Stacy Keen

Between 2021 and 2024, the number of investigations opened by HMRC into potential sanctions offences rose from 0 to 29, the vast majority of which related to Russian sanctions. HMRC currently has 30 live criminal investigations into breaches of sanctions, 27 of which relate to Russia sanctions.

In October 2024, one of the live investigations into a breach of Russia sanctions was referred to the Crown Prosecution Service and is awaiting a charging decision. HMRC said: “Sanctions investigations can be complex and lengthy, and therefore the time it takes to investigate a breach and progress a case to prosecution can be considerable.”

This increase in Russia sanctions investigations is expected as the restrictions in the UK’s Russia sanctions regime incrementally ramped up from February 2022. Although the number of investigations may seem relatively low, it can be months if not years before non-compliance can end up on the radar of HMRC or the party involved in the underlying activity.

HMRC explained the ways in which it may be alerted to non-compliance, including conducting targeted risk-and-intelligence-based checks on goods entering and leaving the UK to identify potential breaches.

Enforcement can stem from businesses self-reporting breaches to HMRC through the voluntary disclosure process and identifying irregularities through tax and customs compliance audits. HMRC also receives actionable intelligence from UK law enforcement authorities, the intelligence community and international counterparts.

The Export Control Joint Unit (ECJU) in the Department for Business and Trade also identifies irregularities through the audits they do on businesses’ compliance with export controls (which may overlap with sanctions), and refer irregularities to HMRC.  

If the ECJU identifies non-compliance it will issue a letter recommending that the exporter report the matter to HMRC. This recommendation comes with a “hammer” in that if the exporter does not report the matter - or the ECJU reports it first - the “mitigation” attached to making a voluntary disclosure may not be available.

In addition to referring non-compliance for a criminal prosecution, HMRC has a range of enforcement options at its disposal including seizures, compound settlements and warning letters.

HMRC has a discretionary power to “compound” non-compliance.

This discretionary power, in essence, means that HMRC can offer an offender the opportunity to avoid prosecution in return for the payment of an administrative penalty. HMRC commonly uses this power to deal with export control, duty and excise breaches. An offender that does not accept a compound penalty is referred for a criminal prosecution.

Compound settlements are used primarily where businesses have voluntarily disclosed non-compliances to HMRC that were inadvertent or due to weaknesses in internal controls, and the business co-operated with HMRC investigation and sought to remedy any underlying failings.

The strategic exports and sanctions enforcement team in HMRC’s Fraud Investigation Service leads on sanctions enforcement in HMRC. As of January this team had 101 full-time equivalent staff, of whom 41 are dedicated to sanctions enforcement work, the majority of which relates to Russia sanctions.

Stacy Keen is a partner at Pinsent Masons