CUNA Regulatory Comment Call
February 25, 2003
OFAC Updated Internal Economic Sanctions Enforcement Guidelines
EXECUTIVE SUMMARY
- The Treasury Department’s Office of Foreign Assets Control (OFAC) has published for public comment an updated version of its internal Economic Sanctions Enforcement Guidelines (Guidelines). The Guidelines contain OFAC’s procedures for determining whether an economic sanctions violation has occurred and outline the range of enforcement options available, including the imposition of a civil monetary penalty. The Guidelines are intended to provide OFAC with a procedural framework of general applicability to promote consistency while allowing for the appropriate exercise of agency discretion. They are also intended to promote the transparency of OFAC’s procedures and better inform the regulated community.
- OFAC administers economic sanctions and embargo programs against specific foreign countries, regimes, or groups of entities and individuals to further U.S. foreign policy and national security objectives. Sanctions are usually imposed pursuant to a Presidential declaration of national emergency under the authority of the International Emergency Economic Powers Act or the Trading with the Enemy Act, or sanctions may be imposed by Congress as in the case of the Foreign Narcotics Kingpin Designation Act (the Kingpin Act). Currently, OFAC administers 24 economic sanctions programs against target countries, regimes, or named groups and individuals such as the following: Cuba, Iran, Iraq, North Korea, the Sudan, certain named narcotics traffickers, certain named terrorists, and the Taliban. The OFAC Web page describing OFAC’s sanctions programs is available at http://www.ustreas.gov/offices/enforcement/ofac/sanctions/index.html.
- The following are the important provisions in the Guidelines:
Determination of Violation
The type of enforcement action undertaken by OFAC depends on the nature of the apparent violation and the foreign policy goals of the particular sanctions program involved. In evaluating whether to initiate a civil penalty action, OFAC determines whether there is reasonable cause to believe that a violation of OFAC’s regulations, pertinent statute, or Executive Order has occurred. If the evidence suggests willful violation(s), OFAC may refer those cases to other federal law enforcement agencies, including the U.S. Department of Justice, for criminal investigation.
Cautionary Letters
When financial institutions appear not to be exercising due diligence in assuring compliance with OFAC’s regulations but no violation has occurred, a cautionary letter may be sent outing the requirements of the regulations and urging greater diligence.
Warning Letters
In the exercise of its discretion, OFAC may determine in certain instances that a warning letter citing the specific facts and relevant law may achieve the same result as a monetary penalty regarding future compliance with OFAC regulations. A warning letter does not constitute a final agency determination that a violation has occurred.
With respect to financial transfers, OFAC often issues warning letters instead of civil penalties in cases that appear to involve violations based on technicalities, where good faith efforts to comply with the law and no aggravating factors are evident. Some examples of situations in which a warning letter might be issued instead of a proposed civil penalty (the amount set in the prepenalty notice) are:- Transactions in which there are significant variations in name and/or location specified in a funds transfer from those on OFAC’s Specially Designated Nationals and Blocked Persons (SDN) list;
- Transactions in which the names of the blocked party is spelled differently from the entry on OFAC’s SDN list;
- Transactions where funds are not intended to be sent to or through a blocked or specially designated bank but a bank employee accidentally enters a code for a SDN bank;
- Transactions where a clerk accidentally hits a “release” key instead of a “block” or “reject” key and immediately takes action to try to recall the funds;
- Transactions that take place after a new designation where the institution has not had time to update its systems and procedures or to review its account base;
- Transactions that are of a low value where the cost of pursuing a penalty action would likely exceed the enforcement benefit; and
- Transactions involving an activity for which a policy determination has been made to authorize the activity by specific license.
Civil Penalties
The criteria for initiating civil penalty enforcement action may differ depending upon the substantive nature of the apparent violation at issue and existing foreign policy and national security objectives. If the apparent violative transaction at issue is a prohibited dealing in blocked property by a person subject to the jurisdiction of the U.S., the proposed penalty generally will be the lesser of either the statutory maximum or the dollar value of the transaction involved.
Each failure to respond to a request by OFAC to furnish a report of a transaction generally will result in a proposed penalty of $10,000. Late filing of a required report will generally result in a proposed penalty in the amount of $2,000 if filed within the first month after it is due or $5,000 if over one month late. If the report concerns blocked assets, however, the penalty will include an additional $1,000 for every month that the report is not submitted, up to 5 years or the statutory maximum, whichever is lower. The first failure to maintain records in conformance with OFAC’s regulations or of a specific license generally will result in a proposed penalty in the amount of $2,000. Each additional offense in this regard generally will result in a proposed penalty in the amount of $10,000.
In determining a settlement amount or penalty assessment at the penalty notice stage, OFAC will generally balance the mitigating and aggravating factors present. In the case of funds transfers violations by financial institutions, penalties will generally be mitigated 25% to 50% from the amount proposed in the prepenalty notice. In all other instances, penalties for violations will generally be mitigated 10% to 75% from the amount proposed in the prepenalty notice. Departures from these Guidelines or from prior history of OFAC penalties will be considered where appropriate.
Typical mitigating factors include, but are not limited to, the following:- Voluntary disclosure (the proposed penalties generally will be mitigated by at least 50% from the amount that would otherwise be proposed under the Guidelines);
- First offense (proposed penalties generally will be mitigated at least 25% in the penalty notice);
- Compliance program in place at time of violation;
- If no compliance program, implementation of one upon the institution’s discovery of or OFAC notification of the violation;
- Other remedial measures taken;
- Useful enforcement information provided during an OFAC audit, investigation or penalty proceeding; and
- Clerical error, inadvertence, or mistake of fact.
Typical aggravating factors include, but are not limited to, the following:- Willfulness;
- Second or subsequent offense;
- Apparent disregard of prior notice from U.S. government concerning transactions at issue;
- No remedial measure taken after notice or discovery;
- Deliberate effort to hide or conceal the violation;
- Lack of compliance program at time of violation; and
- Familiarity with economic sanctions programs.
Settlement
A settlement does not constitute a final agency determination that a violation has occurred. OFAC may settle a matter without initiating a formal action through the issuance of a prepenalty notice. A party may request an informal settlement with OFAC prior to OFAC’s issuance of a prepenalty notice. To do so, the party may request in writing that OFAC withhold issuance of a prepenalty notice for a period of up to 60 days for the exclusive purpose of reaching settlement. After a prepenalty notice is issued and served, OFAC may settle the matter through informal negotiations at OFAC’s initiation, at the request of the nstitution, or through payment of the proposed penalty in full.
Assessment and Imposition of Final Penalty
Prior to OFAC’s issuance of a final penalty notice, the cited institution may respond to the allegations in OFAC’s prepenalty notice. If a response is submitted, OFAC will carefully and fully consider all explanations contained in the response and weigh all information presented in making a final determination whether a violation has occurred, whether a penalty notice should be issued and, if so, in what amount the penalty should be assessed.
- Comments are due to OFAC by March 31, 2003. Responses can be sent directly to OFAC and should be directed to Chief of
Records, ATTN Request for Comments, Office of Foreign Assets Control, Department of the Treasury, 1500 Pennsylvania Ave., N.W.,
Washington, D.C. 20220. Comments may be faxed to OFAC at (202) 622-1657 or submitted electronically through OFAC’s website at
- You may obtain a copy of the proposed updated version of OFAC’s internal Guidelines by contacting us or by going to OFAC’s website at http://www.treas.gov/offices/enforcement/ofac/civpen/guidelines/enfguide.pdf.
QUESTIONS REGARDING THE GUIDELINES
- Are there additional situations besides the examples enumerated in the Guidelines
in which credit unions and other financial institutions should be issued a warning
letter instead of a proposed civil penalty?
Yes ______ No ______
If so, please describe those additional situations.
- Are there factors you believe should serve to mitigate a proposed OFAC penalty that
are not included in the list in the Guidelines?
Yes ______ No ______
If yes, please indicate those additional factors.
- Do you agree with the list of aggravating factors that would increase a proposed
penalty?
Yes ______ No ______
Please explain why or why not.
- OFAC indicates that the voluntary disclosure mitigation provision (the proposed
penalty will be mitigated by at least 50%) provides an incentive for institutions that
have violated economic sanctions laws to come forward a provide OFAC with
information it can use to better enforce its economic sanctions programs. Do you
feel the voluntary disclosure provision serves as an effective incentive?
Please explain why or why not.
- Do you feel these Guidelines are sufficiently flexible?
Yes ______ No ______
If not, please explain in what way(s) they should be made more flexible.
- Other comments?
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Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com |
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