Civil Monetary Penalties for OFAC Violations Increase 7 Percent

Many of the civil monetary penalties for unintentional violations of the U.S. economic sanctions that are enforced by the Office of Foreign Assets Control (OFAC) at the Department of the Treasury are tied to inflation. After inflation spiked in 2022 and into 2023, OFAC announced back in January that it was increasing the penalties for violations of economic sanctions accordingly.

OFAC compliance and defense lawyer Dr. Nick Oberheiden, founding partner of the national defense firm Oberheiden P.C., explains how it works and what that means for companies that are concerned about being investigated by this important but often overlooked federal law enforcement agency.

Civil Penalties for Violating Economic Sanctions are Tied to Inflation

The U.S. is known for imposing economic sanctions on foreign nationals, companies, organizations, and even entire countries that pose a threat to American interests abroad or to U.S. national security. Those sanctions are authorized by Congress in certain circumstances by several federal laws, including the:

1. Trading With the Enemy Act of 1917 (50 U.S.C. §§ 4301 – 4341)
2. International Emergency Economic Powers Act of 1977 (50 U.S.C. §§ 1701 – 1709)
3. Foreign Narcotics Kingpin Designation Act (21 U.S.C. §§ 1901 – 1908)
4. Antiterrorism and Effective Death Penalty Act of 1996 (Public Law No. 104-132)
5. Clean Diamond Trade Act (19 U.S.C. §§ 3901 – 3913)

OFAC is the federal agency in charge of enforcing the sanctions imposed under these laws and of penalizing American individuals and organizations that violate them, whether wilfully or not.

Importantly, the maximum amount of the civil monetary penalties that OFAC can impose for non-wilful violations of these sanctions are tied to inflation through the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Public Law No. 114–74, Section 701). This law gives OFAC the authority to adjust the financial penalties it can impose by using a formula that is meant to approximate the year-to-year inflation rate.

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Ray Yuen

Former Supervisory Special Agent (FBI)

OFAC Raises Penalties Over 7 Percent for 2023

2021 and 2022 were well known in America, and worldwide, as being years of very high inflation. While economic experts believe that 2 percent is ideal for growth and stability, these two years saw inflation rates over three times as high as that goal.

Accordingly, OFAC issued a final rule, published at 88 Fed. Reg. 2229 (Jan. 13, 2023), that announced that it was increasing the maximum civil monetary penalties for violating economic sanctions by 7.745 percent. This increase went into effect immediately, on January 13, 2023, and applied to all OFAC penalties going forward, even if the case involved a sanctions violation that had happened before that date.

What That Means for the Penalties of Each Import/Export Law That OFAC Enforces

To complicate matters, OFAC enforces numerous import and export laws, including the five mentioned above. Each of them has its own set of civil penalties for a non-wilful violation, ranging from less than $17,000 to over $1.7 million. OFAC’s announcement means that each of those sets of civil monetary penalties will increase by 7.745 percent. The new maximum penalties are now the following amounts in 2023:

• $16,108 for violating sanctions under the Clean Diamond Trade Act
• $94,127 for violating sanctions imposed under the Antiterrorism and Effective Death Penalty Act
• $105,083 for violating sanctions made under the Trading With the Enemy Act
• $356,579 for violating sanctions under the International Emergency Economic Powers Act
• $1,771,754 for violating sanctions imposed under the Foreign Narcotics Kingpin Designation Act

Many of these penalties are for each violation. Many courses of business conduct will involve numerous transactions, each of which will count as a violation. In this way, the amount of these civil monetary penalties can rise extremely quickly.

In addition to these statutes, OFAC also has the authority to promulgate regulations that help the agency enforce the law. Many of these regulations allow OFAC to impose civil monetary penalties on companies that do not provide financial information as required under the law. Those civil monetary penalties have also increased by 7.745 percent for 2023. The penalties and the regulatory violations associated with them include:

• $1,377 for every 30 days that a required report related to blocked assets is overdue, up to a maximum of five years
• $3,439 for filing a required report up to 30 days after it was due
• $6,881 for filing a required report more than 30 days after it was due
• $27,520 for failing to furnish information when requested by OFAC under 31 C.F.R. § 501.602
• $68,801 for failing to furnish 31 C.F.R. § 501.602 information, if OFAC has reason to believe that the transaction at issue involves more than $500,000
• $68,928 for failing to maintain records in conformance with OFAC requirements

These are Just the Civil Penalties of an OFAC Violation

It is important to remember that civil monetary penalties are only one of the types of penalties that OFAC can pursue when it suspects that you or your company have violated American economic sanctions. It can often also pursue criminal charges if it believes that the violation was wilful.

Criminal charges for wilfully violating American economic sanctions are extremely serious. When filed against corporate entities, convictions often carry millions of dollars in fines, though these amounts are not tied to inflation like the civil monetary penalties are. When filed against individual people, including corporate executives who are suspected of orchestrating the transactions to violate sanctions, a conviction can also carry 20 or more years in prison.

But just the mere allegation that you or your company has violated U.S. sanctions can be devastating if it reaches the public. The people and organizations who are subjected to U.S. economic sanctions include some very bad actors. The public’s perception of sanctioned parties is generally that they are terrorists, international pariahs, and enemies of America. If it gets out that your company was caught, or even suspected of, doing business with a sanctioned party, it can seriously hurt your company’s standing and your business’ brand.

Dr. Nick Oberheiden, an OFAC compliance and defense lawyer at his national law firm Oberheiden P.C., often warns company stakeholders that, “If OFAC opens an investigation into your company for a suspected violation of U.S. sanctions, the case is already a failure. The legal exposure and the reputational harm that the investigation can cause are best avoided through stringent and vigorous compliance efforts.”