OFAC Civil Penalty Guidelines Explained

OFAC Civil Penalty Guidelines Explained

The Office of Foreign Assets Control (OFAC) is an agency within the U.S. Department of the Treasury that administers and enforces economic and trade sanctions against targeted foreign countries, entities, and individuals. OFAC has the authority to impose civil penalties on U.S. persons, including individuals and companies, that violate its sanctions programs.

OFAC’s civil penalty guidelines outline the general framework for how OFAC determines appropriate penalties for sanctions violations. The guidelines aim to provide transparency into OFAC’s enforcement process and help regulated parties understand the potential consequences for noncompliance.

Key Aspects of OFAC’s Civil Penalty Guidelines

Here are some key aspects of OFAC’s civil penalty guidelines that those subject to U.S. sanctions should understand:

• Base Penalty Amount – This is the starting point for calculating a potential civil penalty. It is based on the type of sanctions violation that occurred.
• General Factors – These are mitigating or aggravating factors that OFAC considers when determining if the base penalty should be adjusted up or down.
• Enforcement Response – This outlines the range of potential responses to a violation, from no action up to maximum statutory penalties.
• Voluntary Self-Disclosure – Self-disclosing sanctions violations to OFAC can result in significantly reduced penalties.
• Compliance Programs – Having an effective OFAC compliance program in place can be a mitigating factor.

Base Penalty Amounts

OFAC’s civil penalty guidelines establish base amounts for penalties based on the type of violation that occurs. The categories are:

• Egregious – Willful or reckless violation of U.S. sanctions with actual knowledge or reason to know the conduct was unlawful. Base penalty of $302,584 per violation.
• Substantial – Willful or reckless violation of U.S. sanctions without actual knowledge or reason to know the conduct was unlawful. Base penalty of $181,484 per violation.
• Non-egregious – Transactions or activities that violate U.S. sanctions without willful or reckless conduct. Base penalty of $60,423 per violation.

The base penalty amounts are adjusted annually for inflation. For 2023, the standard base penalty amounts are up to $302,584 for egregious, $181,484 for substantial, and $60,423 for non-egregious violations[4].

General Factors in Penalty Determinations

In addition to the base penalty amount, OFAC considers general factors that may increase or decrease the ultimate civil penalty. These include:

• Willful or reckless violation of sanctions
• Awareness of conduct at issue
• Harm to sanctions program objectives
• Individual characteristics (e.g., commercial sophistication)
• Compliance program existence and effectiveness
• Remedial response to apparent violation
• Cooperation with OFAC

The presence of aggravating factors like willful or reckless conduct, awareness of violations, and significant harm to sanctions programs will generally result in a penalty above the base amount. Mitigating factors like remedial measures and cooperation with OFAC will generally reduce the penalty below the base amount.

Enforcement Responses

Based on its analysis of the base penalty amount and general factors, OFAC will determine the appropriate enforcement response for a sanctions violation. The potential responses include:

• No Action – OFAC may issue a no-action letter in cases with minor or technical violations.
• Cautionary Letter – OFAC may issue a letter explaining the violation and warning against future violations.
• Finding of Violation – OFAC may issue a formal finding of violation without a penalty.
• Civil Monetary Penalty – OFAC may impose a financial penalty per its penalty guidelines.
• Referral for Criminal Prosecution – Egregious cases may be referred to the Department of Justice for criminal prosecution.

The vast majority of OFAC enforcement actions result in cautionary letters or civil monetary penalties. However, criminal penalties and imprisonment are possible for willful violations of OFAC regulations, with fines up to $1 million and up to 20 years imprisonment for individuals[5].

Voluntary Self-Disclosure

One of the most important factors in OFAC’s enforcement decisions is whether the apparent sanctions violation was voluntarily self-disclosed. OFAC strongly encourages disclosing apparent violations, and this can significantly reduce potential penalties.

In cases of voluntary self-disclosure, OFAC may issue a cautionary letter or significantly reduced civil penalty instead of a maximum penalty. However, the disclosure must be made prior to imminent disclosure or enforcement action by OFAC in order to receive mitigation credit.

Effective Compliance Programs

In addition to self-disclosure, having an effective OFAC sanctions compliance program in place is considered a mitigating factor by OFAC. OFAC may approve reduced penalties if the party had a well-designed compliance program that was improved as a result of discovering the violations.

OFAC has published guidance on the elements of an effective compliance program, including management commitment, risk assessment, internal controls, testing and auditing, and training. Parties subject to U.S. sanctions should develop and implement risk-based programs tailored to their operations.