7 Things That You Need to Know About FINRA and OFAC - Federal Lawyer
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7 Things That You Need to Know About FINRA and OFAC


Regulated securities professionals and brokerage firms have steep and onerous compliance obligations. One of the many that they have to satisfy is American sanctions law. These economic sanctions are enforced by the Office of Foreign Assets Control (OFAC) at the U.S. Department of the Treasury. Failing to adequately comply with OFAC’s requirements can increase the odds that you violate sanctions by doing business with a sanctioned individual, company, or other organization.

Should this happen, there are serious penalties that you and your brokerage firm can face, even if the business transactions were inadvertent or you did not know that your business associate or customer was sanctioned. Among those penalties can be an investigation by Financial Industry Regulatory Authority (FINRA) and its attendant repercussions.

Here are seven things that you should know about OFAC compliance requirements and FINRA enforcement actions in 2024, according to the white collar defense and securities litigation lawyers at the national law firm Oberheiden P.C.

1. OFAC Enforces American Foreign Sanctions By Penalizing Domestic Parties

An important thing to know about OFAC’s enforcement of the economic sanctions authorized by Congress and imposed on foreign threats by the President of the United States is that the parties targeted by those sanctions are not in OFAC’s jurisdiction. Broadly speaking, OFAC only has the power to regulate U.S. citizens, American companies, and foreign companies that have a physical presence within the United States.

Therefore, when OFAC agents and investigators learn of a potential violation of U.S. sanctions, the target of the investigation will be the domestic individual or company that appears to have done business with the sanctioned party; not the sanctioned party, itself.

2. The Costs of a Violation are Considerable

U.S. parties that are under investigation for potentially violating economic sanctions by trading with a foreign party under embargo need to take the investigation seriously. If investigators determine that sanctions were, in fact, violated, the penalties are steep: Depending on the law that authorized the sanctions, you could face a fine of over a million dollars per transaction, as well as the reputational harm that would come with the news that you dealt with one of America’s enemies.

These are just the civil penalties. Generally, if OFAC investigators determine that you willfully violated sanctions, they will pass the case on to the U.S. Department of Justice (DOJ) for criminal charges to be filed. Convictions on these charges often carry up to 20 years in prison for responsible executives, plus steep criminal fines.

3. FINRA Often Takes Action After a Violation of OFAC Sanctions

FINRA holds regulated securities professionals to a very high standard. Broker-dealers and their firms can find themselves under FINRA investigation for a wide variety of allegedly wrongful courses of conduct. Doing business with a foreign national that is under U.S. economic sanctions is one of them.

It is not uncommon for regulated securities professionals to face FINRA sanctions after an OFAC enforcement action finds that they have violated a U.S. trade embargo. While FINRA’s administrative penalties may pale in comparison to the civil or even criminal repercussions from OFAC or the DOJ, FINRA’s actions can still be another big blow to securities professionals who want to remain in the industry.

4. Broker-Dealers and Brokerage Firms Often Face Heightened Compliance Obligations Under U.S. Sanctions Law

Complying with OFAC’s requirements can be difficult enough. Broker-dealers and their brokerage firms, however, generally fall within a category of domestic entities that is targeted for even more extensive compliance requirements: Financial institutions.

While most people think of banks and credit unions as “financial institutions,” OFAC regulations use a much broader definition that focuses on the conduct the entity performs, rather than the name that it uses to describe itself. 31 C.F.R. § 561.309 defines a “financial institution” for OFAC law in a way that includes any U.S. entity that engages in the business of “purchasing or selling foreign exchange, securities, commodity futures or options.”

This will generally include U.S. brokerage firms and their securities personnel.

“These financial institutions have far more onerous compliance obligations under OFAC international sanction laws. Not taking the necessary steps to reach compliance considerably increases the likelihood of a violation of U.S. economic sanctions and the penalties that come with one.” – Dr. Nick Oberheiden, founding partner of Oberheiden P.C. and an OFAC defense and compliance lawyer at the firm.

5. Securities Professionals Need to Monitor the Sanctions Lists

Perhaps the most basic aspect of complying with OFAC’s sanctions is to know which foreign nationals, organizations, or corporations are subject to them. OFAC keeps its Specially Designated Nationals and Blocked Persons List (SDN) on its website and FINRA hosts its own on its website.

Staying up to date with the names on these lists of sanctioned parties, however, is far from easy. There are tens of thousands of names on them, and some get added or subtracted irregularly, though amendments to the lists have been happening nearly every week in 2024.

6. Keep an Eye Out for News Indicating New International Strife

One of the best ways to get ahead of the imposition of sanctions is to look for signs of the types of international strife that generally leads to the United States imposing them. Remember that the U.S. generally imposes sanctions on foreign nationals who play a role in fomenting regional turmoil that imperils American interests or who threaten U.S. national security. If you see international players causing chaos and notice that American interests are at risk of getting drawn into a brewing conflict, you can count on the U.S. using economic sanctions to protect its interests and to deter bad actors from making it worse.

7. Know Your Customer (KYC) Protocols are Intertwined with OFAC Compliance

While broker-dealers and their securities firms have numerous laws that they have to comply with, many of those compliance obligations are related to one another.

A good example for securities professionals is the need to take steps to Know Your Customer (KYC) – a compliance goal that can easily be applied to OFAC’s requirements that you take due diligence to see through intermediaries who are actually acting on behalf of sanctioned parties.

Understanding where these compliance obligations dovetail over one another can make it easier to efficiently insulate your company from legal liability under a variety of laws.

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