The Treasury Department’s Office of Foreign Asset Control (“OFAC”) has been a steady performer in this challenging pandemic environment. Since the pandemic, OFAC has maintained a strong profile, while managing a difficult portfolio of economic sanctions. The last two administrations have relied on robust sanctions programs to leverage foreign policy interests. With the ongoing tension between the US and China and Russia, OFAC is going to play a critical role in the design and enforcement of additional sanctions against China and Russia.
OFAC has played a key role, along with the Justice Department, in promoting the importance of ethics and compliance programs. In 2019, OFAC issued its Framework on Sanctions Compliance Programs. OFAC’s guidance on compliance programs provides important directions that apply to all types of compliance programs, not just sanctions-focused compliance programs. OFAC has reinforced the elements of its compliance guidance in its enforcement actions.
In 2021, OFAC brought 20 enforcement actions and collected over $21 million in penalties. This was relatively consistent with OFAC’s numbers in 2020. OFAC enforcement in 2022 is poised to increase beyond these numbers.
OFAC’s enforcement focus has stretched well beyond its historical oversight of the financial industry. Over the years, OFAC has brought cases against a variety of businesses involved in energy, pharmaceuticals, high technology, and manufacturing. In doing so, OFAC has demonstrated a keen interest on compliance issues relating to integration of acquired companies, screening errors in deficient controls for escalation of potential red flags, mistakes in understanding of how sanctions apply to specific transactions, and overall third-party risk management involving distributors and end use certifications. OFAC will continue to prioritize enforcement in these general areas.
The Justice Department has played – and will continue to play – a key role in the enforcement of economic sanctions. Last year, for example, the Justice Department charged approximately 27 individuals with criminal violations involving export controls and trade sanctions. Twenty of those cases involved illegal exports to Iran, 5 illegal exports to Russia and 2 to China.
In a harbinger of things to come, DOJ prosecuted SAP, the German software company, with violating Iran Sanctions through its software exports to customers in Iran. SAP agreed to pay $8 million to DOJ, OFAC and the Department of Commerce. SAP expended $27 million to improve and remediate its compliance program. As part of its compliance commitment, DOJ subjected SAP to strict compliance commitments. DOJ is likely to increase its compliance commitments for corporations.
DOJ has made numerous statements promising to increase the number of export and sanctions cases. The National Security Division has adopted a corporate enforcement policy similar to the policy implemented by the Criminal Division. Lisa Monaco, the Deputy Attorney General, in her October 2021 speech on white collar enforcement noted DOJ’s intent to increase its criminal enforcement of export controls and sanctions. DOJ will keep its word and companies can expect increased investigation of export and sanctions violations.
The Department of Commerce’s Bureau of Industry Standards is poised to reach new enforcement levels as well. Matt Axelrod was recently appointed as the Assistant Secretary of BIS’ Office of Export Enforcement. At his confirmation hearing, Matt Axelrod noted that he intends to “raise the profile of export enforcement” as a means to incentivize compliance programs and deter potential violations. BIS is playing a lead role in designing export controls against China to increase pressure against the Chinese for its treatment of Muslim minorities.
In this environment, DOJ, OFAC and BIS are committed to increasing enforcement activity. Companies have to respond accordingly – in fairness, the government has warned the private sector, and those companies facing substantial trade compliance risks should allocate a commensurate number of resources to trade compliance programs.
DOJ’s SAP prosecution is a bellwether. As more cases are brought, the SAP-framework for enforcement and compliance commitments will serve as a foundation for future requirements. SAP dodged a serious bullet by spending $27 million to improve its compliance program – given the risks that businesses face in the global economy, trade compliance officers have to communicate this new paradigm to senior leadership and corporate boards.