Nearly 75 Percent of OFAC Penalties Have One Commonality

by  Jeremy Paner

Over the past five years, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has assessed 90 civil monetary penalties worth $2,087,207,524 for apparent violations of economic and trade sanctions.  OFAC assessed these penalties against U.S. and non-U.S. companies operating in a wide range of industries.  The most significant commonality among the penalties is not the alleged egregiousness of the apparent violations, or the compliance practices and failures that gave rise to the violations.  The biggest factor in determining OFAC’s enforcement response to sanctions violations may involve a company’s willingness to submit a truthful, timely, and complete disclosure of its violations.   

OFAC demonstrates a seeming reluctance to assess monetary penalties against companies that submit what the agency deems to be voluntary self-disclosures.  73 percent[1] of OFAC’s monetary penalties from 2013 to the present have been assessed against companies that did not submit such disclosures.  In other words, it may likely be in the best interest of a company to turn itself in to OFAC.

Timely Disclosures

The OFAC Economic Sanctions Enforcement Guidelines[2] define voluntary self-disclosure to mean self-initiated notification of apparent sanctions violations, received prior to or concurrently with the government’s discovery of the violations.  Timeliness is an important factor, because OFAC will only grant the benefits of a disclosure if the agency would otherwise not have learned about the violations.

In 2015, OFAC settled allegations of sanctions violations against UBS for $1.7 million.  OFAC and Bank of America reached a $16.6 million settlement in 2014.  OFAC determined in both enforcement actions that the banks identified all or most of the violations, but failed to submit voluntary self-disclosures within the scope of the definition under the Guidelines.  According to OFAC, the reported violations were substantially similar to other apparent violations of which OFAC was already aware.

OFAC considers disclosures late if a third party (typically a financial institution) reports a substantially similar blocked or rejected transaction.  OFAC applied this limitation in its 2013 enforcement action against Ellman International, Inc.  In that matter, the company self-reported the apparent violations after a third-party entity rejected and reported a related transaction.

We will continue to monitor developments in OFAC enforcement trends and publish updates as significant developments arise.

[1] OFAC assessed 63 of the 90 civil monetary penalties during this period against companies that did not submit voluntary self-disclosures.  The agency penalized three additional companies that submitted partial disclosures.

[2] 31 C.F.R. part 501, app. A

Categories: China Regulations