Criminal Defense Lawyers

Key Elements of OFAC Settlement Agreements

Settlement agreements between companies and the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) for sanctions violations have become increasingly common in recent years. While penalties and fines can be substantial, these settlements provide helpful guidance into OFAC’s enforcement priorities and expectations for sanctions compliance programs.

This article will provide an overview of key elements commonly found in OFAC settlement agreements, with a focus on recent cases. We’ll also discuss how companies can use these agreements to strengthen their own compliance programs and reduce sanctions risk exposure.

Background on OFAC Settlements

OFAC administers and enforces U.S. economic and trade sanctions programs. Its authority comes from various laws and executive orders that restrict transactions and freeze assets of targeted foreign countries, entities, and individuals.

When an organization violates U.S. sanctions regulations, OFAC has the power to impose civil monetary penalties. In some cases, OFAC pursues a settlement agreement where the organization agrees to pay a penalty and take corrective actions in exchange for OFAC not pursuing further enforcement actions.

Recent years have seen a sharp increase in both the number and size of OFAC settlement agreements. According to OFAC data, there were only 11 public settlements in 2015 totaling $36 million in penalties. By 2022, there were 47 public settlements totaling over $1.1 billion in penalties [2].

While penalties can be substantial, most companies opt to settle with OFAC rather than litigate. Settlements provide closure and avoid the uncertainty of further enforcement. They also give companies insight into OFAC’s expectations for compliance programs.

1. Voluntary Self-Disclosure

One major factor that can impact penalties in a settlement is whether the company voluntarily self-discloses the violation to OFAC. According to OFAC guidelines, voluntary self-disclosure can result in substantially reduced penalties [1].

In a recent settlement with Amazon in 2022, OFAC specifically cited the company’s voluntary self-disclosure as a mitigating factor in determining the penalty amount of $134,523 [3]. Many other recent settlements highlight self-disclosure as a mitigating factor.

The incentives for voluntary self-disclosure make it an important consideration for companies that discover potential violations. However, the disclosure must be made in a timely manner and companies must demonstrate full cooperation with OFAC’s investigation.

2. Quality of Compliance Program

In determining penalties, OFAC will also consider the quality and maturity of the company’s sanctions compliance program. Companies with poor compliance programs and controls can expect larger fines.

In its 2019 compliance framework guidance, OFAC outlined five “essential components” of an effective sanctions compliance program: (1) management commitment, (2) risk assessment, (3) internal controls, (4) testing & auditing, and (5) training [1]. Recent settlements demonstrate OFAC is assessing programs against these components.

For example, OFAC cited “willful” sanctions violations by MoneyGram due to compliance program deficiencies across multiple essential components. This contributed to their $250,000 penalty in 2021 [4].

3. Nature & Extent of Violations

A major factor in penalty determinations is the nature of the sanctions violations and the extent of the prohibited conduct. Aggravating factors that can increase penalties include:

• Systemic or recurring violations vs. isolated incidents
• Awareness of conduct being prohibited
• Involvement of management in misconduct
• Harm to sanctions program objectives
• Financial gain to the organization

For example, Cobham Holdings agreed to pay $87 million in 2019 to settle hundreds of violations involving aircraft parts resales to Iran – one of the largest settlements at the time [5]. The settlement cited awareness of prohibitions and potential harm to objectives as aggravating factors.

4. Remedial Response

OFAC will consider the organization’s remedial response to the violations and steps taken to prevent recurrence. Companies that respond promptly with improvements to compliance programs and processes may receive reduced penalties.

In a 2022 settlement with Amazon, OFAC specifically recognized the company’s remedial response, including: “updating its sanctions compliance processes and procedures; implementing additional controls to identify and prevent processing transactions involving OFAC-sanctioned jurisdictions, regions, or persons; and conducting enhanced end-use checks for AWS customers” [3].

5. Cooperation with Investigation

OFAC encourages cooperation with investigations as a potential mitigating factor. This includes providing all relevant information and records, assisting with understanding complex transactions, and signing tolling agreements to extend timelines [1].

In a 2022 settlement with Priceline, OFAC cited the company’s cooperation through:

• Entering into multiple tolling agreements
• Sharing detailed transaction data
• Preparing detailed and well-organized explanations of complex business practices
• Voluntarily providing updates on remedial measures

Similarly, in a 2022 settlement with MoneyGram International, OFAC noted the company’s cooperation through “providing detailed and well-organized information and records relating to the apparent violations; preparing detailed narratives regarding complex business practices; demonstrating extensive efforts to remediate sanctions compliance deficiencies; and providing updates regarding remedial sanctions compliance measures” [4].

By cooperating fully with investigations, companies can demonstrate their commitment to compliance and potentially receive reduced penalties.

However, the nature and extent of cooperation can vary significantly between companies. Simply providing requested information may not be enough to earn OFAC’s recognition or penalty reductions.

Based on recent settlements and DOJ guidance, some best practices for cooperation during sanctions investigations include:

• Being proactive in disclosing potential issues rather than waiting for OFAC inquiries
• Providing information in a timely, transparent, and comprehensive manner
• Preserving, collecting, and explaining relevant documents and data
• Helping investigators understand complex transactions, networks, and business practices
• Making knowledgeable employees and executives available for interviews
• Sharing details of remediation efforts and compliance program improvements

The DOJ’s principles on corporate enforcement outline cooperation as a factor that can earn credit in resolving investigations. This includes disclosure of all facts relevant to wrongdoing and providing all evidence not subject to attorney-client privilege [1].

Effective cooperation demonstrates a company’s good faith commitment to compliance. But as guidance from HHS notes, it also requires recurrence prevention through program improvements to address root causes for misconduct [3].

To receive full cooperation credit from the DOJ, companies must:

• Disclose all relevant, non-privileged facts about individual misconduct in a timely manner, allowing prosecutors to effectively investigate and bring charges against culpable individuals [1]
• Produce all relevant, non-privileged evidence relating to the misconduct so prosecutors can build cases [4]
• Identify all individuals involved in or responsible for the misconduct [5]
• Provide information and records in a transparent, comprehensive manner [7]

Cooperation should go beyond just providing requested information. Companies must be proactive and forthcoming to receive full credit [6].