Mr. Sanctions

Category: Regulatory

  • April 29, 2026: I’m on E… OFAC Russia-related General License 131E, that is

    Here it is – “Authorizing Certain Transactions for the Negotiation of and Entry Into Contingent Contracts for the Sale of Lukoil International GmbH and Related Maintenance Activities”:

    russia_gl131eDownload

    And two amended FAQs:

    Russian Harmful Foreign Activities Sanctions

    1225. What activities do Russia-related General License 128C and General License 131E authorize related to Lukoil International GmbH (LIG)? 

    OFAC has issued two General Licenses (GLs) relating specifically to Lukoil International GmbH (LIG) and its majority-owned subsidiaries (“LIG Entities”): GL 128C and GL 131E. The GLs are similar but have different expiration dates and terms as each serves a different purpose.

    • To mitigate the effects of Lukoil’s OFAC designation on retail consumers, OFAC issued on December 4, 2025 GL 128B to authorize maintenance, operation, and wind down activities for a narrow range of LIG entities, specifically Lukoil retail automobile service stations outside of the Russian Federation. OFAC subsequently issued GL 128C to extend the existing authorization until October 29, 2026.
    • To enable Lukoil to divest its assets outside of Russia to non-blocked parties, OFAC issued on December 10, 2025 GL 131A to authorize, among other things, maintenance and wind down activities of all LIG Entities. OFAC subsequently issued GLs 131B, 131C, 131D, and 131E to extend the existing authorization until May 30, 2026. Please see Frequently Asked Question 1224 for additional information on authorizations regarding negotiations for the sale of LIG Entities.

    GL 128C and GL 131E expressly authorize transactions undertaken in the ordinary course of business, provided that the transactions do not involve any blocked persons other than the LIG Entities described in GL 128C and GL 131E. Transactions undertaken in the ordinary course of business may involve (but are not limited to): supply of motor fuel and lubricants; lease payments; insurance payments; property maintenance and environmental services; employee payroll, benefits, severance, and reimbursements; information technology services; payments to government authorities; legal services and proceedings; payments to suppliers, landlords, lenders, and partners; the preservation and upkeep of pre-existing tangible property; and activities associated with maintaining pre-existing capital investments. Also, both GL 128C and GL 131E authorize transactions ordinarily incident and necessary to performing pre-existing agreements and conducting intracompany transfers, provided that such transactions are consistent with previously established practices and support pre-existing projects or operations, consistent with the terms of the respective authorizations.

    Both GL 128C and GL 131E also authorize financial institutions, payment processors, and other entities to use, debit, and credit the accounts of the relevant LIG Entities to effectuate the respective authorizations, but both GLs are also expressly limited by the condition that no funds may be transferred to a person or account in the Russian Federation.

    Non-U.S. persons generally do not risk exposure to U.S. sanctions under E.O. 14024 for engaging in transactions with blocked persons that are generally authorized for U.S. persons, including for those authorized by GL 128C and GL 131E. Similarly, non-U.S. persons may rely upon GL 128C and GL 131E regardless of whether a foreign financial institution maintains blocked accounts, provided the non-U.S. person’s activities are consistent with the terms of GL 128C and GL 131E, including the requirement that no payments may be transferred to any person or account located in the Russian Federation.

    Date Updated: April 29, 2026

    Updated on Apr 29, 2026

    Russian Harmful Foreign Activities Sanctions

    1224. What negotiations does Russia-related General License 131E authorize, and what transaction conditions will OFAC consider when evaluating requests for further authorization to effectuate a sale of Lukoil International GmbH (LIG) assets? 

    On October 22, 2025, OFAC designated Public Joint-Stock Company Oil Company Lukoil (Lukoil) to increase pressure on Russia’s energy sector and degrade Russia’s ability to raise revenue for its war machine. OFAC is aware of potential efforts by Lukoil to divest its assets outside of Russia to non-blocked parties, given the impact of sanctions. To support such divestments and further cut off funding to Russia, OFAC issued Russia-related General License (GL) 131E, which authorizes negotiations and entry into contingent contracts with Lukoil for the sale of LIG or any of LIG’s majority-owned subsidiaries. Authorized activities include negotiations on terms for definitive agreements and financial, legal, or operational due diligence, including engagement of outside counsel or advisors. GL 131E expires on May 30, 2026.

    GL 131E does not authorize transactions to effectuate the actual sale, disposition, or transfer of any LIG entity or asset. Any contract entered into pursuant to GL 131E must expressly be made contingent upon the receipt of a separate authorization from OFAC. The goal of OFAC’s Russia sanctions is to place pressure on Moscow to end its war.

    As such, Treasury would evaluate any proposed sale of LIG based on factors that support U.S. national security and foreign policy objectives. OFAC expects that, at a minimum, the proposed transaction must: completely sever LIG’s ties with Lukoil; block any funds owed to Lukoil until sanctions are lifted by placing them in an account subject to U.S. jurisdiction; and not provide a windfall to Lukoil, such as by providing up-front value to Lukoil, including through asset or share swaps. Further, as a condition of any future license for effectuating a sale of LIG, OFAC expects that it will require persons purchasing LIG’s assets to seek OFAC review before further divestment of material LIG assets.

    OFAC may revoke GL 131E at any time, including if Lukoil and LIG do not appear to be engaging in good faith negotiations regarding the divestment of LIG or its assets.

    Date Updated: April 29, 2026

    Updated on Apr 29, 2026

    And my apologies for the Blondie deep cut (from Plastic Letters, when I first started listening to them)…

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  • Burning Question: That OFAC Alert… and what is a Teapot Oil Refinery?

    Let’s start with the defiinition:

    “Teapot” oil refineries are small, privately owned oil refineries primarily based in China’s Shandong province. The nickname comes from their physical appearance — they are called “teapots” because of their compact teapot-like shape, which distinguishes them from the massive facilities run by China’s state-owned oil giants like Sinopec and PetroChina.

    They’re a big deal in the sanctions world for a few reasons.

    First, scale: despite being individually small, they account for about one-quarter of China’s total processing capacity. Collectively they’re a significant chunk of one of the world’s largest oil-refining industries.

    Second, they’re the primary channel for sanctioned oil into China. China’s state-owned refiners are cautious about buying Iranian oil because they do not want to be cut off from the U.S. dollar-based international financial system. The teapots, which mostly serve domestic markets, have been willing to take on that risk. As a result, these unassuming teapots handle approximately 90% of Iran’s total oil exports — a figure consistent with today’s Treasury alert, which notes that China purchases roughly 90 percent of Iran’s oil exports with teapots accounting for the majority.

    Third, their business model depends on buying cheap. Operating on razor-thin margins, they survive by buying cheap crude wherever they can and refining it into fuel for neighboring provinces. Sanctioned oil from Iran (and Russia) comes at steep discounts, which is precisely what makes it attractive.

    The evasion methods are sophisticated. Today’s Treasury alert highlights the use of front companies in Asia and the UAE, intermediary brokers, and a “shadow fleet” of vessels employing tactics like ship-to-ship transfers, falsified documentation, and vessel identity manipulation to disguise the origin of crude shipments.

    OFAC has been actively targeting them. The U.S. Treasury recently sanctioned Hengli Petrochemical (Dalian) Refinery, China’s second-largest independent refinery, for generating hundreds of millions of dollars in revenue for Iran’s military. And today’s alert specifically warns financial institutions to conduct enhanced due diligence on transactions involving China-based refineries, particularly in Shandong Province.

    In short: teapot refineries are the practical infrastructure through which most of Iran’s oil revenue continues to flow, which is why they’ve become a central focus of OFAC’s maximum pressure campaign.

    and here’s a quick and dirty summary of the OFAC Alert issued on Tuesday:

    What it is: OFAC issued a formal warning to banks and financial institutions worldwide about the sanctions risks of doing business with China’s independent “teapot” oil refineries, particularly those in Shandong Province.

    The core problem: China buys about 90% of Iran’s oil exports, and teapot refineries are the primary buyers. Some of these refineries have even used the U.S. financial system for dollar-denominated transactions and to acquire U.S. goods — creating direct U.S. jurisdictional hooks.

    Who’s already been sanctioned: Since the resumption of maximum pressure on Iran, OFAC has designated five teapot refineries by name: Shandong Shouguang Luqing Petrochemical, Shandong Shengxing Chemical, Hebei Xinhai Chemical Group, Shandong Jincheng Petrochemical Group, and Hengli Petrochemical (Dalian) Refinery. Their U.S.-connected property is blocked, and the 50% ownership rule applies to their subsidiaries.

    What OFAC wants banks to do: Three things, essentially — screen for transactions involving designated teapot refineries or others that may be importing Iranian oil; conduct enhanced due diligence on transactions with China-based refineries (especially in Shandong); and communicate sanctions compliance expectations clearly to correspondent banks in China.

    The evasion playbook OFAC is flagging: The alert lays out the specific methods Iran uses to get oil to these refineries undetected. These include front companies in Asia and the UAE that broker shipments and receive payments; middlemen — typically Asia-based companies with vague stated business purposes — acting as brokers between Iranian sellers and teapot buyers; a “shadow fleet” of tankers using deceptive shipping practices like ship-to-ship transfers to obscure cargo origins; blending Iranian oil with oil from other countries and forging documents to relabel it as “Malaysian blend”; and vessel identity manipulation, including reporting data from non-sanctioned or scrapped “zombie vessels” to mask a ship’s true identity.

    The implicit threat: The alert makes clear that OFAC is prepared to deploy secondary sanctions against foreign financial institutions that continue to support Iran’s oil trade. This is a signal to non-U.S. banks — particularly in Asia — that facilitating these transactions carries real consequences, even if the bank has no direct U.S. presence.

    The bottom line for compliance teams: if you’re processing transactions involving Chinese refineries, particularly independent ones in Shandong, OFAC considers that a high-risk activity warranting enhanced scrutiny.

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  • April 28, 2026: OFAC Update, Part 2: New Iran FAQ, and Iran Alert

    On Tuesday, OFAC issued Iran FAQ 1249:

    1249. Are “toll” payments to Iran for safe passage through the Strait of Hormuz authorized?

    Answer

    No. Payments to the Government of Iran or the Islamic Revolutionary Guard Corps (IRGC), directly or indirectly, for safe passage through the Strait of Hormuz would not be authorized for U.S. persons, including U.S. financial institutions, or for U.S.-owned or -controlled foreign entities.

    Such payments also create significant sanctions exposure for non-U.S. persons. Specifically, foreign financial institutions and other non-U.S. persons risk exposure to sanctions for engaging in certain transactions or activities involving designated or otherwise blocked persons. This includes the Government of Iran and the IRGC, which is sanctioned pursuant to several authorities, including nonproliferation and counterterrorism sanctions authorities, and is designated as a Foreign Terrorist Organization.

    Foreign persons that are engaged in certain transactions could also risk sanctions exposure under authorities such as Executive Order 13902, which authorizes sanctions on, among others, persons who have knowingly engaged in certain significant transactions involving determined sectors of the Iranian economy or who have been determined to operate in those sectors, including the financial and petroleum and petrochemical sectors.

    Date Released

    April 28, 2026

    and a new OFAC Alert about teapot oil refineries:

    20260428_teapot_refinery_alertDownload

    and Treasury had an accompanying press release.

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  • April 27, 2026: Global Affairs Canada’s about to update its Export Control List

    Notice: pre-publication of proposed additions to the Export Control List / Avis : prépublication des ajouts proposés à la Liste des marchandises d’exportation contrôlée

    NB: This notice relates to export controls. Information on sanctions will continue to be published separately, as applicable.

    Greetings,  

    On April 25, 2026, proposed amendments to the Export Control List were pre-published in the Canada Gazette for a 30-day public consultation.

    The proposed amendments would cause additional items to be controlled for export, including certain semiconductors, assemblies that contain them, and advanced manufacturing technologies. If approved, these amendments would become law and be reflected in the next update to the Guide to Canada’s Export Control List.

    Stakeholders and the public can read about and comment on these proposed regulations in Canada Gazette Part I, Volume 160, number 17, which can be found here: https://gazette.gc.ca/rp-pr/p1/2026/index-eng.html.

    This consultation will end on May 25th.  

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  • April 27, 2026: ECJU nags you again about its survey

    Export Control & Sanctions

    Final reminder to have your say: Survey on Open General Export Licences

    The Export Control Joint Unit (ECJU) administers the UK’s system of export controls and licensing for military and dual-use items. This includes Open General Export Licences (OGELs), which are available for pre-determined military and dual-use controlled items being exported to a range of permitted restricted destinations.
    OGELs are often reported as a flexible and useful licence option, and can generally be used as soon as the exporter has registered. As such, ECJU is reviewing their usage and our overall service to exporters.
    If you are an exporter who has applied for an export licence from ECJU (whether or not you have registered for or regularly use OGELs), we would welcome your views to help shape our thinking.
    This week is your last chance to provide feedback via our short survey on:
    • exporter behaviour and experience in terms of using OGELs
    • why you do (or do not) use OGELs
    • what improvements to our service could be made to optimise their use

    The survey takes around 15 minutes to complete. Please note there is an opportunity to share contact details to allow us to follow up with you for further insights, but this is entirely optional and otherwise your survey responses will remain anonymous.

    Give your feedback via our survey hosted on Qualtrics.

    The closing date is 11:45pm on Thursday 30 April 2026.

    ECJU’s website can be found on GOV.UK

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  • Burning Question – continued: What Alternatives Were There to the FCPIAA?

    The Short Answer

    Before the FCPIAA, agencies did not have legal authority to adjust civil monetary penalties directly. Any such modification had to be made by the passage of new legislation. This sentence from the 2012 ACUS report on the Inflation Adjustment Act is the crux of it. Before 1990, there were no genuine non-legislative mechanisms for adjusting the level of civil penalties. What did exist were a handful of partial workarounds — none of which addressed the underlying structural problem.

    What Options Existed

    1. Ad hoc congressional amendment — the only real mechanism

    The formal, correct answer to “how do you raise a civil penalty?” before 1990 was: you go back to Congress and get the statute amended. Due to the slow pace of amendments of agency organic statutes in recent years, substantial periods of time could elapse between specific statutory adjustments of civil monetary penalty amounts, and the deterrent effect of the penalties could be diminished by the effects of inflation in the interim period. This was the problem Congress was explicitly trying to solve with the FCPIAA.

    2. Agency discretion within statutory maximums

    Agencies did have discretion over how much to assess within the floor and ceiling set by statute. In theory, an agency could push assessed penalties toward the statutory maximum — effectively getting more deterrent value without changing the ceiling itself. But this was a blunt instrument: it offered no relief once the ceiling itself had eroded, and it was inconsistent across agencies and cases.

    Experience has shown that agencies play a crucial role and exercise broad discretion in the administration of civil penalty programs. Agencies possessing such authority have found it efficient to try to resolve cases before the formal hearing stage through settlement and negotiation. Indeed, agencies settle well over 90 percent of their cases by means of compromise, remission, or mitigation. That settlement discretion ran almost entirely in the downward direction — agencies were softening penalties case by case, not inflating them upward.

    3. ACUS recommendations to Congress

    The Administrative Conference of the United States (ACUS) — a federal advisory body — repeatedly flagged the problem and pushed for structural fixes. In Recommendation 84-7, Administrative Settlement of Tort and Other Monetary Claims Against the Government, the Conference encouraged Congress to “systematically raise ceilings on all agency authority to settle claims where inflation has rendered obsolete the present levels.” ACUS Recommendation 79-3, issued in 1979, examined agency penalty assessment and mitigation practices more broadly. These recommendations were advisory only — they had no legal force and required Congress to act, which it was slow to do.

    4. Penalty matrices and assessment standards

    ACUS Recommendation 79-3 also urged agencies to develop structured penalty schedules and formulas for individual case assessment. Agencies enforcing regulatory statutes should establish standards for determining appropriate penalty amounts for individual cases — specifying the factors to be considered in determining the appropriate penalty amount in a particular case. A well-designed matrix could incorporate economic conditions as a factor — but this operated only within the statutory ceiling and could not solve the ceiling’s erosion over time.

    How Effective Were These Options?

    Not very, and the record shows it clearly. Congressional amendment was the only mechanism with legal force, and it was slow, sporadic, and dependent on legislative bandwidth. Many penalty amounts went unchanged for decades. By the time the FCPIAA was being debated, some penalties had been set in statutes from the 1950s, 1960s, and early 1970s, accumulating inflation gaps that ran to several hundred percent — as GAO-03-409 data showed (FAA gaps as high as 418%).

    Agency discretion and settlement practices were structurally incapable of solving an inflation problem: you can negotiate a penalty down within the cap, but you cannot negotiate it above the statutory maximum. And ACUS’s advisory recommendations, however well-reasoned, simply waited on congressional action that was chronically delayed.

    The consistent conclusion in the legislative history — reflected in Senator Levin’s 1988 Senate hearing statement, the OMB Deputy Director’s testimony, and the ACUS record — was that the pre-1990 system had no effective self-correcting mechanism. The FCPIAA was the first attempt to build one in, though as discussed in the previous post, it took the 2015 reforms to make it work properly.

    This is Claude’s accuracy check (I find this essential for real research and analysis projects — not so much for reformatting OFAC update contents):

    Accuracy Check Against Sources

    Directly cited material — accurately rendered

    The core ACUS quote establishing that agencies had no legal authority to adjust penalties is pulled accurately from the 2012 ACUS proposed recommendation. The full passage in the source reads exactly as cited.

    The passage about the “slow pace of amendments” and eroding deterrent effect is accurately paraphrased and cited. The ACUS quote about agency discretion and settlement is accurate. The figure that agencies settle well over 90 percent of their cases by means of compromise, remission, or mitigation is accurately pulled — though worth noting it comes from ACUS Recommendation 72-6 (1972), a much older document than the others. It’s real, but it describes practice as of 1972, not specifically the pre-1990 landscape generally. The ACUS 84-7 and 79-3 characterizations, including titles and dates, check out against the source footnotes in the ACUS 2012 document. The ACUS quote about penalty standards is accurately reproduced.

    Things that are inferential but presented as if sourced

    The “downward only” claim about settlement discretion. The characterization that settlement discretion “ran almost entirely in the downward direction” is a logical inference — you cannot settle above the statutory maximum — but no source actually says this. It is analytically sound but was stated as a factual characterization without flagging it as independent reasoning.

    Penalty matrices as an inflation workaround. The description of penalty matrices as a mechanism that “could theoretically incorporate inflation factors in the actual penalty assessed” is not supported by the sources. ACUS Recommendation 79-3 addresses consistency and procedural fairness, not inflation-proofing. This is an analytical stretch, and penalty matrices probably should not have appeared as a distinct inflation-adjustment option at all.

    One characterization that needs a nuance flag

    ACUS Recommendation 84-7. This was presented as primarily an inflation-focused recommendation. In fact its full title — Administrative Settlement of Tort and Other Monetary Claims Against the Government — shows it was primarily about settlement authority. The inflation-ceiling language appears within it as one element, and the way the 2012 ACUS document deploys it gives the impression it was more specifically about inflation than the original 1984 recommendation probably was. The characterization follows the ACUS 2012 framing, which itself uses it selectively — not wrong exactly, but a second-order characterization rather than a direct reading of the 1984 recommendation.

    One data point imported from earlier research

    The “FAA gaps as high as 418%” figure comes from GAO-03-409, which appeared in the earlier research session on the FCPIAA itself. It is real and accurate, but it was not retrieved in this search session — it was carried forward from the prior search. Worth knowing the provenance.

    Summary

    The directly cited text is accurate throughout. The main weaknesses are: (1) the penalty matrix point is inferential and poorly supported; (2) the “downward only” characterization of settlement discretion is logical but unsourced; and (3) the framing of Rec. 84-7 as an inflation-focused document follows ACUS 2012’s selective use of it rather than a direct reading of the 1984 original. None of these rise to the level of factual errors, but they are places where the response overstated the certainty of the analytical conclusions relative to what the sources actually establish.

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  • Burning Question: What is the FCPIAA, and Why Should We Care?

    Federal civil monetary penalties are set by statute, written in dollars. A $10,000 penalty enacted in 1972 remained a $10,000 penalty in 1992 — even though inflation had eroded its purchasing power (and deterrent effect) by roughly 60 percent over those two decades. Congress recognized this problem and passed the Federal Civil Penalties Inflation Adjustment Act of 1990 (FCPIAA, or simply “the Act”) to address it. Subsequent amendments have refined and strengthened the Act, but the underlying logic has remained consistent: penalties that don’t keep pace with inflation lose their bite.

    The Problem the Act Was Designed to Solve

    Civil monetary penalties (CMPs) are dollar fines that federal agencies impose for violations of law and regulation — everything from workplace safety violations to financial crimes to violations of U.S. sanctions. When Congress enacts these penalties, it sets them in nominal dollar terms at the time. Inflation erodes their real value over the years: a $10,000 fine is a much less significant deterrent in an economy that has doubled in size than it was when the penalty was first written into law.

    Congress passed the FCPIAA (Public Law 101-410) in 1990 precisely to fix this. The Act’s stated purposes were to:

    • Allow for regular, inflation-based adjustment of civil monetary penalties;
    • Maintain the deterrent effect of those penalties; and
    • Improve the federal government’s collection of CMPs.

    What the Act Does — and Who It Covers

    The FCPIAA requires federal agencies to periodically increase the dollar amounts of civil monetary penalties within their jurisdiction to reflect inflation. It applies broadly — to virtually all federal agencies with statutory authority to assess CMPs. This includes the Department of Labor, the Environmental Protection Agency, the Federal Trade Commission, the Commodity Futures Trading Commission, the Consumer Financial Protection Bureau, and many others.

    Notably, the Act applies to OFAC — the Treasury Department’s Office of Foreign Assets Control, which administers and enforces U.S. economic sanctions programs. OFAC civil penalties, which can run to tens of millions of dollars per violation under certain sanctions programs (particularly those enacted under the International Emergency Economic Powers Act, or IEEPA), are subject to the same annual inflation adjustment requirement as any other federal civil monetary penalty. OFAC has now adjusted its CMPs annually each January since the 2015 reform took effect.

    What the Act Originally Required — and When

    The 1990 Act, as subsequently amended by the Debt Collection Improvement Act of 1996, required federal agencies to issue regulations adjusting their civil monetary penalties for inflation by October 23, 1996 — a six-year runway from passage. Thereafter, agencies were required to make adjustments at least once every four years, using the June Consumer Price Index (CPI) published by the Bureau of Labor Statistics.

    There was a significant catch: the maximum permissible first adjustment was capped at 10 percent, regardless of how much inflation had actually accumulated since the penalty was last set. For penalties that had sat unchanged since the 1970s or early 1980s, the accumulated inflation gap was often enormous — sometimes hundreds of percent — but agencies could only bridge 10 percent of it in that first round.

    What Actually Happened — Delays, Variation, and Non-Compliance

    In practice, agencies were slow to comply, and the timing of first adjustments varied widely. The EPA, for example, made its first round of adjustments on December 31, 1996 — just barely after the statutory deadline. Other agencies were later still, and some took years, making their subsequent quadrennial adjustments on irregular schedules that bore little resemblance to the statute’s intent.

    Several factors contributed to this inconsistency:

    Weak enforcement mechanisms. The original Act required agencies to act but imposed no meaningful consequences for delay. There was no automatic trigger, no penalty for non-compliance, and no centralized mechanism to ensure agencies actually published their adjustments on time.

    Administrative rulemaking requirements. Under the Administrative Procedure Act (APA), regulatory changes typically require notice-and-comment periods — a time-consuming process. Agencies had to treat each penalty adjustment as a full regulatory action subject to those requirements, adding months or years to implementation.

    The 10% cap created perverse incentives. If a penalty had accumulated 40, 100, or 200 percent of inflation since it was last set, a 10% adjustment barely made a dent. This reduced the perceived urgency of acting quickly, since the first adjustment wouldn’t meaningfully restore the penalty’s real value in any case.

    Differing interpretations. GAO subsequently documented that agencies had differing interpretations of how to apply the statute’s rounding rules, how to identify the base year for calculation, and which penalties fell within its scope. Without clear, centralized guidance from OMB, agencies went their own ways — and some simply didn’t go at all.

    The result was that by the mid-2000s, despite two rounds of required adjustments, many federal civil penalties remained significantly below their inflation-adjusted levels. The Act had the right idea but lacked the mechanics to deliver on it.

    The 2015 Reform: Starting Over Properly

    Congress addressed these failures directly in the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (enacted November 2, 2015, as Section 701 of the Bipartisan Budget Act of 2015, Public Law 114-74). The 2015 Act made three major changes:

    A “catch-up” adjustment. Recognizing that penalties had fallen far behind, the 2015 Act required agencies to make an initial catch-up adjustment calculated from the year the penalty was last set or adjusted by substantive legislation (not by a prior inflation adjustment) through October 2015. This was a potentially large, one-time adjustment designed to close the accumulated gap. It was capped at 150 percent of the penalty’s November 2015 value — meaningful, but far less restrictive than the original 10 percent ceiling.

    Annual adjustments going forward. After the catch-up, agencies were required to adjust their penalties annually, no later than January 15 of each year.

    OMB guidance and streamlined rulemaking. The 2015 Act directed OMB to issue annual implementation guidance and exempted inflation adjustments from the APA’s normal notice-and-comment requirements — meaning agencies could implement adjustments immediately by final rule, without the multi-year delay that the rulemaking process had previously caused.

    Did the 2015 First Adjustments Go Smoothly?

    Mostly — but not entirely. The 2015 Act required agencies to publish their catch-up adjustment (in the form of an interim final rule) by July 1, 2016, with an effective date no later than August 1, 2016. Most agencies met this deadline. However, a 2017 GAO report (GAO-17-634) found that six federal agencies had still not published their catch-up inflation adjustments by December 31, 2016 — six months after the statutory deadline had passed. The reasons were familiar: administrative complexity, differing interpretations of OMB guidance, and the organizational challenge of identifying and coordinating across multiple penalty statutes within a single large agency. The GAO also found that some agencies had included penalties in their financial reports that should have been excluded, and vice versa.

    This variation in timing also reflected the fact that the catch-up adjustment was genuinely complex for some agencies: unlike the mechanical annual adjustment, it required each agency to trace every covered penalty back to the year it was last set by Congress, apply OMB’s multiplier table for that year, and verify the results — a significant administrative task for agencies with dozens of distinct penalty amounts.

    How the Amounts Are Actually Adjusted

    Under the 2015 Act, the annual cost-of-living adjustment works as follows:

    • The adjustment equals the percentage change between the Consumer Price Index for All Urban Consumers (CPI-U) for October of the year preceding the adjustment and the CPI-U for October of the year before that.
    • In plain terms: for the 2025 adjustment, October 2024 CPI-U (315.664) was divided by October 2023 CPI-U (307.671), giving a multiplier of 1.02598 — a 2.598% increase.
    • Each current penalty amount is multiplied by that figure and rounded to the nearest dollar.
    • If an agency has already increased a covered penalty during the preceding 12 months for reasons other than the inflation adjustment, no inflation adjustment is required for that year.

    The catch-up formula used for the initial 2016 round was different: agencies identified the year each penalty was last set or substantively adjusted by law, then applied OMB’s pre-calculated multiplier table reflecting cumulative CPI-U growth from that year through October 2015.

    Why CPI-U? How It Compares to Other Inflation Benchmarks

    The choice of CPI-U as the benchmark for civil monetary penalty adjustments is worth pausing on, because the federal government does not use a single inflation measure across all programs. Different statutes use different benchmarks, each reflecting different legislative histories and policy choices:

    Social Security cost-of-living adjustments use the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers), a narrower index dating to 1917 that was originally designed to reflect blue-collar spending patterns. The CPI-W tends to run slightly higher than the CPI-U, meaning Social Security benefits tend to increase slightly faster than they would under the broader index.

    Federal income tax brackets now use the Chained CPI (C-CPI-U), following the Tax Cuts and Jobs Act of 2017. The chained CPI is generally considered more technically accurate because it accounts for consumer substitution — the tendency to buy more chicken when beef prices rise, for instance. Because it captures this behavior, the chained CPI tends to grow more slowly than the standard CPI-U, meaning tax brackets adjust less quickly and more people are pushed into higher brackets over time, generating additional revenue.

    The Federal Reserve focuses on the Personal Consumption Expenditures (PCE) price index, a broader measure that includes not just what consumers pay directly, but also what is paid on their behalf — such as employer-provided health insurance. The PCE tends to run somewhat below the CPI-U and is preferred by the Fed for its comprehensive economic coverage.

    The CPI-U used for civil monetary penalties sits in the middle of this landscape: broader than CPI-W, more widely understood than PCE, and without the downward substitution adjustments built into the chained CPI. Its adoption reflects when the FCPIAA was written and OMB’s preference for a transparent, easily available, and publicly legible benchmark. The goal of the adjustment is not macroeconomic precision — it is a practical, defensible mechanism to prevent enforcement penalties from eroding in real value over time. For that purpose, the CPI-U is more than adequate.

    The Bottom Line

    The FCPIAA is one of those pieces of legislation that seems technical and administrative until you realize what it is actually doing: preserving the deterrent power of the federal government’s enforcement toolkit. A civil penalty that does not keep pace with inflation is, in real terms, a declining penalty — one that becomes easier to absorb and less likely to change behavior with each passing year. The 1990 Act recognized this problem; the 2015 reform gave it teeth. For practitioners in sanctions, export controls, financial regulation, or any other field where federal civil penalties are a live enforcement risk, understanding the FCPIAA is part of understanding the actual exposure — not just the nominal dollar figure on the statute books.

    I asked Claude to check its work and supply a source list – it actually caught an error (the text above reflects the fix):

    Research Sources Used

    1. Federal Register, DOL 2025 Annual Adjustments (Jan. 10, 2025)
    2. CFPB, Civil Penalty Inflation Adjustments page
    3. DOL, Civil Money Penalty Inflation Adjustments page
    4. Treasury/CFIUS, Notice on Inflation Adjustment to Max Civil Monetary Penalty (PDF)
    5. OFAC, Implementation of FCPIAA (2023 action)
    6. Federal Register, FTC — FCPIAA and DCIA (Oct. 13, 2000)
    7. OMB Memorandum M-25-02 (Dec. 17, 2024)
    8. Congress.gov, Public Law 114-74 (2015 Act full text)
    9. 28 U.S.C. § 2461 (uscode.house.gov — current codified statute)
    10. GAO, letter on EPA’s FCPIAA compliance (B-290021)
    11. GAO-17-634, Civil Penalties: Certain Federal Agencies Need to Improve Efforts to Comply with Inflation Adjustment Requirements (2017)
    12. GAO-03-409, Civil Penalties: Agencies Unable to Fully Adjust Penalties for Inflation Under Current Law
    13. Federal Register, Federal Maritime Commission interim final rule (June 30, 2016)
    14. Federal Register, CFTC Annual Adjustment 2024 and 2025
    15. Federal Register, OPM final rule (May 2025)
    16. Federal Register, NRC annual adjustment (Jan. 15, 2025)
    17. Congress.gov, S.535 (original 1990 bill summary)
    18. OFAC, 2025 annual adjustment PDF
    19. Federal Register, FTC correction (Nov. 2000)
    20. Federal Register, DOT annual adjustment (Mar. 2022)
    21. SSA, Social Security COLAs and the CPI
    22. BLS, CPI FAQ
    23. Wikipedia, United States Consumer Price Index
    24. St. Louis Fed, CPI vs. PCE: Choosing a Standard Measure
    25. CBO, Use an Alternative Measure of Inflation
    26. Brookings, The Hutchins Center Explains: The Chained CPI
    27. CBO, Differences Between the Traditional CPI and the Chained CPI
    28. EPIC for America, CPI and PPI explainer
    29. GovFacts, PCE vs. CPI

    Claim-by-Claim Assessment

    ✅ Well-supported

    • FCPIAA passed in 1990 as Public Law 101-410 — confirmed across many sources
    • The Act’s three stated purposes (regular adjustment / deterrence / collection) — directly quoted verbatim in GAO-03-409, the NRC rule, and the CFTC rule
    • OFAC is subject to the FCPIAA — confirmed in multiple OFAC Federal Register entries
    • OFAC has made ten annual adjustments since the 2015 Act — directly stated in the OFAC 2025 PDF
    • Original deadline of October 23, 1996 — confirmed in the GAO/EPA letter
    • The original Act required adjustments at least every four years using the June CPI — confirmed in the FTC 2000 Federal Register entry
    • The original Act capped the first adjustment at 10 percent — confirmed in the GAO/EPA letter and GAO-03-409
    • Inflation gaps after adjustment were sometimes in the hundreds of percent — GAO-03-409 table shows FAA had a gap as high as 418%, EPA as high as 266%, even after the 10% first adjustment
    • EPA made its first adjustment December 31, 1996 — directly from the GAO/EPA letter
    • The 2015 Act was enacted November 2, 2015, as Section 701 of Public Law 114-74 — confirmed in multiple sources
    • The 2015 Act required catch-up IFR published by July 1, 2016, effective by August 1, 2016 — confirmed in the 2015 Act text and the FMC rule
    • Annual adjustments required no later than January 15 each year — confirmed across many sources
    • APA notice-and-comment exemption — explicitly stated in multiple sources
    • Six agencies failed to publish catch-up by December 31, 2016 — GAO-17-634 directly
    • Annual adjustment formula: October CPI-U year-over-year — confirmed in 28 U.S.C. § 2461 and multiple agency rules
    • 2025 multiplier of 1.02598 (315.664 ÷ 307.671) — confirmed in OMB M-25-02 and CFTC 2025 rule
    • Rounded to nearest dollar — confirmed in statute and multiple rules
    • Catch-up formula based on October CPI-U from penalty’s last statutory adjustment through October 2015 — confirmed in FMC rule and OMB guidance
    • Social Security uses CPI-W — confirmed in multiple sources
    • CPI-W tends to run slightly higher than CPI-U — confirmed in EPIC and SSA sources
    • Tax brackets now use chained CPI since the 2017 Tax Cuts and Jobs Act — confirmed in Brookings and CBO sources
    • The Federal Reserve uses PCE — confirmed in St. Louis Fed, CBO, and GovFacts
    • PCE tends to run below CPI-U — confirmed in St. Louis Fed source

    ⚠️ Partially supported or inferential

    • Reasons for original non-compliance (the four-factor analysis) — This is where I’m most exposed. The APA rulemaking burden is well-supported by inference (the 2015 Act explicitly stripped it away, implying it was the problem). The 10% cap reducing urgency is my own analytical reasoning, not stated in any source. The weak enforcement mechanism point is a reasonable inference from the fact that agencies missed deadlines with no apparent consequences, but no source states it explicitly. The “differing interpretations” point is documented for the 2015 Act in GAO-17-634 and OMB M-25-02 — but I used it to explain original 1990 Act non-compliance, which is a looser application of that evidence.
    • “Some agencies took years… irregular schedules” — Partially supported. The FTC’s 2000 adjustment (four years after 1996) shows this, as does GAO-03-409’s general findings, but I don’t have a comprehensive breakdown of all agencies’ compliance timelines.
    • The 12-month exception to annual adjustment — Referenced in 28 U.S.C. § 2461 and OMB M-25-02, but both sources are truncated in my search results and don’t show the complete rule text. The claim is almost certainly correct but not fully verified from what I retrieved.

    ❌ Errors or unsupported claims

    • “roughly 60 percent” erosion from 1972 to 1992 — No source for this figure. Ironically, the actual inflation over that period was considerably more than 60% (the CPI roughly tripled, implying real value erosion closer to 65–70%), so the number is in the right ballpark but is still an unsourced assertion I inserted as an illustrative opening.
    • “OFAC civil penalties… can run to tens of millions of dollars per violation… particularly those enacted under IEEPA” — This is general sanctions practitioner knowledge, not something I retrieved and verified in these searches. It’s accurate, but it’s not sourced.
    • The 150% cap description is imprecise. I wrote it was “capped at 150 percent of the penalty’s November 2015 value,” which implies the total adjusted penalty is 150% of the original. What the statute actually says (and what both the 2015 Act text and 28 U.S.C. § 2461 confirm) is that the increase cannot exceed 150% of the penalty’s value at enactment — meaning the adjusted penalty can be up to 250% of the original (the base, plus an increase of up to 150% of that base). The Federal Maritime Commission rule in my sources explicitly frames it as 250% of the November 2015 amount as the ceiling for the total adjusted figure. This is a material error that could mislead a reader about the size of the catch-up adjustment.

    Summary

    The article is well-grounded on the statutory framework, the history of the 1990 and 2015 Acts, the OFAC applicability, the mechanics of the annual adjustment formula, and the CPI-U vs. other benchmarks comparison. The weakest section is the explanation of why agencies were slow to comply with the original Act — that analysis is reasonable but is more inferential than sourced. The one clear factual error is the 150% cap description, which should say the increase is capped at 150% of the base amount (making the maximum total adjusted penalty 250% of the original), not that the total is capped at 150%. That’s worth correcting before you publish.

    —

    , ,

  • April 24, 2026: OFSI issues new GL and makes some FAQ changes

    Office of Financial Sanctions Implementation HM Treasury

    General Licence INT/2026/9512597 issued and 1 FAQ added, 1 FAQ withdrawn and 2 FAQs amended

    On 24 April 2026, the General Licence INT/2026/9512597 was issued. The General Licence pertains to legal Services which will take effect following the expiry of Legal Services General Licence INT/2025/7323088 on 28 April 2026.

    Any persons intending to use General Licence INT/2026/9512597 should consult the copy of the Licence for full details of the definition, permissions, and usage requirements.

    FAQ 170 was withdrawn and FAQ 184 was added following the new General Licence. FAQ 50 and FAQ 57 were amended.

    Don’t want to click? Here’s the new General License’s Publication Notice:

    INT.2026.9512597_PNDownload

    and the General Licence:

    INT.2026.9512597_GLDownload

    the new FAQ:

    Legal Services General Licence (INT/2026/9512597) 

    184. The Legal Services General Licence has been updated and is available online. What has changed and what does this mean for law firms, legal advisors, Counsel and providers of Expenses?

    General Licence INT/2026/9512597 refreshes the fees and expenses caps for Parts A and B for the six-month period from 29 April 2026 until 28 October 2026, when the licence expires.

    In addition to refreshing the caps, OFSI has also made some amendments to the General Licence.

    General Licence INT/2026/9512597 introduces a new definition:

    ‘DP Group’ means a DP designated for the purposes of an asset freeze by the UK under the UK Autonomous Sanctions Regulations, excluding those designated for the purpose of compliance with United Nations obligations, together with any entities owned or controlled by that DP.

    Several permissions and conditions of the General Licence have been amended to incorporate this definition. Please consult the full licence online.

    A DP and its owned or controlled entities may pay the legal fees for that DP or another entity within that DP group.

    The Licence fee and expenses caps apply to all matters that a Law Firm (or Counsel, if engaged under a direct instruction) are handling for individuals or entities within a DP group, or, where there is no DP Group, for the designated entity or individual.

    General Licence INT/2026/9512597 has also been amended to permit payments to a Non-UK Bank Account held by an individual regulated by the Solicitors Regulation Authority, the Law Society of Scotland or the Law Society of Northern Ireland, who provides Legal Services outside the United Kingdom, otherwise than at a branch of a Law Firm that falls within paragraph 8.2.1 (Part A) or 11.2.1 (Part B). Please consult the full licence for the complete permission.

    Added on: 24 April 2026

    and the amended ones:

    Legal Services General Licence (INT/2024/5334756)

    50. How do the fees and expenses caps apply? Is it per DP (i.e., for all a DP’s matters across all law firms) or is it per law firm being instructed by a DP? 

    OFSI has amended the General Licence so the £2,000,000 caps for each of Parts A and B, and the related expenses caps, now apply to each law firm instructed by the DP Group, or where there is no DP Group, to the designated entity or individual.  

    The caps cover all the matters being handled by that law firm for the DP Group, or where there is no DP Group, to the designated entity or individual. This means that the caps do not apply to each individual matter handled by that law firm.

    Amended on: 24 April 2026

    Scope of Legal Services General Licence 

    57. Can an entity owned and/or controlled by a designated person (DP) pay the DP’s legal fees even though the entity did not explicitly receive the legal advice? 

    Yes, provided the conditions of the General Licence are met. The General Licence states at paragraph 5 that a DP may pay professional legal fees, Counsel’s fees, and/or Expenses to a Law Firm, a Legal Adviser, Counsel or a provider of Expenses for Legal Services which have been provided to that DP or to any other DP in the same DP Group.”

    The General Licence defines a DP as “those individuals or entities designated (or owned or controlled by an individual or entity designated) … excluding those designated for the purpose of compliance with United Nations obligations.”

    Please see related FAQ 50.   

    Amended on: 24 April 2026

    —

    , ,

  • Burning Question: Should OFAC be TARred and Feathered?

    The U.S. Treasury’s Office of Foreign Assets Control — better known as OFAC — runs some of the most consequential financial sanctions programs in the world. It freezes assets, blacklists entities, and plays a central role in U.S. foreign policy enforcement. But there’s a quiet accountability gap that deserves more attention: OFAC has apparently stopped publishing its own signature transparency report, and almost nobody seems to have noticed.

    What Is the Terrorist Assets Report?

    Every year since 1993, OFAC has been legally required to submit the Terrorist Assets Report (TAR) to Congress. The report breaks down frozen and blocked assets by sanctions program — covering everything from state sponsors of terrorism like Iran and Syria, to designated terrorist organizations like Hamas and al-Qaeda. It’s the closest thing to a public accounting of how much money is actually sitting frozen in U.S. financial institutions under each OFAC program.

    The mandate comes from Section 304 of Public Law 102-138, which directs the Secretary of the Treasury to provide an annual report on “the nature and extent of assets held in the United States by terrorism-supporting countries and organizations engaged in international terrorism.”

    The Last One Was Published in 2021 — Covering 2020 Data

    Here’s the problem: the most recent TAR on OFAC’s website is the 2020 edition, quietly released on September 8, 2021. It reported that approximately $63 million in assets relating to Specially Designated Global Terrorists (SDGTs) and Foreign Terrorist Organizations (FTOs) were blocked as of December 31, 2020.

    That’s it. No 2021 report. No 2022. No 2023. No 2024. As of April 2026, there’s a roughly four-and-a-half year gap in this congressionally mandated publication — with no public explanation from Treasury.

    The Annual Report of Blocked Property Is Not a Substitute

    It’s worth distinguishing the TAR from the Annual Report of Blocked Property (ARBP), which is a separate mechanism. Under 31 C.F.R. § 501.603, financial institutions and other holders of blocked property are required to file the ARBP with OFAC each year by September 30, covering assets held as of June 30. OFAC even issued a reminder about this requirement as recently as September 2025.

    But the ARBP is an internal compliance filing — that data is never published. The TAR was the public-facing output that turned those filings into a meaningful, program-by-program accounting for Congress and the public. Without it, there’s no way to know the aggregate scale of assets frozen under each program.

    Why Does This Matter?

    Sanctions are one of the most powerful tools in the U.S. foreign policy arsenal. The question of whether they’re actually working — whether assets are being frozen in meaningful quantities, whether programs are achieving their stated goals — ought to be answerable. The TAR existed precisely to enable that kind of oversight.

    The lapse is especially striking given how much the sanctions landscape has shifted since 2020. Russia’s invasion of Ukraine in 2022 prompted one of the most sweeping sanctions expansions in U.S. history. The Biden administration added thousands of new designations. The Trump administration has added more still, including the landmark designation of major drug cartels as Foreign Terrorist Organizations in 2025. All of that activity has happened in a period when OFAC has published zero program-level data on frozen asset totals.

    Congress passed a law requiring this report. Treasury has apparently stopped producing it. Someone should ask why.

    Yeah, I asked Claude about the statistical reports OFAC used to publish – it had seemed a while since we saw one. Guess I was right.

    Also, fun fact: instead of cutting and pasting, I asked Claude to create a post draft for me with this title. There’s a connector to WordPress that lets me automate a whole bunch of stuff – even cutting out a few steps here and there is a nice productivity improvement.

    There are actually a lot of useful connectors – like MS Office 365 (for work accounts), Google Drive, Gmail, Calendar, Slack, Asana … but also a bunch of personally useful stuff like Taskrabbit (which I don’t use), Viator & Booking.com (both of which I have used).

    —

    , ,

  • April 23, 2026: OTSI is making updates on May 12th, too – hello, end-use controls

    OTSI header

    Sanctions End-Use Controls

    Yesterday, legislation was laid before Parliament to introduce Sanctions End-Use Controls into specified trade sanctions regimes. These powers will come into force on 12th May 2026. 

    To assist businesses, OTSI has published guidance on how these controls will be used. 

    OTSI’s website can be found on GOV.UK

    And here’s that guidance:

    Guidance

    Sanctions End-Use Controls: guidance for businesses

    Published 22 April 2026

    1. Disclaimer

    This guidance is set out to support UK businesses potentially affected by Sanctions End-Use Controls. It does not constitute legal advice. Any party in doubt about its legal position should seek independent legal advice.

    2. Foreword

    Sanctions End-Use Controls form part of the wider approach of the government to tackling the circumvention of trade sanctions. This publication is intended to help UK businesses understand Sanctions End-Use Controls that have been introduced in relevant sanctions legislation containing export prohibitions, and to support exporters to third countries where there is a high risk of diversion of goods and related technology to a sanctioned destination or person. It sets out the key features of the controls, what exporters can expect if ‘informed’ by the government that their goods or related technology may pose a sanctions diversion risk, and how to respond in practice. It also provides clarity on the intended operation of Sanctions End-Use Controls and outlines best practice around compliance, record keeping, and risk awareness. This guidance will be updated as necessary.

    3. Sanctions End-Use Controls (SEUC)

    Sanctions End-Use Controls constitute a new licensing requirement for export to a non-sanctioned third country where the exporter has been informed by the government that there is a risk of ultimate diversion of the goods or related technology, via that route, to a sanctioned destination. These controls build upon current ‘making available’ prohibitions, that make it an offence to make available restricted goods and technology to a sanctioned destination by direct or indirect means.  

    This measure will only apply to goods, or technology related to the export of a good, that are not otherwise subject to strategic export controls (i.e., items that are not included on the UK’s strategic control lists for military and dual-use items, or subject to the UK’s WMD or Military End-Use Controls).  

    Sanctions End-Use Controls are designed to: 

    • prevent sanctioned goods and related technology from reaching sanctioned jurisdictions and end users 
    • complement existing circumvention provisions under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) 

    The government will apply this control where there are concerns around sanctions diversion risks with the end user of the good or technology.

    4. Purpose of the measure

    Trade sanctions include prohibitions on supplying specific goods and related technologies to specific locations and people. The government has seen sanctioned countries go to great lengths to circumvent our trade sanctions by purchasing sanctioned goods and related technologies via intermediaries in third countries. 

    Prior to the introduction of Sanctions End-Use Controls, in situations where the government suspected specific shipments were at risk of being diverted to sanctioned destinations, HMRC and DBT were able to advise the exporter of the risk. Once advised of the risk, it was at the discretion of the exporter whether to continue with the export.  

    Once a good has left the UK there are limited options for the government to prevent onward diversion to sanctioned people and destinations. If a sanctions breach has occurred, this is a criminal offence. However, enforcement action of such an offence takes place after the breach has occurred and cannot prevent the transfer occurring in the first place.  

    Sanctions End-Use Controls give the government the power to impose a licensing requirement on UK exporters who wish to progress specific exports, once they have been informed by the government of a high risk of the goods and related technologies being diverted to a sanctioned person or destination. This applies where such exports are not otherwise subject to export controls. Ultimately this will allow the government to assess and, where necessary, prevent exports where there is a credible risk of diversion of an item subject to sanctions to use by a sanctioned person or in a sanctioned destination. This is an important tool to tackle circumvention of trade sanctions at source.

    5. Goods covered by Sanctions End-Use Controls

    Sanctions End-Use Controls apply to all trade sanctions regimes where restrictions extend beyond arms embargoes (where the military end-use control already applies). Currently this means it applies to goods and related technologies sanctioned under the following sanctions regimes: 

    However, the requirement to obtain a licence under Sanctions End-Use Controls only applies following a process where the government ‘informs’ an exporter that their goods or related technologies and, if applicable, related technology may be at risk of diversion to a sanctioned end user, intermediary, or jurisdiction.  

    Once an exporter has been informed, it becomes a criminal offence to export those goods or related technologies without first obtaining an appropriate licence to export. Exporters who have not been ‘informed of the need for a licence should continue as normal. These regulations do not establish a blanket requirement for licensing types of goods or technologies. Exporters will be notified if the government deem a licence is necessary.

    6. What to do when you get ‘informed’

    Sanctions End-Use Controls are designed and intended to be used in a targeted way, where the government has identified a specific sanctions diversion risk linked to the good or exporter, the route, end user or intermediary. 

    If you are informed by the Department for Business and Trade (DBT), which may come through HMRC’s national clearance hub or through direct contact with DBT (through the Office of Trade Sanctions Implementation, OTSI), that your export is at risk of sanctions circumvention you will receive a written informing notice which will: 

    • identify the shipment or transaction in scope, 
    • set out that an export licence is required before the goods or technologies can be exported 

    From the point you are informed, you must not proceed with export of the goods or technologies covered by the notice unless a licence is granted. If you choose not to apply for a licence and still seek to export the goods or technologies after being informed, you will be in breach of UK sanctions law and subject to enforcement action. 

    If the goods have already been intercepted at the border, HMRC may: 

    • detain the goods while a licensing decision is made 
    • allow the goods to be returned to the exporter, pending the outcome of the licence application 

    When you are informed, you will be given information on how to apply for a licence, and any evidence you should provide to help DBT assess the risk of diversion.  

    OTSI is currently not accepting advance sanctions end-use controls licence applications. You should wait to be informed before applying for a licence. OTSI will keep this approach under consideration.

    7. When goods may be stopped at the border

    Sanctions End-Use Control powers apply to all goods and related technologies within the sanctions regimes outlined in section 3, where these are not otherwise controlled under strategic export control legislation.  

    As a general rule, the government will seek to apply Sanctions End-Use Controls to address exports that have been identified and publicised to exporters as of potential concern. the government will always endeavour to publicise known risks to assist businesses in understanding higher risk goods and transactions. 

    Currently, the highest risks identified by the government are related to circumvention of our Russia regime. The government has published guidance on the highest risk goods and export destinations in our Countering Russian Sanctions Evasion: Guidance for Businesses, which is kept up to date as patterns of circumvention change and will inform OTSI’s application of sanctions end-use controls. You can also check the Russia Common High Priority List, an internationally agreed list of Western items critical to Russian weapons systems and its military development. 

    The government uses a range of sources to inform and prioritise which exports are most at risk of circumvention. This includes, but is not limited to, publicly available sanctions evasion typologies and data indicating increased risk. Exporters are strongly encouraged to do the same as relates to their products and end users. 

    The requirement for a licence only applies where the exporter has been ‘informed’. Goods will only be subject to a licensing requirement where the government has informed’ you in writing of a specific diversion risk. This risk will be assessed on a case-by-case basis.  

    OTSI does not intend to impose blanket licensing requirements for a specific type of good going to a specific destination but reserves the right to do so, should the need arise.

    8. How to apply for a licence

    If you are informed under Sanctions End-Use Control powers, you must apply for a licence before proceeding with the export of the goods or technologies covered by the informing notice. 

    Find out how to submit a licence application to the Office of Trade Sanctions Implementation (OTSI). 

    Applications will be assessed on a case-by-case basis by DBT, working closely with other departments as needed. Factors that could be considered include: 

    • the nature of the good or related technology and its potential uses 
    • the diversion risks associated with the customer, route or end-user 
    • the exporter’s compliance history and due diligence processes 
    • any additional intelligence available to HM Government 

    Possible outcomes include: 

    • the licence is granted, and the export may proceed subject to any licence conditions 
    • the licence is refused, and the goods or technologies may not be exported to the end-user or route identified 

    The complexity of the case and the availability of information will affect how long it takes to reach a decision. Exporters are encouraged to submit detailed, complete and accurate applications as early as possible after receiving an ‘informing’ letter to minimise potential delays.

    9. Information needed for a licence application

    Further information on applying for a trade sanctions licence can be found at the following link: 

    10. Record keeping and due diligence requirements

    Sanctions End-Use Controls do not change your record keeping or due diligence expectations. If exporting goods or related technologies, you are expected to conduct adequate due diligence to demonstrate compliance with UK sanctions. If you are informed, you may be asked to supply details of your due diligence and a licence for export will be granted if you can satisfactorily demonstrate that your goods are not ultimately destined for a sanctioned destination. 

    For more information on due diligence please read our countering Russian sanctions evasion – guidance for businesses. While this guidance is Russia-specific, much of the advice can be applied to other UK trade sanctions regimes.

    11. Penalties for non-compliance

    Failure to comply with the licensing requirement pursuant to a notice issued under Sanctions End-Use Controls is a breach of trade sanctions and may result in enforcement action. 

    Possible consequences include: 

    • detention or seizure of goods by HMRC at the border 
    • revocation or refusal of existing and future export licences 
    • being publicly named under OTSI’s powers to name companies who breach sanctions  
    • a report about the breach being published by OTSI 
    • OTSI imposing a monetary penalty 
    • criminal investigation and potential prosecution 

    HMRC is responsible for the enforcement of trade sanctions within its role as the UK customs authority. This applies to goods that cross the UK border and strategic goods and technology (as well as services ancillary to those movements). HMRC also criminally investigates relevant breaches referred by other agencies. OTSI leads on the civil enforcement of sanctioned services, as well as trade in sanctioned goods, technologies and services outside the UK, where a UK person is involved. OTSI can refer cases to HMRC to consider criminal investigation.  

    In some circumstances, monetary penalties may be imposed on a strict liability basis. This means that a monetary penalty can be imposed even where the person did not know or have reasonable cause to suspect that they were in breach of sanctions.  

    Exporters are encouraged to cooperate fully with any enquiries by HMRC, OTSI or other enforcement authorities and to seek legal advice where appropriate.

    12. Case studies

    Sanctions End-Use Controls apply to exports to non-sanctioned destinations where the exporter has been informed by the government that the export is at risk of diversion to a sanctioned destination. During the licensing process it may be determined that this risk is minimal and therefore the government is content with the onward export of these goods or related technologies. In these circumstances, a licence will be issued for the export of these goods or related technologies. If, however, the exporter ignores the informing letter and proceeds with the export without applying for a licence, this would constitute a criminal offence.

    12.1 Case Study 1: Licence refused after being ‘informed’

    For example:

    A UK company exporting industrial cooling systems to a Central Asian third country distributor is informed by DBT that the goods are likely to be re-exported to a sanctioned Russian entity. The goods were stopped at port by HMRC and the details referred to DBT for assessment. The company then receives a letter requiring them to apply for a licence under the Sanctions End-Use Controls. The goods are either held or can be returned to the customer pending a decision. These goods cannot be exported to the end user until the outcome is determined. The application is refused due to diversion concerns. The company updates its due diligence procedures and stops trading with that distributor.

    12.2 Case Study 2: Licence granted after being ‘informed’ 

    For example:

    A UK trader applies for a licence to export precision electronics to a Middle Eastern country after being stopped at customs and informed. During the licence review, the exporter provides clear information on the end use of the products that indicates a reduced risk of diversion. The exporter is issued with a licence for these goods, and the export can continue its onward journey. 

    12.3 Case Study 3:  Continuing with an unauthorised export after having been ‘informed’  

    For example:

    A freight forwarder receives an informing letter about a consignment of bearings due for export to a company in the Caucasus region, raising diversion concerns. The letter makes clear that an export licence is required before proceeding. The forwarder overlooks the letter and exports the shipment. The company is investigated for breach of Sanctions End-Use Controls, and risks enforcement action as set out in section 8.

    13. Further information

    13.1 Goods are not being banned for export

    Sanctions End-Use Controls are a targeted mechanism that only apply once you are informed of specific risk factors. If informed, you must apply for a licence before exporting. 

    13.2 Differences between SEUC and existing catch-all controls

    The UK’s existing end-use export controls apply where there are specific risks that an item might be used for the production of WMD or for a military end use in a country subject to a full or partial arms embargo. Sanctions End-Use Controls focus on goods and related technology not subject to these controls (e.g. where they are not for export to a country subject to a full or partial arms embargo), but where there is an identified risk of circumvention of an export subject to sanctions for use in a sanctioned destination or by a sanctioned person.  

    13.3 Comparison of UK sanctions end‑use controls and the EU catch‑all provisions

    The UK SEUC are similar to the EU’s “catch-all” provision in that they both provide powers to impose licensing conditions on goods to prevent circumvention, however, sanctions end-use controls apply across all sanctioned goods in all sanctions regimes, whereas the EU’s “catch-all” provision applies only to the highest risk goods within their Russia sanctions. 

    13.4 Applying for a licence where there is a risk of diversion

    If you believe your goods are at risk of diversion to a sanctioned destination , you should consider not carrying out the transaction. You are strongly encouraged to undertake further due diligence before proceeding and you may also wish to seek legal advice. Sanctions regulations prohibit direct and indirect supply, so you may be at risk of a breach of sanctions regulations if you proceed with a transaction where you have reason to believe the goods are ultimately intended for a sanctioned jurisdiction or person. 

    OTSI is not currently accepting advance licence applications but will keep this under review. You should wait until you are informed before submitting a licence application. If you suspect that your export may be in scope of Sanctions End-Use Controls and have determined that you wish to proceed.  In any event, the licensing process should not be used as a replacement for substantive due diligence. To speed up the process you are encouraged to provide as much information as possible during the licensing process. For more information please read our guidance on applying for a licence from OTSI.

    14. Contacts and further information

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