Alert September 16, 2008

OFAC Issues Long-Anticipated Enforcement Guidelines

The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued its long-anticipated “Economic Sanctions Enforcement Guidelines” (the “Guidelines”).  The Guidelines supersede previously issued guidance regarding OFAC’s enforcement approach and, most importantly, set forth the factors that OFAC will consider in determining the appropriate enforcement response to apparent violations of OFAC’s various sanctions programs.  The Guidelines were eagerly anticipated, particularly in light of the sharply increased penalty authority granted to OFAC under the International Emergency Economic Powers Enhancement Act (“IEEPA Enforcement Act”) that was signed into law in October 2007.

OFAC administers the U.S. government’s economic sanctions programs against targeted foreign countries, organizations, and persons (such as terrorists and drug traffickers).  OFAC’s sanctions apply to all U.S. persons, entities organized under U.S. law and, in some limited circumstances, entities located abroad that are controlled by U.S. persons and entities.  OFAC sanctions programs implicate a wide range of financial and commercial transactions, and firms doing business on a cross-border basis need to ensure that they do not run afoul of OFAC’s sanctions programs.  Violations of OFAC sanctions are potentially punishable by significant civil and criminal penalties. 

The Guidelines clarify several aspects of OFAC’s enforcement approach and reflect several changes to prior enforcement guidance issued by OFAC:

  • First, rather than identifying “aggravating” and “mitigating” factors for OFAC penalties, the Guidelines set forth eleven “General Factors” that OFAC will consider in determining an appropriate enforcement response to an apparent violation and, if a civil monetary penalty is  warranted, in establishing the amount of that penalty.  The move away from “aggravating” and “mitigating” factors is intended to allow for a more “holistic consideration” of the facts and circumstances of a particular case.  Included among the General Factors are whether the conduct at issue involved a willful or reckless violation of the law, awareness of the conduct at issue, or harm to sanctions program objectives. 
  • Second, the Guidelines set forth seven types of enforcement actions that OFAC may take depending on the facts and circumstances of each case.  The Guidelines note that, in response to an apparent violation, OFAC may issue (a) a no-action letter, (b) a request for additional information, (c) a cautionary letter, (d) a finding of a violation, (d) a civil monetary penalty, (e) a criminal referral, or (f) other administrative actions (including license denial, suspension, or cease and desist order).
  • Third, in light of the enhanced maximum civil penalties established by the IEEPA Enhancement Act, the Guidelines distinguish between “egregious” and “non-egregious” civil monetary penalty cases.  Egregious cases are those representing the most serious sanctions violations, based on an analysis of all applicable General Factors, with substantial weight given to considerations of whether the violation involved willfulness or recklessness, awareness of the conduct giving rise to an apparent violation, harm to sanctions program objectives, and the individual characteristics of the subject person.  The Guidelines provide for significantly higher penalties for egregious cases. 
  • Fourth, where OFAC determines that a civil penalty is appropriate, the Guidelines set forth the manner for determining the penalty amount.  This process involves first determining a “base penalty amount,” based on two primary considerations:  first, whether the conduct giving rise to a violation is egregious or non-egregious; and second, whether the case involves a voluntary self-disclosure by the subject person.  OFAC stated that in keeping with its prior guidance on economic sanctions, the existence or lack of voluntary disclosure remains a major factor in establishing the penalty amount.  Accordingly, the base penalty amount will be reduced 50% or more in cases involving voluntary self-disclosure.  Once the base penalty amount is determined, it may be adjusted upward or downward based on the General Factors; the resulting amount is the proposed civil money penalty contained in a pre-penalty notice to the subject person.  The Guidelines contain a matrix that shows how penalty amounts are calculated.
  • Finally, the Guidelines also address the process for imposing penalties and settling allegations of violations.  If OFAC concludes that a violation has occurred and a civil monetary penalty is the appropriate response, it will issue a pre-penalty notice describing the alleged violation, identifying any relevant General Factors, and setting forth the proposed penalty.  Subject persons may respond to pre-penalty notices prior to the imposition of a final notice. 
Although the Guidelines became effective immediately, OFAC is seeking public comment.  The deadline for submitting comments is November 7, 2008.