and individuals involved in Russian metals and steel production. The Common High Priority Items List (discussed above) was updated on the same day to include additional goods critical to Russian military equipment.

At the start of 2024, the UK government introduced new designations across its other sanctions regimes in response to continuing geopolitical tensions and conflicts. These include new designations in relation to the Myanmar military regime, key Houthi leaders, the continued conflict in Israel and the Occupied Palestinian Territories, and domestic threats from Iran.

Edie Essex Barrett, London Trainee Solicitor, contributed to the drafting of this alert.

[View source.]