OFAC Enforcement Guidelines

The Office of Foreign Assets Control (OFAC) is tasked with enforcing the federal laws that prohibit transactions between certain foreign entities and businesses and individuals on U.S. soil. These prohibitions primarily target terrorists, traffickers, and foreign governments with ties to these entities—with the ultimate goal of protecting national security. OFAC’s role in protecting the nation’s security has become increasingly prominent in recent years, as the web of financial transactions used to fund terrorist and other criminal activities has become increasingly complex, and as foreign operators have begun using new technology to evade detection and thwart OFAC sanctions.

What U.S. Financial Institutions, Businesses, and Individuals Need to Know About OFAC Enforcement in 2023

Fundamentally, OFAC’s enforcement efforts haven’t changed much over the past decade. OFAC adopted its Economic Sanctions Enforcement Guidelines (the “Enforcement Guidelines”) in 2009; and, while the Enforcement Guidelines have been amended since, they remain the guiding force behind OFAC’s enforcement efforts. What has changed, however, is how and when OFAC uses the Enforcement Guidelines to hold financial institutions, businesses, and individuals in the U.S. accountable. OFAC has been much more active in recent years, and we expect this trend to continue throughout 2023 (and beyond).

Financial institutions and businesses that facilitate or engage in cross-border transactions must thoroughly address their OFAC compliance obligations, and individuals doing business with sanctioned foreign entities and nationals must ensure strict compliance with OFAC’s licensing requirements. Failures in either regard can lead to intensive scrutiny—and ultimately to OFAC enforcement. OFAC enforcement actions can be either civil or criminal in nature; and, while criminal enforcement actions present additional risks, both “egregious” and “non-egregious” civil cases can result in substantial monetary penalties.

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Chris J. Quick

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Michael S. Koslow

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Ray Yuen

Former Supervisory Special Agent (FBI)

OFAC’s Enforcement Guidelines in 2023: An Overview

So, what do U.S. financial institutions, businesses, and individuals need to know about the OFAC enforcement guidelines in 2023? Here is an overview of OFAC’s current enforcement regime:

1. Potential Outcomes of OFAC Enforcement Actions

We’ll begin by discussing the potential outcomes of OFAC enforcement actions in 2023. While this may seem somewhat counterintuitive, having insight into the potential outcomes of an OFAC enforcement action can help with understanding how and when OFAC pursues different means of enforcement.

Under the Enforcement Guidelines, an OFAC investigation can have a variety of different outcomes. Depending on what OFAC uncovers during an investigation, the investigation can potentially lead to:

• Request for Additional Information – After conducting its initial investigation, OFAC may issue a request for additional information. This signals OFAC’s intent to continue pursuing the possibility of taking enforcement action against the target. This request may come in the form of an administrative subpoena; or, if OFAC has entered into a Memorandum of Understanding (MOU) regarding information requests with another regulator, it will follow the procedures set forth in the MOU.
• Cautionary Letter – If OFAC determines that the target’s conduct “could lead to a violation in other circumstances and/or that [the target] does not appear to be exercising due diligence in assuring compliance with the statutes, Executive orders, and regulations that OFAC enforces,” it will issue a Cautionary Letter. A Cautionary Letter represents OFAC’s final response, “unless OFAC later learns of additional related violations or other relevant facts. . . .”
• Finding of Violation – In the event that OFAC uncovers a violation but determines that “a civil monetary penalty is not the most appropriate response,” it can issue a Finding of Violation. A Finding of Violation affords the target the opportunity to respond; and, if the target responds, OFAC will consider the response before issuing its final decision.
• Civil Monetary Penalty – In many cases, OFAC investigations will lead to civil monetary penalties. The amount of the penalty imposed depends on various factors outlined in the Enforcement Guidelines—including whether the violation is “egregious” or “non-egregious,” as we discuss in greater detail below.
• Criminal Referral – OFAC will also refer matters to the U.S. Department of Justice (DOJ) for criminal prosecution in “appropriate circumstances.” Crucially, even if OFAC makes a criminal referral, the target “also may be subject to OFAC civil penalty or other administrative action.”
• Other Administrative Action – Along with civil monetary penalties and criminal referrals, OFAC can also choose to issue cease-and-desist orders and/or deny, suspend, modify, or revoke targets’ licenses following its enforcement investigations.

Of course, it is also possible to resolve an OFAC investigation without further action, and settling with OFAC is a possibility as well. Doing so, however, requires an informed, strategic, and proactive approach. When facing OFAC enforcement action, it is critical to have a clear understanding of the Enforcement Guidelines and how they apply—and to target a specific outcome that ensures maximum protection based on the circumstances at hand.

2. Factors Considered When Determining OFAC’s Method of Enforcement (the “General Factors”)

When pursuing investigations into potential sanction violations and other legal and regulatory issues, OFAC determines what type of enforcement action to pursue based on the “General Factors” outlined in the Enforcement Guidelines. As of 2023, the General Factors for OFAC enforcement are:

1. Does the violation involve a willful or reckless violation of the law?
2. Was the target aware of the conduct at issue?
3. Does the violation harm one of OFAC’s sanctions program objectives?
4. What are the target’s relevant individual characteristics (i.e., commercial sophistication, size of operations, financial condition, volume of transactions, and sanctions history)?
5. Does the target have an adequate OFAC compliance program?
6. Did the target take remedial action? If so, was its remedial response appropriate?
7. Did the target cooperate with OFAC during its investigation? If so, to what extent, and what information did the target’s cooperation provide?
8. When did the violation occur in relation to the imposition of sanctions? Did the target violate a long-standing sanction, or is the sanction at issue relatively new?
9. Is the target facing enforcement action by any other federal, state, or local law enforcement agency?
10. What type of enforcement action is necessary to promote future compliance and deter future violations by others?
11. What other considerations are relevant (as determined on a case-by-case basis)?

Taking these General Factors into account, once OFAC uncovers evidence of a potential violation through its investigative efforts, it will determine what type of enforcement action to pursue. If OFAC determines that a Cautionary Letter or Finding of Violation is most appropriate, this may be the end of the inquiry. However, if OFAC determines that more significant enforcement action is warranted, it may impose administrative and/or civil penalties, and it will also determine whether the violation at issue warrants criminal prosecution.

3. Civil Monetary Penalties in “Egregious” vs. “Non-Egregious” Cases

If OFAC determines that a Civil Monetary Penalty is warranted, the Enforcement Guidelines call for further analysis to determine the amount of the penalty imposed. This begins with determining whether the violation qualifies as “egregious” or “non-egregious” under the Enforcement Guidelines. As the Enforcement Guidelines explain:

“In making the egregiousness determination, OFAC generally will give substantial weight to General Factors A (“willful or reckless violation of law”), B (“awareness of conduct at issue”), C (“harm to sanctions program objectives”) and D (“individual characteristics”), with particular emphasis on General Factors A and B. A case will be considered an ‘egregious case’ where the analysis of the applicable General Factors, with a focus on those General Factors identified above, indicates that the case represents a particularly serious violation of the law calling for a strong enforcement response.”

Depending on whether OFAC classifies a violation as “egregious” or “non-egregious,” it will then conduct further analysis to determine the method of calculation. Here, one of the most important factors is whether OFAC become aware of the violation through self-disclosure:

• Non–Egregious Violations (Self-Disclosure) – Base penalty amount is equal to one-half of the transaction value, capped at $178,290 (for 2023), unless one-half of the applicable maximum statutory penalty is less, in which case the base penalty amount is equal to one-half of the applicable maximum statutory penalty for the violation.
• Non–Egregious Violations (Not Self-Disclosure) – Base penalty amount is equal to the transaction value, capped at $356,579 (for 2023), unless the applicable maximum statutory penalty is less, in which case the base penalty amount is equal to the applicable maximum statutory penalty for the violation.
• Egregious Violations (Self-Disclosure) – Base penalty amount is equal to one-half of the applicable maximum statutory penalty for the violation.
• Egregious Violations (Not Self-Disclosure) – Base penalty amount is equal to the maximum statutory penalty for the violation.

In all cases, OFAC imposes civil monetary penalties on a per-violation basis. As a result, if the target of an OFAC enforcement action is accused of multiple violations, the aggregate penalties can easily climb into the millions, if not tens of millions, of dollars.

Speak with an OFAC Enforcement Defense Lawyer at Oberheiden P.C.

Our lawyers represent financial institutions, businesses, and individuals in OFAC enforcement matters nationwide. If you need to speak with experienced defense counsel about a pending OFAC investigation, enforcement proceeding, or criminal referral, we encourage you to contact us promptly for more information. To arrange a complimentary initial consultation at Oberheiden P.C., please call 888-680-1745 or inquire online today.