Sanctions Violations OFAC.

OFAC is the Treasury Department’s Office of Foreign Assets Control (OFAC), which administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals. Although the Treasury Department and OFAC are frequently referenced in enforcement matters involving sanctions violations, OFAC has the authority to independently impose sanctions on individuals, companies, and government entities that support terrorism, narcotic trafficking, nuclear proliferation, human rights abuses, and other activities of concern. While the SDN List is the most widely recognized OFAC list, OFAC also maintains a non-SDN list for entities subject to other sanctions-related restrictions.

U.S. citizens and permanent residents are subject to OFAC sanctions regardless of where they may be located, and U.S.-based persons and businesses must comply with all applicable OFAC sanctions and reporting obligations. U.S. entities can face OFAC enforcement for engaging in, facilitating, or financing transactions that otherwise violate sanctions; and, in certain cases, U.S. companies and individuals can face sanctions enforcement for engaging in prohibited transactions with blocked entities or individuals.

This means that U.S. companies and individuals must ensure not only that they are not engaging in transactions with blocked entities or individuals in sanctioned countries, but also that they are not providing services that facilitate such transactions for others.

The Specially Designated Nationals and Blocked Persons List (SDN List) contains individuals, companies, and organizations that have been designated as targets for blocking measures. Those designated on the SDN List generally face restrictions on all financial transactions and foreign trade. In the United States, U.S. persons must block the property and interests in property of persons on the SDN List and other blocked persons, and must reject prohibited transactions that contain no blockable interest, unless the transaction is authorized or exempt.

The “50 percent rule” applies when a counterparty to a transaction is an entity that is not listed on the SDN List, but which is directly or indirectly owned 50 percent or more by one or more SDNs. In such cases, the entity is generally treated as a blocked person even if it is not listed on the SDN List. This can result in U.S. companies and individuals unknowingly engaging in transactions with SDNs and violating OFAC’s sanctions.

When Does Sanctions Exposure Become a DOJ Criminal Case?

Most OFAC enforcement matters are handled on an administrative basis rather than through criminal indictments. However, the DOJ also prosecutes criminal sanctions cases, and DOJ prosecutors typically will pursue sanctions charges when they have sufficient evidence to prove criminal willfulness beyond a reasonable doubt. Additionally, criminal investigations in this area can lead to charges such as conspiracy, wire-fraud, bank-fraud, and money-laundering. The IEEPA criminal provision applies to unlawful acts committed willfully. The statutory maximum penalties for individuals convicted of a criminal IEEPA violation include up to twenty years of imprisonment and one million dollars in fines.

While civil and administrative penalties for sanctions violations are also substantial, criminal sanctions enforcement carries the potential for long-term imprisonment.

Civil or Criminal Conspiracy Charges under Section 371

The 18 U.S.C. Section 371 conspiracy statute prohibits conspiracy to commit any offense against the United States or to defraud the United States or any agency thereof. It carries criminal penalties. In criminal cases, the government must prove that (i) two or more persons came together to form an agreement, (ii) the agreement was to commit a prohibited sanctions-related act, and, (iii) at least one member of the conspiracy committed an “overt act” in furtherance of that agreement.

The overt act requirement is a relatively low bar, and conspiracy charges can be applied to a variety of types of behavior. The prohibited acts are sanctions-related violations of the IEEPA, the Export Control Reform Act, and the International Emergency Economic Powers Act.

Importantly, conspiracy charges can be applied to both individuals and companies, but criminal charges are brought by the Department of Justice, not OFAC. Conspiracy charges can be applied to cases involving both suspected and completed transactions, and the government must prove at least one overt act in furtherance of the conspiracy to obtain a conviction under Section 371, in addition to the agreement and criminal intent.

This means that companies can face liability not only for actual transactions with listed persons and entities in sanctioned countries, but also for dealings that are suspect for sanctions implications as well. If a company or business executive is found to be engaging in transactions that appear to violate sanctions, the government can charge them with conspiracy without first proving that the transaction was completed.

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How do Licenses, Ownership Screening, and Blocked Payments Change the Analysis?

Generally speaking, transactions with designated persons or entities that are subject to OFAC sanctions will require either OFAC’s authorization or a clear exemption under the applicable sanctions program. In some cases, the applicable sanctions will apply across the board to a specific country rather than apply only to individuals, companies, or other entities. While most designated entities or individuals listed on the SDN List will have specific designations associated with them, others may be listed more generally for any of the various OFAC sanctions programs.

The SDN List is only one of several OFAC sanctions lists, and many other nations also have their own sanctions lists. U.S. companies and individuals need to be aware of both U.S. and international sanctions when engaged in international business, and they need to be prepared to respond quickly when needed.

OFAC Sanctions Licenses

OFAC licenses can authorize transactions that would otherwise be prohibited by particular sanctions programs. Obtaining an OFAC license typically involves filling out the appropriate application form and providing OFAC with the necessary information to review the request. General licenses are self-executing authorizations for transactions within their terms, while specific licenses may be requested from OFAC and are considered on a case-by-case basis when no applicable general license exists. Sanctions programs and designated targets change as foreign-policy priorities shift, and companies must stay informed about OFAC’s current policies and enforcement priorities.

When a Bank Blocks or Rejects a Payment

Banks have their own sanctions-compliance obligations, and banks may block or reject payment transfers if their sanctions screening identifies a concern involving a payment counterparty or the activity the payment is intended to finance. When a bank blocks or rejects a payment, it is critical for U.S. companies and individuals to seek legal counsel to assess whether the bank is right to block or reject the payment, and to assess what risks are involved.

What Should a Company Preserve and Disclose after Finding Sanctions Exposure?

Establishing an Effective Sanctions Compliance Program

A sanctions compliance program should begin with management commitment to ensure that appropriate resources have been allocated to maintain an effective compliance program. Then, a comprehensive sanctions risk assessment should be conducted that examines all of the company’s business operations to determine all potential sanctions exposure. Next, a sanctions-screening process and payment/contractual approval controls should be implemented and then periodically tested. Additionally, a sanctions compliance-focused training program should be developed and implemented, and updated periodically when appropriate, to ensure all employees know their individual sanctions compliance responsibilities under the company’s sanctions compliance program.

When Do Companies Become Aware of Sanctions Exposure?

Companies typically become aware of potential sanctions exposure in one of three scenarios. The first scenario involves an internal investigation. In this scenario, a company’s management team or its senior leadership may become aware of a potential sanctions violation, often through an internal whistleblower or employee disclosure, and then engage outside legal counsel to conduct an investigation. The second scenario involves an escalation by internal sanctions compliance personnel. In this scenario, either a company’s compliance officers or its risk management team identifies potential sanctions concerns during screening or a review of a third-party relationship, and a decision is made to escalate the potential sanctions concern to in-house or outside counsel. The third scenario involves a bank’s screening, and when a bank identifies potential sanctions exposure, it blocks or rejects a transfer. In all three scenarios, if OFAC has not yet intervened in the process, it is critical to preserve the privilege and confidentiality of the company’s potential sanctions issues.

What Information Should a Company Preserve or Disclose When it Becomes Aware of Sanctions Exposure?

While voluntary self-disclosure can be an important part of a U.S. company’s sanctions remediation strategy, there is no presumption that a company should disclose potential sanctions exposure. In fact, without thoroughly documenting the circumstances, the risks involved, and the scope of the company’s potential exposure, a company may find it difficult to assess its best course of action with regard to remediation and disclosure.

Contact a Federal Criminal Defense Attorney

Nothing here is legal advice, and the details of your case matter. Todd Spodek and Spodek Law Group take federal criminal and white collar cases nationwide, from offices in New York, Brooklyn, Queens and Los Angeles. You can reach the firm at 888 348 8028.