OFAC Issues New Economic Sanctions Enforcement Guidelines
09/10/08 11:05 PM Filed in: OFAC | Enforcement
On
September 8, 2008, the Office of Foreign Assets
Control (OFAC) of the U.S. Department of the
Treasury published in the Federal
Register an interim
final rule, “Economic Sanctions Enforcement
Guidelines” (Guidelines). The Guidelines are
applicable to all persons subject to any of the
sanctions programs administered by OFAC,
including matters that fall under International
Emergency Economic Powers Act (IEEPA) and
Trading With the Enemy Act (TWEA).
The Guidelines establish several significant changes from the 2003 proposed rule.
First, rather than identifying “aggravating” and “mitigating” factors, the Guidelines set forth General Factors for Taking Administrative Action (General Factors) that OFAC will consider in determining an appropriate enforcement response to an apparent violation and, if a civil monetary penalty is warranted, in establishing the amount of the penalty. The Guidelines reflect a realization that in many cases, a particular factor may be considered either “aggravating” or “mitigating” (e.g. remedial action was considered a mitigating factor under 2003 rules; but, absence of remedial action considered as aggravating factor).
Some or all of the following General Factors will be considered in determining the appropriate administrative action in response to an apparent violation of U.S. sanctions by a person, and, where a civil monetary penalty is imposed, the amount of such penalty:
A. Willful or reckless violation of law,
B. Awareness of conduct at issue,
C. Harm to sanctions program objectives,
D. Individual characteristics of the subject person,
E. Compliance program,
F. Remedial response,
G. Cooperation with OFAC,
H. Timing of apparent violation in relation to imposition of sanctions,
I. Other enforcement actions taken by federal, state or local agencies against the subject person,
J. Future compliance / Deterrence effect, and
K. Other relevant facts on a case-by-case basis.
Second significant development is that the Guidelines provide for the issuance of either cautionary letters or findings of violation under certain circumstances, rather than the cautionary letters and warning letters provided for under the 2003 proposed rule and the evaluative letters provided for in the 2006 interim final rule.
Third, in recognition of OFAC’s position that enhanced maximum civil penalties authorized by the Enhancement Act should be reserved for the most serious cases, the Guidelines distinguish between egregious and non-egregious civil monetary penalty cases. Egregious cases are defined as those representing the most serious sanctions violations, based on an analysis of all applicable General Factors.
Fourth, in those cases in which the imposition of a civil monetary penalty is deemed appropriate, the Guidelines provide a new process for determining the penalty amount. This process involves first determining a base penalty amount, which is based on two considerations: (i) whether the conduct, activity, or transaction giving rise to a violation is egregious or non-egregious, and (ii) whether the case involves a voluntary self-disclosure by the subject person. The existence or lack of a voluntary self-disclosure is a major factor in establishing the penalty amount. The base penalty amount for a case involving self-disclosure reflects a 50 percent or more reduction from the base penalty amount that would otherwise be applicable.
Thus, under the Guidelines, the base penalty amount in a case determined to be non-egregious and involving voluntary self disclosure will not exceed one-half of the transaction value (capped at $125,000 per violation), while in an egregious case without voluntary self-disclosure, the penalty may reach the applicable statutory maximum.
Once a base penalty amount is determined based on the transaction value and egregiousness / voluntary self-disclosure factors, the amount may be adjusted upward or downward based on the other General Factors.
With respect to responses to apparent violations, depending on the facts and circumstances of a particular case, an OFAC investigation may lead to one or more of the following actions:
A. No action,
B. Request for additional information,
C. Cautionary letter,
D. Finding of violation,
E. Civil monetary penalty,
F. Criminal referral, or
G. Other administrative actions, including (1) License denial, suspension, modification, or revocation, and (2) Cease and desist order.
In establishing the amount of civil penalties, including for failure to furnish information or to keep records, OFAC will review the facts and circumstances surrounding an apparent violation and apply the General Factors.
Although this interim final rule is effective immediately, OFAC is soliciting comments for a 60-day period with a view of improving the Guidelines.
The Guidelines establish several significant changes from the 2003 proposed rule.
First, rather than identifying “aggravating” and “mitigating” factors, the Guidelines set forth General Factors for Taking Administrative Action (General Factors) that OFAC will consider in determining an appropriate enforcement response to an apparent violation and, if a civil monetary penalty is warranted, in establishing the amount of the penalty. The Guidelines reflect a realization that in many cases, a particular factor may be considered either “aggravating” or “mitigating” (e.g. remedial action was considered a mitigating factor under 2003 rules; but, absence of remedial action considered as aggravating factor).
Some or all of the following General Factors will be considered in determining the appropriate administrative action in response to an apparent violation of U.S. sanctions by a person, and, where a civil monetary penalty is imposed, the amount of such penalty:
A. Willful or reckless violation of law,
B. Awareness of conduct at issue,
C. Harm to sanctions program objectives,
D. Individual characteristics of the subject person,
E. Compliance program,
F. Remedial response,
G. Cooperation with OFAC,
H. Timing of apparent violation in relation to imposition of sanctions,
I. Other enforcement actions taken by federal, state or local agencies against the subject person,
J. Future compliance / Deterrence effect, and
K. Other relevant facts on a case-by-case basis.
Second significant development is that the Guidelines provide for the issuance of either cautionary letters or findings of violation under certain circumstances, rather than the cautionary letters and warning letters provided for under the 2003 proposed rule and the evaluative letters provided for in the 2006 interim final rule.
Third, in recognition of OFAC’s position that enhanced maximum civil penalties authorized by the Enhancement Act should be reserved for the most serious cases, the Guidelines distinguish between egregious and non-egregious civil monetary penalty cases. Egregious cases are defined as those representing the most serious sanctions violations, based on an analysis of all applicable General Factors.
Fourth, in those cases in which the imposition of a civil monetary penalty is deemed appropriate, the Guidelines provide a new process for determining the penalty amount. This process involves first determining a base penalty amount, which is based on two considerations: (i) whether the conduct, activity, or transaction giving rise to a violation is egregious or non-egregious, and (ii) whether the case involves a voluntary self-disclosure by the subject person. The existence or lack of a voluntary self-disclosure is a major factor in establishing the penalty amount. The base penalty amount for a case involving self-disclosure reflects a 50 percent or more reduction from the base penalty amount that would otherwise be applicable.
Thus, under the Guidelines, the base penalty amount in a case determined to be non-egregious and involving voluntary self disclosure will not exceed one-half of the transaction value (capped at $125,000 per violation), while in an egregious case without voluntary self-disclosure, the penalty may reach the applicable statutory maximum.
Once a base penalty amount is determined based on the transaction value and egregiousness / voluntary self-disclosure factors, the amount may be adjusted upward or downward based on the other General Factors.
With respect to responses to apparent violations, depending on the facts and circumstances of a particular case, an OFAC investigation may lead to one or more of the following actions:
A. No action,
B. Request for additional information,
C. Cautionary letter,
D. Finding of violation,
E. Civil monetary penalty,
F. Criminal referral, or
G. Other administrative actions, including (1) License denial, suspension, modification, or revocation, and (2) Cease and desist order.
In establishing the amount of civil penalties, including for failure to furnish information or to keep records, OFAC will review the facts and circumstances surrounding an apparent violation and apply the General Factors.
Although this interim final rule is effective immediately, OFAC is soliciting comments for a 60-day period with a view of improving the Guidelines.