Recent penalties issued to non-cooperating entities
OFAC does not deal only with cooperating entities, of course. On one hand, non-cooperating entities certainly run a risk that OFAC will refer their violations to criminal authorities. But even a non-cooperator can receive benefits, even grudgingly, under OFAC’s administrative-penalty regime — especially compared to companies that become targets of criminal prosecution and the severe penalties attendant to that process. That comparison between administrative and criminal punishments of non-cooperating entities, as discussed infra, may yield useful, persuasive data to criminal defense lawyers representing an entity under criminal investigation.
In February 2013, OFAC disciplined a non-cooperating entity that committed new violations even after learning of OFAC’s investigation. American Optisurgical (AO) exported unlicensed medical goods and services to Iran, or to third parties knowing the exports were intended for Iran. AO also failed to respond adequately to OFAC’s investigation and subpoenas. AO did not voluntarily disclose this violation, which OFAC deemed “non-egregious,” and OFAC noted that the conduct at issue was reckless, that senior management was involved, that AO actively concealed the fact that Iran was the ultimate destination, and that AO continued this conduct even after OFAC issued subpoenas. Based on all of these aggravating factors, OFAC determined that the base penalty was $449,000. Nonetheless, AO was a “first-time” offender and received a 10 percent discount. OFAC allowed AO to settle the matter for $404,100.
Also in February 2013, OFAC imposed a penalty above the base penalty amount on a non-cooperating entity, but that entity nevertheless received credit under OFAC’s formulas as a first-time offender. The Bank of Guam originated a wire transfer for the delivery costs associated with the shipment of furniture to Iran, but a bank further along the transactional path rejected the wire based on sanctions concerns. The Bank, in an effort to complete the transaction, instructed the customer to hide any reference to Iran in the payment instructions. Despite the Bank’s intentional violation of U.S. sanctions, the small dollar value of the transaction gave rise to a low base penalty amount: $20,000.
On Feb. 22, 2013, OFAC settled the Bank of Guam case for $27,000, a 35 percent premium over the base penalty amount. OFAC noted several aggravating factors justifying this premium, including that the Bank failed to catch the payment initially, it then instructed the customer to strip information in order to circumvent the sanctions program, and it did not voluntarily self-disclose the violation. Such actions undermined the sanctions regime, and also prevented the correspondent bank from properly assessing the transaction. Nonetheless, the effect of these aggravating factors was diminished by OFAC’s decision to award a discount to the Bank for being a “first-time” offender.
Lessons for Practitioners
Practitioners should draw two main lessons from the foregoing discussion:
1. OFAC regulations provide several opportunities to reduce any administrative penalty that may be assessed for violations of U.S. sanctions. Practitioners should actively seek these discounts even if their clients did not voluntarily self-report their misconduct or even cooperate in the early stages of OFAC’s investigation. Companies or individuals facing OFAC investigations should seek counsel from experienced practitioners who can navigate this process; and
2. Criminal defense attorneys should point to the relatively light administrative penalties imposed by OFAC when urging Department of Justice officials or sentencing judges to impose lenient criminal penalties. Criminal prosecutions carry far greater penalties than OFAC’s administrative enforcement actions — including felony convictions, jail time, massive fines, and deportation for non-citizens — but there is no clear prescription for employing one mechanism versus the other. Thus, a violator facing criminal penalties should cite examples of OFAC’s administrative settlements for factually analogous violations in an effort to convince a judge (or prosecutors in settlement negotiations) that severe criminal punishment would constitute disparate treatment of similar conduct. Judges are expressly instructed to avoid such extreme variations in punishment.