February 22, 2019

How Companies Should Address Increasingly Aggressive OFAC Sanctions Enforcement

by Jeremy Paner


The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is significantly increasing its enforcement actions against companies that violate U.S. sanctions.  After only issuing seven civil monetary penalties in 2018, OFAC has already issued four penalties in 2019, which were all voluntarily self-disclosed.  This trend likely signals a dramatic shift in OFAC’s enforcement philosophy.  U.S. and non-U.S. companies should evaluate their compliance programs in light of this increasingly aggressive posture.

Enforcement Responses

OFAC has historically closed the vast majority of its enforcement cases without issuing a penalty.  For example, in Fiscal year 2016, OFAC issued 17 penalties[1] and closed nearly 1,000 enforcement cases with either a “No Action Letter” or a “Cautionary Letter.”  The graph below provided by OFAC at its 2016 symposium provides a clear visual representation of this disparity.

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December 21, 2018

OFAC Announces its First Sanctions Penalty Based Solely on Providing Approval to a non-U.S. Subsidiary

by Jeremy Paner

Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a $7,772,102 settlement with Zoltek Companies, Inc. to resolve potential civil liability arising from apparent violations of the Belarus Sanctions Regulations.  According to OFAC, between January 2012 and October 2015, U.S.-based Zoltek Corporation violated the sanctions on Belarus by providing approval to its Hungary-based affiliate to make 26 purchases from a designated Belarusian company. 

As a general matter of law, a U.S. company cannot approve transactions by a foreign company that would be prohibited if performed by a U.S. company.  The legality of the transaction from the perspective of the non-U.S. company is irrelevant.  However, prior to today’s announced settlement, OFAC had not penalized a company based solely on its approval of transactions conducted by a foreign subsidiary.[1]  Companies should evaluate the financial-related factors that may increase the risk of engaging in prohibited approval in light of this shift in enforcement prioritization. 

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November 30, 2018

The $1.3 Billion OFAC Sanctions Penalty Against SocGen has Lessons for All Businesses

by Jeremy Paner

On November 19, 2018, French international financial institution Société Générale entered into a global settlement agreement with several United States federal and state regulators and prosecutors[1] to resolve criminal and civil investigations into the bank’s alleged violations of U.S. economic sanctions.  This agreement required Société Générale to enter into Deferred Prosecution Agreements, Consent Orders, and an OFAC Settlement Agreement, and to pay $1.34 billion in total criminal and civil penalties.

The Société Générale violations arise from the practice of “stripping,” or the systematic removal or omission of references to parties subject to U.S. sanctions from payment instructions sent to or through the U.S. financial system.  Similar schemes by other European banks resulted in massive economic sanctions penalties.[2]  Those widely reported settlements reflect OFAC’s enforcement priority toward willful circumvention of sanctions prohibitions.  In addition to further demonstrating this well-known prioritization, the Société Générale settlement contains several sanctions compliance lessons applicable across all industries.  Continue reading

November 8, 2018

The Return of All Financial Secondary Sanctions on Iran

by Jeremy Paner

On November 5, the United States sanctions against Iran returned in full force.  As a result, non-U.S. financial institutions that knowingly conduct or facilitate certain significant transactions involving Iran once again confront substantial risk of severance from the U.S. financial system.

Potential denial of U.S. dollar access compelled most non-U.S. banks to cease transactions with Iran prior to the Joint Comprehensive Plan of Action (JCPOA).  U.S. law forced foreign banks to choose between providing services to Iran or having access to the United States.  This coerced choice likely made the financial secondary sanctions the most consequential authorities in the Iran sanctions program, as it broadly affected international trade with Iran.  Irrespective of the European Union Blocking Statute[1], non-U.S. banks will likely side with the United States and refuse any involvement with Iran. Continue reading

October 19, 2018

Legislation will Significantly Increase Due Diligence Requirements on Correspondent Accounts

by Jeremy Paner

Recent Congressional action indicates that the Hizballah International Financing Prevention Amendments Act of 2017 is soon likely to become law.  The sanctions authorities under this Act are redundant of existing designation criteria.  However, largely unnoticed enhanced due diligence requirements will pose a significant burden on most large U.S. financial institutions.

Section 203 of the Act (Modification of Report on Activities of Foreign Governments to Disrupt Activities of Hizballah; Reports on Membership in Hizballah) will impose enhanced due diligence requirements on correspondent or payable-through accounts held for foreign financial institutions determined to provide financial services to persons operating in jurisdictions hospitable to Hizballah outside of Lebanon.  The imposition of the enhanced due diligence requirements will require two determinations by the U.S. Department of the Treasury, presumably by the Financial Crimes Enforcement Network. Continue reading

August 16, 2018

Why the EU Blocking Statute will not Save European-Iranian Trade

by Jeremy Paner

The European Union recently updated its Blocking Statute[1] in response to the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA).  The EU revised this regulation to shield its companies from U.S. sanctions on Iran, in part by prohibiting European companies from complying with the sanctions it deems to be “extraterritorial” in nature.

Extraterritorial Sanctions

The U.S. government typically responds to assertions of extraterritoriality by noting that its Iran sanctions prohibitions are only applicable to European companies that “cause” U.S. companies to violate these sanctions.  In other words, the Iran sanctions prohibitions are generally limited to U.S. individuals and companies, including their foreign subsidiaries.  European companies that engage in certain dealings or transactions with Iran could be designated and placed on the SDN List or Part 561 List, but the prohibitions of those sanctions are generally limited to U.S. companies.  Therefore, from the perspective of the U.S. government, the EU Blocking Statute attempts to solve a non-existent problem, because U.S. law does not prohibit European companies from trading with Iran if there is no connection to the United States.  Continue reading

April 13, 2018

Three Significant Misconceptions Regarding the Russian Oligarch Sanctions

by Jeremy Paner

Last Friday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the designations of a number of prominent Russian oligarchs.  The initial reaction of many companies with investment or business ties with these blocked parties was either panic or nonchalance.  In most cases, those extreme reactions arose from confusion about the scope of the Russia sanctions program, OFAC’s broad discretionary powers, and the enforcement process.

Uniqueness of the Russia Sanctions Program

OFAC currently administers and enforces 28 separate sanctions programs.  Each program is governed by its own regulations, with corresponding definitions, prohibitions, exceptions, and exemptions.  These regulations generally prohibit U.S. companies from dealing with designated parties on the Specially Designated Nationals And Blocked Persons List (SDN List), absent a general or specific license.  U.S. law similarly prohibits non-U.S. companies from involving U.S. companies in their dealings with SDNs, irrespective of the sanctions program.  The extraterritorial effect on non-U.S. companies, however, varies greatly depending on the program and specific designation authority.  Non-U.S. companies should be mindful of two Russia sanctions authorities that substantially expand OFAC’s reach.

Section 226 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) authorizes OFAC to place secondary sanctions on non-U.S. financial institutions that knowingly facilitate significant financial transactions on behalf of designated Russian oligarchs, among other designees.  Non-U.S. banks should be familiar with these correspondent or payable-through account sanctions, which mirror various Iran sanctions authorities.[1]

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April 2, 2018

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.    Continue reading

March 12, 2018

Three Simple Questions to Assess OFAC Compliance Programs

by  Jeremy Paner

In the past, many businesses operated under the misconception that banks were solely responsible for sanctions compliance. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has disabused large companies of this misunderstanding through significant monetary penalties against a broad array of businesses outside the financial industry. Today, both U.S.-based international businesses and non-U.S. companies that conduct business in the United States and/or with U.S. companies generally understand the importance of having a sanctions compliance program commensurate with their risk profile.

Most companies, however, do not adequately consider whether they are getting the most out of their compliance programs. Narrowly tailored compliance programs that only serve to avoid sanctions violations do not provide optimal returns on investment. Fully functioning compliance programs have the potential to generate significant revenue, especially for high-risk businesses. For these businesses, compliance functionality should not be judged exclusively on the business opportunities lost because of sanctions compliance concerns. Continue reading

January 30, 2018

Upcoming Russian Corruption Designations Likely to be Challenged

by  Jeremy Paner

Late last month, the U.S. Government sanctioned a number of alleged human rights abusers and corrupt actors located throughout the world.  The White House and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed these sanctions more than a year after Congress delegated the underlying designation authority pursuant to the Global Magnitsky Human Rights Accountability Act.[1] While the annex to the Executive Order implementing these sanctions lists two Russian individuals, the sanctions do not focus on the alleged corruption and human rights abuses of any particular country or region.  OFAC is likely to concentrate future corruption-related sanctions on Russia following the submission of a Congressionally mandated report due by the end of this month.

Section 241 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) requires the U.S. Department of the Treasury to submit a report to Congress by January 29, providing certain information on allegedly corrupt Russian oligarchs and parastatal entities.  Most importantly, this report will opine on the likely effects of various sanctions, including debt and equity restrictions, blocking parastatal entities, and imposing secondary sanctions.[2]  It appears that Congress will use the conclusions of this report to delegate additional corruption-related sanctions authorities in the near future.  Continue reading