Economic sanctions are now a fundamental tool of foreign policy and national security for many countries. Sanctions influence the behavior of states, organizations, and individuals that violate international standards.
In the United States, the Office of Foreign Assets Control (OFAC) is the primary agency responsible for developing and enforcing sanctions. OFAC is the primary regulator of economic and trade sanctions, and violations of its provisions can lead to serious consequences for companies and individuals.
Let’s look at the fines for OFAC violations, the types of sanctions, and possible enforcement actions.
What is OFAC?
The Office of Foreign Assets Control (OFAC) is a division of the U.S. Department of the Treasury responsible for administering and enforcing economic and trade sanctions based on U.S. foreign policy and national security objectives. OFAC sanctions are designed to counter terrorist financing, proliferation, human rights abuses, and other threats to international security.
OFAC uses the Specially Designated Nationals and Blocked Persons List (SDN List) as a tool to implement its sanctions programs. The SDN List includes individuals and entities with whom U.S. citizens and companies are prohibited from doing business. This increases the need for SDN legal services, especially OFAC delisting, to help companies and individuals navigate the complexities of sanctions laws. OFAC sanctions lawyers assist in due diligence, compliance programs, and ensuring full compliance while minimizing the risk of OFAC civil and criminal penalties. OFAC’s responsibilities include:
- Sanctions Program Design and Implementation: OFAC develops sanctions measures in accordance with U.S. law and international obligations;
- Monitoring and Enforcement: Enforces sanctions compliance by companies and individuals both inside and outside the U.S.;
- Informing and Advising: Provides information and guidance to businesses and the public about applicable sanctions and requirements.
OFAC fines are imposed when companies and individuals fail to comply with the law. This includes both civil and criminal penalties for those who violate sanctions regimes.
Types OFAC Sanctions Penalties
Violations of OFAC sanctions can have severe consequences, from reputational damage to substantial civil and criminal penalties. The repercussions of non-compliance can be divided into two main categories:
- Civil Penalties: These are administrative penalties that OFAC can impose without court intervention. For most sanctions programs, the maximum civil monetary penalty per violation is either $307,922 or twice the amount of the transaction that is the basis of the violation, whichever is greater. However, civil monetary penalties for violating OFAC regulations may vary depending on your case.
- Criminal Penalties: These are typically pursued in egregious cases or where there’s a pattern of willful and repeated violations. Criminal penalties for any associated violation can include substantial fines and even imprisonment.
What are the penalties for violating OFAC sanctions?
Penalties for violating OFAC regulations can be severe and apply to both companies and individuals. Potential consequences range from civil monetary penalties to criminal prosecution and other restrictive measures.
Monetary penalties
The maximum civil monetary penalties imposed depends on the nature, severity, and duration of the violation, as well as whether it was willful or negligent. For example, in 2020, a British oilfield services company agreed to pay a fine of $1.7 million for violating sanctions against Cuba, Iran, and Sudan.
Asset seizures
The organization can freeze assets related to the sanctions violation, including bank accounts, real estate, and other valuables. For example, the asset seizure affected a Russian businessman on the SDN list, which included his financial accounts and real estate.
Criminal charges
In cases of serious or willful violations, OFAC may refer the matter to the Department of Justice for criminal proceedings against individuals or entities.
Imprisonment
An extreme measure to punish individuals found guilty of criminal sanctions violations. The prison term can be up to 30 years, depending on the severity of the crime. For example, in 2017, a US citizen was sentenced to 32 months in prison for attempting to illegally export military equipment to Iran.
Deprivation of licenses
Companies may lose the licenses or permits necessary to conduct business. This is especially critical for financial institutions and companies that require special licenses. For example, a bank lost its license to conduct international transactions after systematic sanctions violations were discovered.
To avoid such consequences, it is recommended to contact an OFAC compliance attorney. Our attorneys will help you develop effective compliance strategies and minimize the risks of violating sanctions.
OFAC Enforcement Actions
If companies or individuals violate OFAC sanctions or regulations, they may be subject to OFAC enforcement actions, such as financial penalties, asset freezes, and criminal prosecutions.
OFAC enforcement actions include:
- Investigating Violations: OFAC investigates suspected violations by seeking information and documents from suspected individuals or entities;
- Issuing Orders: If violations are found, OFAC may issue formal orders to cease and desist;
- Issuing Civil Fines: Civil fines may be imposed without a court hearing;
- Referral to the Department of Justice: For criminal prosecution in cases of serious or willful violations;
- Public Disclosure: Publicly announcing violations and sanctions, which may cause negative reputational damage.
Other Consequences:
- Blocking Transactions: Financial institutions may block or deny transactions involving sanctioned persons or countries;
- Denial of service: Banks and other organizations may deny service to individuals or companies suspected of violating sanctions; Increased regulatory scrutiny: Violating organizations may be subject to more frequent and thorough regulatory scrutiny.
Can the Antiterrorism and Effective Death Penalty Act apply to OFAC violations?
The Effective Death Penalty Act was enacted to stop terrorism following the Oklahoma City Bombing and the World Trade Center. This habeas corpus law features a provision that the OFAC can use against individuals and entities that funded terrorism. The law can also be used against any financial institution that fails to freeze bank accounts used by terrorists.
Knowingly funding terrorism carries a criminal liability of up to 20 years imprisonment or up to a life imprisonment if a person dies from the apparent violation. Additionally, a financial institution that fails to comply with the Antiterrorism and Effective Death Act can face civil penalties of $94,124 or double the amount it failed to freeze – whichever is higher.
Foreign Narcotics Kingpin Designation Act
Popularly known as the Kingpin Act, the Foreign Narcotics Kingpin Designation Act gives the U.S. president the power to impose economic sanctions on any entity involved in cross-border drug trading. Civil penalties for knowingly trading with people sanctioned under the Foreign Narcotics Kingpin Designation Act range up to $1,771,754.
Contact an OFAC Compliance Lawyer
OFAC compliance is challenging, especially for companies operating internationally. Unintentional sanctions violations can have serious consequences. Therefore, it is important to have professional legal support.
We recommend that you contact our sanctions lawyers who specialize in OFAC sanctions compliance. Our team has extensive knowledge and experience in international sanctions legislation and can offer the following services:
- Sanctions compliance consultations: assistance in developing and implementing effective compliance programs, staff training, analysis of current procedures for compliance with OFAC requirements;
- Counterparty and transaction screening: risk assessment when working with foreign partners, conducting due diligence to prevent potential violations;
- Legal support during investigations: representing the company’s interests during OFAC investigations, negotiations with regulators, developing defense strategies;
- Dispute resolution and fine reduction: negotiations with OFAC on reducing fines, developing an action plan to eliminate violations;
- Monitoring changes in legislation: constant information about new sanctions, changes in existing programs and regulators’ requirements.
Our lawyers will analyze the company’s activities to identify risks and non-compliance with OFAC requirements, develop internal policies and procedures for sanctions compliance. If necessary, they will train employees on sanctions legislation. They will provide full support for complex transactions to ensure their compliance with sanctions regimes. Contact us and we will help minimize the risks of violations, avoid fines and maintain the reputation of your company in the international arena.
