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CUNA Regulatory Comment Call

October 6, 2008

EXECUTIVE SUMMARY

• The Office of Foreign Assets Control (OFAC) issued “Economic Sanctions Enforcement Guidelines (Guidelines),” which reflect factors that will be considered in determining the appropriate enforcement response to an apparent violation of an OFAC sanctions program.
• The Guidelines supersede all previous guidance issued by OFAC, and apply to all persons and entities subject to any of the sanctions programs administered by OFAC.
• Depending on the facts and circumstances of a particular case, the Guidelines identify the actions that may be taken by OFAC.
• The Guidelines list “General Factors” that will be considered in determining enforcement action or penalty amount.
• In cases in which a civil monetary penalty is appropriate, the Guidelines provide a new process for establishing the amount, which includes identifying egregious and non-egregious cases, issuing pre-penalty notices, and providing an opportunity to respond to the notice regarding the amount of the proposed penalty.
• Civil penalty provisions take into account the maximum penalties available under the various statutes for which OFAC enforces.
• Other actions, such as the issuance of a cautionary letter or finding of violation, or a criminal referral, may be issued under certain circumstances.
• Please submit your comments to CUNA by October 20, 2008. Comments are due to OFAC by November 7, 2008

Please feel free to send your comments to CUNA SVP & Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Assistant General Counsel Lilly Thomas at lthomas@cuna.com; or mail them to Lilly c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, D.C. 20004. Click here for a copy of the proposed rule.

BACKGROUND

OFAC administers and enforces economic sanctions against targeted foreign countries and regimes, terrorists and terrorist organizations, narcotic traffickers, and others in furtherance of U.S. national security. OFAC requires all financial institutions, including credit unions, to block or "freeze" and report property and payment of any funds transfers or transactions involving blocked countries or individuals. Blocked countries and individuals appear on OFAC’s “Specially Designated Nationals and Blocked Persons” List. Failure to block and report an “illicit transfer” may subject the credit union to administrative action, civil fines, and possibly criminal penalties.

OFAC previously published proposed economic sanctions enforcement Guidelines, which provided a schedule of proposed civil monetary penalties for certain violations as well as a framework for its enforcement actions.

Last year, amendments to the International Emergency Economic Powers Act, a principal statutory authority for most OFAC sanctions programs, substantially increased the maximum penalties for violations. As a result, these new Guidelines were developed for determining an appropriate enforcement response, including the amount of any civil monetary penalty if applicable, to OFAC violations.

DISCUSSION

• OFAC issued an interim final rule and is requesting comments on its Economic Sanctions Enforcement Guidelines (Guidelines) as guidance for persons subject to the requirements of the sanctions statutes, Executive orders and regulations.
• The Guidelines reflect the factors that OFAC will consider in determining the appropriate enforcement response to an apparent violation of an OFAC sanctions program.
• Depending on the facts and circumstances of a particular case, one or more of the following actions may be taken by OFAC: no action, request additional information, cautionary letter, a finding of violation, a civil monetary penalty, criminal referral, or other administrative action.
• The “General Factors” identified in the Guidelines reflect the considerations that are most critical when determining an appropriate enforcement response to an apparent violation. This is a change from the earlier practice of identifying “aggravating” and “mitigating” factors when considering agency action.
• General Factors include: a willful or reckless violation of law, awareness of the activity, harm to the sanctions program objectives, the existence and nature of a compliance program, remedial response, the characteristics of the individual, the timing of the violation in relation to the adoption of the applicable prohibition, other enforcement action, the impact OFAC action may have on future compliance, and other relevant factors.
• The Guidelines provide for the issuance of either cautionary letters or findings of violation under certain circumstances, rather than the evaluative letters previously used. Careful consideration will be given to the appropriateness of issuing a cautionary letter or finding of violation in lieu of imposing a civil monetary penalty.
• A cautionary letter will be issued by OFAC in response to an apparent violation when there is insufficient evidence to conclude that a violation has occurred or that a finding of violation is not warranted under the circumstances. It is not a determination of whether a violation occurred, but rather serves as notice that similar conduct in the future may result in a finding of violation or the imposition of a civil monetary penalty.
• Findings of violation will be issued when OFAC determines that a violation has occurred, but that a civil monetary penalty is not an appropriate response. A finding of violation serves to document the violation and is a final determination by the agency. The recipient will have an opportunity to respond to OFAC’s determination.
• In cases in which a monetary penalty will be assessed, the Guidelines provide a new process for establishing the amount. A base penalty amount is determined depending on the transaction value, whether the activity is egregious or non-egregious, and whether a voluntary self-disclosure is made. Once a base penalty amount is calculated, the amount may be adjusted upward or downward based on the other General Factors.
• Egregious cases are defined as those representing the most serious sanctions violations, based on an analysis of all applicable General Factors. Substantial weight will be given to the willfulness or recklessness of the conduct, awareness of the conduct regarding the violation, harm to sanctions program objectives, and the individual characteristics of the violator. Generally, significantly higher civil penalties are applied for egregious cases.
• If a voluntary self-disclosure is made, the base penalty amount will be reduced by fifty percent.
• Pre-penalty notices will be issued to give notification of the penalty amount. Violators may respond with arguments or evidence regarding the amount of the proposed penalty, which OFAC will consider before issuing a final penalty notice.
• The Guidelines also address the process for settling allegations of violations.

1. Do you believe the General Factors are appropriate for determining an appropriate enforcement response?
   a. Yes _____
   b. No _____
   If not, are there other factors that should be removed or added? Please explain.
   
   

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2. Do you agree with how an egregious case is determined?
   a. Yes _____
   b. No _____
   Please explain.
   
   

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3. Do you agree with the process for determining a civil penalty amount?
   a. Yes _____
   b. No _____
   Please explain.
   
   

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4. Do you agree with the process of sending pre-penalty notices before a final penalty determination is made?
   a. Yes _____
   b. No _____
   Please explain.
   
   

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5. Please provide any other changes you believe would make OFAC enforcement more transparent and useful to individuals subject to the sanctions programs administered or enforced by OFAC.
   
   

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