Regulatory: The consequences of OFAC investigations and subpoenas

Sanctions violations can lead to steep fines and criminal penalties

This article is the second in a series about the Office of Foreign Assets Control (OFAC). The first installment provided an introduction to the agency and its sanctions programs.

What are the potential consequences of an OFAC investigation?

OFAC views itself as playing an integral part in protecting U.S. national security, and it therefore takes its sanctions programs very seriously. It punishes violations that are intentional and those that are merely accidental. When its enforcement office believes it appropriate, it will make criminal referrals to the Department of Justice (DOJ).

The DOJ has authority to criminally prosecute certain violations of sanctions programs, and often does so through its local U.S. Attorney’s Offices. One notable OFAC investigation resulting in criminal prosecutions involved the United Nations’ Oil-For-Food Program in Iraq. Therefore, the receipt of an OFAC subpoena should be treated with an appropriate level of care as a potential white-collar criminal matter.

The criminal and civil penalties for violating the terms of an OFAC sanctions program can be harsh. In recent years, some OFAC sanctions violators have faced tens of millions of dollars in penalties. Even in smaller cases, the penalties may far exceed the value of the prohibited transaction, as OFAC views its penalties as serving a deterrent purpose.

Depending on the statute that underlies the particular sanctions program, violators can face maximum criminal penalties of 20 years’ imprisonment and a fine of $1 million, as well as asset forfeiture provisions that can allow the government to claim property involved in the violation. Civil penalties can be as high as $250,000 or an amount equal to twice the amount of the transaction that is the basis of the violation. Also, these civil penalties are per violation, so if there are multiple transactions, the maximum penalty can be quite high. 

How does OFAC determine what penalties to impose?

OFAC assesses different potential violations in accordance with its Economic Sanctions Enforcement Guidelines, which became effective in November 2009. OFAC has broad discretion to take different types of enforcement actions depending on the particular facts involved, including sending a cautionary letter, imposing a civil monetary penalty or issuing a cease and desist order. OFAC’s exercise of discretion is informed by many “general factors” including whether the violation was willful or reckless, the harm to the underlying sanctions goals, the existence of an OFAC compliance program, the company’s remedial response to the violation and the company’s cooperation with OFAC during the investigation.

If OFAC imposes a civil penalty, the amount of the base penalty is primarily calculated based on two key determinations:

  1. Was the violation “egregious”? OFAC does not define this term.
  2. Was there a voluntary self-disclosure of the violation? A voluntary disclosure will result in a 50 percent decrease in the base penalty imposed by OFAC.

After determining the base penalty, OFAC will consider mitigating and aggravating factors in increasing or decreasing the amount before making a final penalty determination. Parties can submit letters identifying mitigating factors and advocating for a lower penalty.

How should you handle an OFAC subpoena?

An OFAC subpoena should be treated with the utmost seriousness, much as one would treat a grand jury subpoena or a subpoena from the Securities and Exchange Commission. Perhaps even more so than in these other contexts, the recipient should consider retaining an attorney with specialized knowledge of the various OFAC sanctions programs, the exceptions to the programs and the art of making a mitigation submission to OFAC in advance of an assessment of a civil penalty.

After receipt of the subpoena, your company’s attorney should contact the OFAC enforcement personnel who issued the subpoena in order to find out as much information about the nature of the investigation as they are willing to provide. 

You also might want to ask for additional time to reply to the subpoena, as it is possible that the one apparent violation that is the subject of the subpoena may only be the tip of the iceberg of your company’s OFAC problems. Given the incentives for voluntary reporting of violations and for cooperation with OFAC, you might want to take advantage of this opportunity to conduct an internal investigation so that your company can provide not only the information that OFAC is requesting, but also information about other potential violations.

What can be done to ensure compliance with OFAC’s regulations in the future?

Some types of international trade with countries that are subject to OFAC sanctions still can be conducted in a manner that is permitted by law. For example, there often are licenses available for selling U.S. agricultural products or providing humanitarian services in countries that are subject to comprehensive sanctions programs. Experienced OFAC and export controls practitioners can assist a company in obtaining such licenses or permissions so that such transactions can be carried out.

Additionally, companies that have any involvement in international trade or finance would be wise to have an OFAC compliance program that has been reviewed and approved by experienced counsel. The program should require the routine screening of customers, suppliers and other business partners against the specially designated nationals list. These steps hopefully will prevent you from receiving an OFAC subpoena in the first place.

Contributing Author

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Harry Sandick

Harry Sandick is counsel in the White Collar Defense and Investigations practice group at Patterson Belknap Webb & Tyler LLP. He served as an Assistant...

Additional Contributors: Dan Ruzumna

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