OFAC Interim Enforcement Guidelines Reaffirm Need for Effective Compliance Program

The Treasury Department's Office of Foreign Assets Control (OFAC) has issued interim Economic Sanctions Enforcement Guidelines, effective September 8, to implement the October 2007 International Emergency Economic Powers Enhancement Act (Enhancement Act). The Enhancement Act increased the maximum statutory civil penalty to the greater of $250,000 or twice the amount of the transaction.

While the interim guidelines already apply, OFAC is soliciting comments until November 7 for those interested in seeking to clarify or modify OFAC's proposed approach.

The guidelines abandon OFAC's longstanding policy of proposing penalties limited to the lesser of the transaction value or the statutory maximum, with adjustments made based on identified "mitigating" or "aggravating" factors. While the new guidelines provide for adjustments based on consideration of similar, but more clearly defined, factors (now called "General Factors"), some of which are weighted more heavily than others, the method for calculating the base amount or starting point in civil penalty cases has changed.

Under the new methodology, OFAC will first decide whether a violation is considered "egregious." OFAC does not specify criteria or otherwise suggest what will qualify as an "egregious case," although it predicts that most penalty cases will be "non-egregious." In non-egregious cases that are not voluntarily disclosed, the base penalty amount is derived from the transaction value, rounding up to the next specified level set forth in a schedule dividing transactions into seven levels between $1,000 and $250,000, the maximum base penalty for non-egregious cases. For example, a violation involving a $30,000 transaction would have a base penalty amount of $50,000, as would a violation involving a $49,000 transaction. The base penalty amount in non-egregious cases that are voluntarily disclosed shall be one-half of the transaction value, up to $125,000 per violation. In egregious cases that are not disclosed, the base penalty amount shall be the statutory maximum penalty amount applicable to the violation, and in voluntarily disclosed egregious cases the base penalty amount shall be one-half of the statutory maximum. The guidelines also set forth monetary penalties for records retention violations.

As in the past, an effective compliance program will be an important consideration in determining the ultimate civil penalty. OFAC will conduct a "holistic consideration of the facts and circumstances of a particular case." This fact-intensive analysis will benefit those companies that have:

a. performed an effective risk analysis of their operation;

b. designed an effective compliance program to manage the specific risks identified;

c. included senior management involvement in compliance (to avoid a finding that "lack of knowledge by senior management result[ed] from disregard for its responsibility to comply with applicable sanctions laws"); and

d. taken other steps consistent with OFAC enforcement policy and the new interim guidelines.

The new guidelines apply to all pending and future enforcement matters, except cases in which (a) OFAC sent a pre-penalty notice prior to October 16, 2007; (b) a tentative settlement amount has been communicated and memorialized; or (c) the party agreed to a statute of limitations waiver, if the statute of limitations would have expired before October 16, 2007. Additionally, the proposed appendix to the Cuban Assets Control Regulations (CACR) set forth in OFAC's former enforcement guidelines, which specifies the applicable penalties for travel-related and certain other violations of the CACR, remains in effect.

For assistance in evaluating your program, deciding whether and how to make a disclosure, or for general compliance advice, please contact those listed below.