On February 10, 2017, the U.S. Treasury Department announced an increase in civil monetary penalties across a number of Treasury offices, including the Office of Foreign Assets Control (OFAC). Understanding the potential penalties for a violation of an OFAC sanctions program is critical to the risk assessment component within a company’s trade compliance program.
OFAC is responsible for administering and enforcing international economic and trade sanctions implemented under one of five statutes, including the International Emergency Economic Powers Act, or IEEPA, which grants the President broad authority in response to a national emergency. OFAC sanctions can be sweeping and complex, covering a wide range of transactions and assets under U.S. jurisdiction related to individuals, financial institutions, and other governmental or private entities in 19 countries or regions (e.g., sanctions specific to Iran, Cuba, Syria, Sudan, and North Korea) and 7 transnational programs (e.g., counter-narcotics sanctions, counter-terrorism sanctions, cyber-related sanctions, and non-proliferation sanctions).
In the final years of the Obama Administration, changes in policy resulted in some important modifications to the Iran, Cuba, and Sudan sanctions programs, among others. While those changes create new business opportunities in those countries, the specifics of what the revised sanctions allow and uncertainty about the permanency of the changes require companies to be aware of the potential risk if they venture into these new, more open waters.
This most recent increase in OFAC’s civil monetary penalties was pursuant to an annual, non-discretionary, inflation-based increase requirement instituted in 2015. Under the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (FCPIAA-IA), Treasury will adjust civil monetary penalties, including those imposed by OFAC, according to annual inflation. The stated purpose of the adjustments is to maintain the penalties’ deterrent effect. While the yearly increases (after the initial “catch-up” increase on August 1, 2016) will not be significant, any future monetary penalties will be based on the maximum penalty amount in effect at the time of assessment, not the year in which the underlying violation took place (except for violations prior to November 2015). The table below summaries how, for each statute under which OFAC is authorized to impose penalties, the maximum civil monetary penalties per violation have changed over time:
|
Statute |
Beginning Maximum (Year) |
Maximum as of July 31, 2016 |
Maximum as of Aug. 1, 2016 “Catch-Up” Increase* |
Maximum as of Feb. 10, 2017 Inflationary Increase* |
|
Trading With the Enemy Act |
$50,000 (1992) |
$65,000 |
$83,864 |
$85,236 |
|
International Emergency Economic Powers Act |
Greater of $250,000 or twice the amount of the underlying transaction (2007) |
Greater of $250,000 or twice the amount of the underlying transaction (2007) |
Greater of $284,582 or twice the amount of the underlying transaction |
Greater of $289,238 or twice the amount of the underlying transaction |
|
Antiterrorism and Effective Death Penalty Act of 1996 |
Greater of $50,000 or twice the amount of which a financial institution was required to retain possession or control (1996) |
Greater of $55,000 or twice the amount of which a financial institution was required to retain possession or control |
Greater of $75,122 or twice the amount of which a financial institution was required to retain possession or control |
Greater of $76,351 or twice the amount of which a financial institution was required to retain possession or control |
|
Foreign Narcotics Kingpin Designation Act |
$1,000,000 (1999) |
$1,075,000 |
$1,414,020 |
$1,437,153 |
|
Clean Diamond Trade Act |
$10,000 (2003) |
$10,000 |
$12,856 |
$13,066 |
* For violations occurring after November 2, 2015, per FCPIAA-IA.
* * *
Companies should take these anticipated annual penalty increases into consideration when facing a potential violation. Although OFAC can take time to process enforcement efforts, the timing of OFAC’s final assessment of penalties (and the date of potential penalties in any voluntary self-disclosure submitted prior to that) is an important factor in negotiating and preparing for the agency’s response to a sanctions violation.
[View source.]
