3 Key Considerations for Entities and Individuals Under Investigation for OFAC Sanction Violations
3 Key Considerations for Entities and Individuals Under Investigation for OFAC Sanction Violations
Violations of Office of Foreign Assets Control (OFAC) sanctions can have severe consequences for both entities and individuals. While financial institutions and companies can face substantial fines, individuals charged with criminal sanctions violations can face both fines and prison time. As a result, a strategic defense is critical, and formulating a strategic defense starts with assessing three key considerations.
“Financial institutions, companies, and individuals often violate OFAC sanctions without realizing it. While inadvertence can be a defense to criminal prosecution, it is not a defense to civil penalties under the International Emergency Economic Powers Act and other applicable federal laws.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
So, if you are under investigation for doing business with a blocked country or Specially Designated National (SDN), or if OFAC is investigating your financial institution or company for an alleged sanction violation, what do you need to know? The three key preliminary considerations are:
1. What Are the Specific OFAC Sanctions Program (and Sanction) At Issue?
When facing scrutiny from OFAC, it is critical to identify the specific sanctions program at issue (and the specific sanction at issue) as quickly as possible. OFAC administers various sanctions programs, including both: (i) country-based sanctions programs; and, (ii) list-based sanctions programs (i.e., the SDN List).
Each of these sanctions programs establishes unique prohibitions and requirements that apply under a specific set of circumstances. Depending on the nature of the sanctions program, this may include circumstances pertaining to transactions with private or governmental entities in a particular country, or pertaining to transactions with particular individuals (i.e., SDNs). Crucially, many of OFAC’s sanctions are also subject to “general licenses” which exempt certain types of transactions from both civil and criminal prosecution.
As a result, identifying the relevant sanctions program (and the specific relevant sanction) is a necessary step toward identifying the defenses that an individual or entity has available. Once you identify the relevant sanction and the applicable defenses, you can then shift your focus to assessing your (or your financial institution’s or company’s) risks in the investigation
2. What Are Your (or Your Financial Institution’s or Company’s) Risks in the Investigation?
Once you have a clear understanding of the pertinent issues, you can then assess the risks at hand. Based on the relevant sanction and the facts presented, is OFAC likely pursuing civil or criminal allegations? Can you use a general license (or perhaps a specific license that you previously obtained) to avoid both civil and criminal culpability? Have you relied on guidance from OFAC in pursuing the transaction at issue—and can you use this guidance as a defense? These are just a few of the many questions you will need to answer as quickly as possible.
After analyzing the relevant facts and relevant law, you can make a realistic determination of your (or your financial institution’s or company’s) risk of facing civil or criminal enforcement action. You can then assess the potential penalties and factor these into your overall approach to the investigation. Some examples of the potential penalties for OFAC sanction violations include:
- Civil fines in excess of $90,000 per violation under the Trading with the Enemy Act (TWEA)
- Civil fines in excess of $300,000 per violation under the International Emergency Economic Powers Act (IEEPA)
- Civil fines of $1.5 million under the Foreign Narcotics Kingpin Designation Act (the “Kingpin Act”)
- Criminal fines of $1 million or more and up to 20 years of federal imprisonment per offense
Again, these are just examples. To determine the relevant OFAC sanctions, licenses, defenses, and penalties, you will need to engage experienced defense counsel promptly. When engaging counsel for OFAC sanctions defense, it is critical to choose an attorney who has specific—and significant—experience in this relatively uncommon area of practice.
3. What Factors Should You Consider When Choosing Counsel for OFAC Sanctions Defense?
The final key preliminary consideration when facing scrutiny from OFAC is your choice of defense counsel. All financial institutions, companies, and individuals that are under investigation need to rely on the advice and representation of an experienced attorney.
OFAC sanctions defense is a niche practice area within the broader area of federal defense. Only a small percentage of attorneys practice in the area of federal defense, and only a small fraction of these attorneys have significant experience, if any, dealing with OFAC. With this in mind, here are some of the keys to selecting an OFAC sanctions attorney:
Does the Attorney Have Significant Experience Handling OFAC-Related Matters?
Providing effective representation for OFAC sanctions defense requires significant experience in OFAC-related matters. You will want defense counsel who is familiar not only with the relevant sanctions program and any applicable licenses, but also OFAC’s investigative priorities and tactics, the relevant sources of statutory authority, and prior outcomes in similar cases. OFAC sanctions defense is very different from other areas of federal practice, so relevant experience is paramount.
Does the Attorney Have Specific Experience in the Area of OFAC Sanctions Defense?
Beyond relevant OFAC experience, you will want to inquire about an attorney’s specific experience in the area of OFAC sanctions defense. For example, while experience helping clients implement OFAC compliance programs can provide valuable insights, compliance and defense require different mindsets, skillsets, and approaches. Additionally, while an attorney who focuses exclusively on OFAC compliance won’t necessarily have experience dealing with OFAC’s attorneys and agents directly, an experienced OFAC sanctions attorney will know first-hand what is involved in communicating with OFAC personnel.
Defense experience can also be critical when evaluating the viability of various defenses and assessing the likelihood of potential outcomes. When facing the risk of civil or criminal prosecution, the more relevant experience you have on your side, the better.
Does the Attorney Work at a Firm that Has the Capabilities Required to Provide Effective OFAC Sanctions Defense?
Defending against potential charges for OFAC sanction violations requires a coordinated, comprehensive, and strategic approach. As a result, it generally requires not only an experienced OFAC sanctions attorney, but a team led by an experienced attorney and with the resources needed to provide representation at scale. When speaking with attorneys about a potential engagement, it is both appropriate and necessary to ask about the firm’s capabilities—and to inquire about the team that will be working on your (or your financial institution’s or company’s) defense.
By their nature, OFAC sanction matters often involve cross-border transactions. They can also involve matters in areas ranging from federal banking and securities law to immigration to national security. The firm you choose should have capabilities in all pertinent areas, and the members of your defense team should be able to provide all of the insights you need when you need them.
Is the Attorney Available to Provide Representation on an Emergency Basis if Necessary?
By their nature, OFAC sanction matters also often require legal representation on an emergency basis. If OFAC is investigating you, your financial institution, or your company, you need to begin executing a sound defense strategy immediately. So, while you need to choose an OFAC sanctions attorney and a firm that have the requisite experience and capabilities, it is equally important that you are able to initiate an engagement immediately.
Some (but not all) law firms have procedures in place for providing emergency representation to new clients. When inquiring about a firm’s experience and capabilities, you should also directly inquire about its attorneys’ availability—and you should expect a direct answer. You don’t have time to wait, and you cannot afford to let OFAC’s investigation get even farther ahead of your defense.
Can the Attorney Deal with OFAC Effectively on Your Behalf and Help Mitigate Your Risk of Additional Scrutiny Going Forward?
When speaking with an OFAC sanctions attorney about a potential engagement, you should gauge the attorney’s ability to deal with OFAC effectively on your behalf and mitigate your (or your financial institution’s or company’s) risk of additional scrutiny going forward. While this is somewhat of a judgment call, an experienced attorney should be able to quickly make you feel confident in his or her abilities. If you find it difficult to communicate effectively, if you have concerns about the attorney’s relevant experience, or if you have concerns for any other reason, it may be worth scheduling another consultation with another attorney.
Does the Attorney Also Have Experience Dealing with the U.S. Department of Justice (DOJ) and Other Federal Law Enforcement Agencies?
Finally, in addition to relevant experience dealing with OFAC, it is also important to choose an attorney who has experience dealing with the U.S. Department of Justice (DOJ) and other federal law enforcement agencies. In many cases, OFAC works alongside other federal agencies to conduct multi-faceted investigations; and, if an investigation leads to civil or criminal charges, executing an effective defense will involve litigating against the DOJ. So, while significant OFAC experience is critical, it is not the only critical factor. Ultimately, you will need to choose an attorney (and firm) that can help regardless of where OFAC’s investigation may lead.
Dr. Nick Oberheiden, founder of Oberheiden P.C., focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation.