Understanding the OFAC Sanctions Enforcement Guidelines (Part I of II)
The Treasury Department’s Office of Foreign Asset Control is an enforcement agency – it is not a regulatory agency.
That sounds like a lot of bureaucratic speak but it does have some real significance. OFAC staff view themselves and act like an enforcement agency. Yes, they regulate in the sense that they authorize general and specific licenses and provide guidance.
OFAC guidance is sometimes provided in response to specific requests and sometimes published (with anonymity) if the issue is of significance. OFAC also issues general guidance and provides further guidance through its comprehensive set of Frequently Asked Questions (“FAQs”).
All that being said, OFAC at heart is a civil enforcement agency. Its coordination with the Justice Department is becoming more fulsome, especially as it aggressively enforces economic sanctions against Iran, North Korea and Cuba. By analogy, the DOJ-OFAC relationship is starting to resemble the DOJ-SEC relationship in the FCPA arena.
When it comes to its enforcement standards, OFAC is transparent and follows an established set of enforcement guidelines that are published here. These guidelines are applied in OFAC enforcement actions.
With the release of OFAC’s new Framework for Sanctions Compliance Programs (here), it is important to understand OFAC’s enforcement guidelines in the event a company identifies a potential violation.
OFAC’s Sanctions Enforcement Guidelines are set out in Chapter 31 of the Code of Federal Regulations (Here).
Depending on an evaluation of various factors, OFAC can resolve an investigation by taking: No Action; Request Additional Information; Issue a Cautionary Letter; Finding of Violation; Civil Monetary Penalty and/or Criminal Referral.
The General Factors for consideration include:
A. Willful or Reckless Violation of Law – OFAC will consider whether the conduct was willful, knowing or deliberate, whether the subject hid or purposely obfuscated its conduct in order to mislead; whether the conduct was part of a pattern or practice of conduct; whether the person was on notice or reasonably should have been on notice that the conduct violated U.S. law; and whether management was involved in the willful or reckless conduct; and whether supervisory management was aware or should have been aware of the conduct.
B. Awareness of Conduct – OFAC will consider whether the person had actual knowledge of, or reason to know about, the conduct; in the case of a corporation, the inquiry will focus on supervisory or management staff, as well as senior officers and managers. OFAC also examine whether the conduct was part of a business process, structure or arrangement that was used to prevent or shield the person from having such actual knowledge (or making it difficult to gain knowledge).
C. Harm to Sanctions Program Objectives – OFAC examines the actual or potential harm to sanctions program objectives caused by the conduct giving rise to the apparent violation, based on the economic or other benefits to the sanctioned individual, entity or country, the implications for U.S. foreign policy, whether the conduct likely would have been licensed if a license application had been filed, and whether the conduct supported any humanitarian activity.
D. Individual Characteristics – OFAC evaluates the subject’s specific characteristics relating to: commercial sophistication; size of operations and financial condition; volume of transactions; sanctions compliance history and any prior penalties, findings of violations or warning or evaluative letters or other actions.
E. Compliance Program — the existence, nature and adequacy of a person’s risk-based OFAC compliance program at the time of the apparent violation, where relevant. Under the guidelines an effective sanctions compliance program (SCP) reduces potential OFAC civil monetary penalties and/or deem a penalty as “non-egregious” as opposed to “egregious.” A company can earn credit for its SCP based on its effectiveness at the time the violation occurred and at the time the company is seeking resolution of its case as part of its remedial efforts.
F. Remedial Response: the subject’s corrective action taken in response to the apparent violation. Among the factors OFAC may consider in evaluating the remedial response are: the steps taken after learning about the violation; the processes and notice to senior management and the commitment to quickly resolve issues related to the violation; the remediation steps taken to prevent recurrence of the violation and to determine if other violations may have occurred.
G. Cooperation with OFAC: the nature and extent of the person’s cooperation with OFAC, including whether the subject voluntarily disclosed the matter to OFAC and provided all relevant information to OFAC including other possible violations; and whether the person cooperated with OFAC and, if necessary, agreed to tolling agreements with respect to applicable statute of limitations.
H. Timing of apparent violation in relation to imposition of sanctions: the timing of the apparent violation in relation to the adoption of the applicable prohibitions, particularly if the violation took place immediately after relevant changes in the sanctions program regulations.
I. Other enforcement action: other enforcement actions taken by federal, state, or local agencies against the person for the apparent violation(s).
J. Future Compliance/Deterrence Effect — the impact an administrative action may have on promoting future compliance with U.S. economic sanctions by the person and similar persons in the industry.
K. Other relevant factors on a case-by-case basis — such other factors that OFAC deems relevant on a case-by-case basis in determining the appropriate enforcement response and/or the amount of any civil monetary penalty.