Trade Sanctions vs Financial Sanctions: The Quiet Fault Line in UK Enforcement

Economic sanctions are the sharp edge of modern diplomacy. In a world marked by geopolitical fracture and strategic competition, they function as tools of coercion and containment, targeting adversaries without the deployment of armed force. But not all sanctions are created or enforced equally.

In the UK, financial sanctions and trade sanctions operate within distinct legal and institutional frameworks. Financial sanctions, enforced by the Office of Financial Sanctions Implementation (OFSI), have become highly visible and broadly understood across the financial sector. Trade sanctions, by contrast, have until recently remained under-enforced and poorly integrated into the wider sanctions compliance architecture. The creation of the Office of Trade Sanctions Implementation (OTSI) in 2023 was intended to redress this imbalance. For much of its early life, that ambition appeared unrealised.

However, OTSI’s first public case commentary, Compliance Clarity: Real World Lessons in Trade Sanctions Breach Detection (13 October 2025), marks a subtle but significant shift in posture. For the first time, the agency has publicly described a sanctions case involving a UK branch of a multinational bank, illustrating how diligent compliance averted a breach of Russian trade sanctions. It is a milestone that signals the beginning of a more open and engaged phase of enforcement communication.

Two Regimes, One Purpose: Coercive Economic Power

The bifurcation of sanctions regimes in the UK reflects the complexity of modern economic relationships. Financial sanctions focus on freezing assets, restricting transactions, and severing access to capital markets for designated individuals, entities, and sectors. Trade sanctions, by contrast, control the movement of physical goods, software, technology, and related services. They aim to prevent hostile regimes from acquiring materials that enable military aggression, human rights abuses, or proliferation of weapons.

Both regimes are underpinned by the Sanctions & Anti-Money Laundering Act 2018 (SAMLA), but their administration diverges. OFSI, located within HM Treasury, has taken the lead on financial sanctions enforcement. Its operations are increasingly transparent, publishing enforcement actions, issuing thematic guidance, and engaging directly with the financial sector. OTSI, established within the Department for Business & Trade to civilly enforce trade sanctions, is still building its institutional maturity. When serious breaches are suspected, OTSI refers cases to HM Revenue & Customs (HMRC), which determines whether a criminal investigation is warranted.

Despite this delineation, the interaction between financial and trade sanctions is fluid. A company that finances or insures the export of sanctioned dual-use technology, for example, may breach both regimes simultaneously. The risk is particularly acute in cases of extra-territorial activity, where UK service providers facilitate transactions that occur entirely outside national borders.

Shadow Shipping & the Russian Oil Trade: A Sanctions Crisis in Motion

The war in Ukraine has laid bare the limits of trade sanctions enforcement. Since February 2022, the UK has implemented multiple packages of restrictions against Russia, including bans on the import of Russian oil and the provision of maritime services for its transport. These measures, coordinated with the G7’s price cap regime, were designed to constrain Russian revenues while stabilising global energy markets.

Yet Russia’s oil exports have rebounded. Central to this circumvention is the so-called 'shadow fleet', a vast assemblage of ageing tankers registered in opaque jurisdictions and insured through non-Western actors. These ships operate outside the rules-based order, enabling Russia to sell oil above the price cap, conceal the origin of cargoes, and bypass EU and UK controls.

The UK plays a critical role in this ecosystem. As a global hub for marine insurance and shipping finance, it has the jurisdictional reach to enforce trade sanctions against a wide range of actors involved in these activities. And yet, until recently, despite extensive public evidence of circumvention, there was no record of OTSI initiating enforcement action. The absence of public penalties undermined the credibility of the entire sanctions regime.

The G7’s October 2024 Guidance on Preventing Russian Export Control and Sanctions Evasion warned of specific typologies: the use of front companies, falsified documentation, and layered transshipments through neutral countries. These are not theoretical risks. They are ongoing realities. But without enforcement, guidance becomes a hollow gesture.

A First Case Study: Proof of Life for OTSI

The October 2025 case shared by OTSI begins to change that perception. Between April and June 2025, OTSI received several suspected breach reports from the UK branch of a multinational bank relating to payments for a sanctioned Russian-origin product bound for a third country. The product was listed under The Russia (Sanctions) (EU Exit) Regulations 2019, which make it an offence for a UK person to facilitate the movement of certain goods from Russia to any destination.

The UK branch, which qualified as a UK person under the regulations, identified the risk through internal account screening and applied enhanced due diligence. Payments were subsequently declined, and the matter reported to OTSI via its online portal. After review, OTSI confirmed that no breach had occurred because the payments were never processed. Yet the episode illustrates something far more important than the outcome: it demonstrates that financial institutions can, and do, play an active role in preventing trade sanctions breaches.

The case also marks OTSI’s first use of the case-study format to educate industry. It highlights core compliance principles such as risk-based due diligence, internal escalation, and timely voluntary reporting, and confirms that OTSI’s online reporting tool is operational and being used by the financial sector. In effect, this disclosure acts as OTSI’s debut on the public stage.

Understanding OTSI’s Silence & Its Awakening

Until this publication, OTSI’s silence had been conspicuous. Nearly two years after its creation, no enforcement outcomes had been published, no civil penalties issued, and no formal referrals for criminal prosecution made public. The lack of visible regulatory activity invited scepticism about its operational capacity.

Now, however, OTSI appears to be pivoting towards transparency. Its latest communication acknowledges that it receives and evaluates industry reports, works with international counterparts, and intends to share lessons from real-world cases. Whilst this may not yet amount to active enforcement, it signals movement and a regulator beginning to find its voice.

The fact that OTSI chose a financial sector case to illustrate trade sanctions compliance is also telling. It recognises that banks are central to the detection of trade-related breaches and that their participation will determine whether trade sanctions enforcement can mature at pace. The publication’s key messages (on enhanced due diligence, understanding UK obligations within multinational groups, and the benefits of voluntary disclosure) mirror the themes long championed by OFSI. The alignment is not accidental. It hints at an emerging coherence between the two regimes.

The Role of Banks: Gatekeepers or Bystanders?

Banks remain pivotal. Through trade finance, letters of credit, and payment screening, they are uniquely positioned to detect the financial footprints of trade sanctions breaches. The October 2025 case reinforces the message that proactive due diligence and refusal to process suspect transactions can both prevent violations and protect institutions.

The lesson is clear: financial institutions must treat trade sanctions as integral to their compliance architecture, not as peripheral considerations. The fact that OTSI’s first published example centres on a bank’s voluntary disclosure should be read as an invitation to the sector. Reporting is no longer theoretical; it is expected.

Towards an Integrated Sanctions Framework

To sustain this momentum, the distinction between trade and financial sanctions must be bridged by structural reform. Joint guidance from OFSI and OTSI, explaining dual-reporting requirements and clarifying jurisdictional boundaries, remains essential. So too does the development of a unified reporting portal capable of routing disclosures to the appropriate authority.

OTSI should now build on its new-found visibility by publishing anonymised enforcement summaries and typology updates. Transparency breeds deterrence. Industry briefings and targeted workshops for banks, insurers, and freight forwarders would further embed awareness of trade sanctions risks.

Equally, regulators such as the Financial Conduct Authority (FCA) must integrate trade sanctions oversight into their supervisory frameworks, ensuring firms treat these controls with the same rigour applied to financial sanctions.

Conclusion: A Regulator Begins to Stir

The evolution of the UK’s sanctions framework reflects a strategic ambition to project economic power through lawful, proportionate means. But for that ambition to hold weight, enforcement must be visible. The October 2025 case study, modest as it may seem, represents the first tangible sign of life from OTSI. It is proof that trade sanctions enforcement in the UK is beginning to mature.

If OTSI continues to share lessons from real cases, engages openly with the financial sector, and coordinates with OFSI, the long-standing fault line between trade and financial sanctions could finally begin to close. For now, the message to industry is simple: the quiet regulator is watching and, at last, speaking.