Following a public comment period where businesses expressed concerns about the severity of penalties, the Department of Treasury Office of Foreign Assets Control issued its final rule on the Economic Sanctions Enforcement Guidelines.
The final guidelines should remind organizations of why it is so important that they not make payments to blocked entities. The following is a list of the key changes to OFAC enforcement.
Voluntary Self-Disclosure
Several organizations asked OFAC to allow payers to qualify for reduced penalties if they report violations voluntarily, even if a third party reports it too. OFAC rejected this suggestion. However, if a third party is supposed to report a violation but does not, then any report from the payer will be considered a voluntary self-disclosure and thus qualify for reduced penalties.
Risk-based Compliance
OFAC will continue looking at organizations' risk-based compliance programs when determining the severity of a violation.
Tolling Agreements
Many organizations criticized OFAC for treating organizations that do not enter into tolling agreements (allow OFACT to research violations beyond the statute of limitations) more harshly than organizations that do. While OFAC will consider entering into a tolling agreement when determining an organization's penalty, failure to enter an agreement will not be counted against them.
Penalty Calculations
The final rule states that penalties for voluntary self-disclosures will remain as much as 50 percent lower than penalties for non-self-disclosures.
OFAC will continue examining each violation individually and reduce penalties based on the organization's specific circumstances.
An organization's first violation is typically subject to a penalty that is 25 percent less severe than additional violations. OFAC now considers a series of similar transactions carried out around the same period as the entire first-time violation.
General Factors
The criteria that OFAC uses to determine the severity of a violation are called "general factors." Changes to general factors in the final rule include:
Compliance with Foreign Law
OFAC refuses to consider violations less severe if the transaction is carried out overseas and the conduct is allowed under local law. However, OFAC will consider whether the conduct is necessary under local law as a general factor.
Reliance on Advice from OFAC
Organizations are encouraged to contact the OFAC hotline for help with difficult compliance issues. OFAC agreed to consider this advice as evidence that the violator did not willfully violate the law.
Other OFAC Changes
Some changes found in the final OFAC guidelines did not come from public comments. These include:
- Violations of the Trading with the Enemy Act will carry a maximum $65,000 base penalty. In non-egregious cases reported by the payer, the penalty is capped at $32,500 per violation.
- A $50,000 fine will be imposed on organizations that fail to keep OFAC records. OFAC considers not keeping adequate records as serious a violation as actually issuing a payment to a blocked entity.
These changes and clarifications supersede the interim rules released in 2008. The consistent message found in these guidelines is that OFAC violations can be costly. The best thing to do is ensure that your organization is not issuing payments to restricted entities.
For more, see the full Final Enforcement Guidelines.
