Five Keys to Creating an OFAC Compliance Policy
The best way to avoid getting investigated by the Office of Foreign Assets Control (OFAC) at the U.S. Department of the Treasury is to create an effective compliance system for your company. The good news is that OFAC is aware of the fact that companies that comply with U.S. economic sanctions end up making the agency’s job much easier. Therefore, it issues lots of guidance on how to follow the law. The bad news is that OFAC expects you to follow its recommendations, even though some of its guidance may not apply to your company and its particular situation.
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The OFAC compliance lawyers at the national law firm Oberheiden P.C. have guided numerous corporate clients through this dilemma, helping them create OFAC compliance systems that drastically reduce the likelihood of an investigation for violating sanctions, and all without unduly burdening the company with time-consuming technical requirements.
Here are five keys for creating a good OFAC compliance policy in 2023.
1. Do Not Skimp on the Risk Assessment
According to the agency’s own guidance, one of the five basic components to an OFAC compliance strategy is a risk assessment. This entails an internal investigation of the potential areas where the company could, directly or indirectly, find itself engaging with a person or entity that is on OFAC’s list of Specially Designated Nationals and Blocked Persons (SDN). That internal OFAC investigation should review the company’s:
- Customers
- Supply chain
- Intermediaries
- Counter-parties
- Products
- Services
- Networks
- Systems
While conducting this risk assessment is explicitly named as an expected aspect of the OFAC compliance framework, it is also one that companies should take seriously: A thorough risk assessment can help the company spend its resources wisely on the most pressing issues, rather than in areas that are unlikely to jeopardize the company to legal liability or trigger an OFAC investigation. It is in the company’s best interests to take this step in the process seriously and to make as much of an effort as possible.
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55th Speaker, U.S. House of Representatives (ret.)
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Mike Pompeo
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Former U.S. Secretary of State
John W. Sellers
Former Senior DOJ Trial Attorney
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Federal Appeals Attorney
Nicholas B. Johnson
Former Prosecutor
Roger Bach
Former Special Agent (DOJ)
Chris J. Quick
Former Special Agent (FBI & IRS-CI)
Michael S. Koslow
Former Supervisory Special Agent (DOD-OIG)
Ray Yuen
Former Supervisory Special Agent (FBI)
2. Strong Internal Controls Ensure that Deliberate Violations By Employees are Detected
Another core aspect of an OFAC compliance framework is the establishment of internal controls. These are policies and procedures that are designed to detect, identify, report, and remediate potential OFAC violations within the company before they can get out of control.
Importantly, these internal controls can also help to detect it when an employee is deliberately engaging in misconduct that can violate OFAC sanctions.
This situation has become more and more common in 2023, as U.S. economic sanctions target a wider and wider swath of foreign nationals. Numerous sanctions were imposed after Russia invaded Ukraine, while many other sanctions targeted culprits of other global conflicts and their associates and enablers. Some of these sanctioned organizations have supporters abroad, including within the United States. If any of these supporters work for your company, they may take it upon themselves to help a blocked party work around OFAC’s sanctions, jeopardizing your company in doing so.
By implementing effective internal controls, signs of this misconduct can be spotted and remedial action taken.
3. Set an Audit Schedule
Auditing your company’s OFAC compliance system is also extremely important. Only by testing its efficacy can you know for sure that it is working the way it is supposed to work and is insulating your company from liability. If you do not audit your compliance system, you will also never know if it is failing in some regard, and that lack of awareness will prevent you from taking the necessary steps to reduce your company’s legal exposure.
Unfortunately, many companies fail to audit their OFAC compliance system. Many decision-makers act under the attitude that what does not seem to be broken does not need to be fixed.
One of the best ways to avoid this potentially dangerous inaction is to schedule audits for years into the future, preferably adding them to the corporate schedule as a part of the implementation of the compliance system. This way, a healthy auditing routine can be established and it would require an affirmative act to remove the audit from the schedule.
4. Monitor International Events to Better Prepare for Sanctions
One thing that many U.S. companies have learned in the last couple of years is the importance of keeping up with international news with an eye towards predicting when the U.S. will impose economic sanctions on a region or industry. The companies that can do this well can find alternative business ventures to pivot towards, should their predictions prove to be accurate. Companies that fail to do this will find themselves scrambling to fill their needs while dissociating themselves from their former business partners.
Nowhere was this more apparent than in the lead-up to the Russian invasion of Ukraine. Many domestic companies saw Russia amassing troops along Ukraine’s border and noticed that the Russian government was spreading propaganda that attempted to justify an upcoming conflict. The companies that predicted that Russia would invade – an act that would foreseeably lead to the U.S. imposing economic sanctions on a wide variety of Russian entities – and then act on that prediction ended up preserving their interests better than the companies that did not.
5. Avoid Overburdening Your Company With Compliance Requirements
While the main goal of an OFAC compliance policy is to insulate your company from the legal liability that comes from a violation of U.S. economic sanctions, that goal needs to be achieved as efficiently as possible. It should be done while sacrificing as little of your company’s resources as possible.
Finding a balance between a compliance policy that does not protect your company and one that overburdens it with requirements that undercut its bottom line is extremely important.
4 Frequently Asked Questions About Oberheiden P.C. and OFAC Compliance Law
1. What are the Penalties for an OFAC Violation?
The penalties for an OFAC violation will depend on the statute that authorized the sanction that was violated, as well as on whether OFAC finds evidence that the violation was willful or not.
If there are signs that the violation was willful, OFAC will make a criminal referral to the U.S. Department of Justice (DOJ). A conviction carries multiple decades behind bars for responsible individuals. Additionally, OFAC can still pursue an enforcement action of its own, even while the criminal charges are being prosecuted by the DOJ.
These enforcement actions, which can also be pursued by OFAC for violations that were not willful, carry a wide range of civil monetary penalties depending on the authorizing legislation. For example, in 2023, violations of the Foreign Narcotics Kingpin Designation Act carry up to $1,771,754 in civil penalties for each violation, while the Clean Diamond Trade Act carries a maximum of $16,108 in civil monetary penalties for violations.
However, OFAC will not pursue the maximum penalty in every case. Under its enforcement guidelines, there are numerous mitigating or aggravating factors that OFAC will take into consideration when imposing a civil monetary penalty for a violation of sanctions.
2. What is a “National Law Firm”?
Oberheiden P.C. calls itself a national law firm because, while our main law offices are in Houston and Dallas, Texas, we have other offices with local counsel in most major American cities. No matter where you are located, we probably have experienced OFAC defense lawyers and compliance professionals nearby that can help you with your legal predicament.
3. What Makes Oberheiden P.C. Different from Other OFAC Compliance Firms?
There are several things that set Oberheiden P.C. apart from our competitors. Many of them, though, are consequences of the unique structure that we use at our firm: Unlike most other law firms in America, we only employ senior-level attorneys and investigators.
This does not just mean that you can count on the attorney assigned to your case being extremely experienced in the field. It also means that all of the work done for you will be performed by experienced lawyers who have handled numerous, similar cases for clients in the past. At other firms, most of the legal work is done by junior associates and even by paralegals, even if you only hired the firm because of the experience of one of the partners or senior associates.
At Oberheiden P.C., we think that your case should be handled by the legal professionals whose background drew you to our firm.
4. Why Don’t You Call Your Firm the Best?
We think that claims like these mean far less when we say them about ourselves. Read the testimonials from our prior clients to get a better sense of how other people see the quality of Oberheiden P.C.’s legal representation.
The OFAC Compliance Professionals at Oberheiden P.C.
Creating an effective OFAC compliance policy is both difficult and extremely important. The penalties for an OFAC violation are very high, frequently running into the millions of dollars. Furthermore, the bad publicity that often comes with an OFAC enforcement action, or even just an investigation into a potential violation of sanctions, can be crippling to even the most successful of companies.
The OFAC defense attorneys and experienced compliance professionals at Oberheiden P.C. have guided numerous companies through this complex situation. Contact them online or call their national law office at (888) 680-1745.
