OFAC Enforcement Defense: How to Effectively Defend Against Allegations of Sanctions Violations
OFAC Enforcement Defense: How to Effectively Defend Against Allegations of Sanctions Violations
Violating Office of Foreign Asset Control (OFAC) sanctions can have serious consequences for companies, firms, and their owners and executives. OFAC conducts investigations and enforcement actions targeting apparent sanctions violations, and these enforcement actions can result in substantial civil monetary penalties (CMP). Since OFAC imposes CMO on a per-violation basis, repeated and systemic violations can present the risk for significant financial liability. For example, in one recent case, a cryptocurrency exchange faced more than $19.6 billion in aggregate CMP—though it ultimately settled with OFAC for just over $7.5 million.
Companies and firms that are facing scrutiny from OFAC (or that have concerns about facing scrutiny from OFAC) must work quickly to develop an effective defense strategy. While OFAC enforcement actions can present risks for significant liability, it will be possible to mitigate (if not completely avoid) liability in many cases. But, doing so requires a proactive approach, and targeted entities must be able to work effectively with their counsel to execute a targeted defense that takes into account the practicalities of the circumstances at hand.
“Violations of OFAC sanctions can expose companies and firms to substantial civil monetary penalties. While voluntary self-disclosure is generally the best option when possible, once it is too late to make a voluntary self-disclosure, targeted companies and firms must focus their efforts on building and executing a strategic defense to OFAC enforcement.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
When conducting enforcement actions, OFAC considers a variety of factors. These factors are outlined in the Office’sEconomic Sanctions Enforcement Guidelines (the “Guidelines”). For companies and firms that are facing enforcement actions, an informed approach is key, and understanding how the Guidelines apply is essential for developing an informed defense strategy.
10 Key Considerations for Defending Against Apparent OFAC Sanctions Violations
With this in mind, here are 10 key considerations for defending against apparent OFAC sanctions violations:
1. Conduct a Comprehensive (and Privileged) OFAC Compliance Assessment
When facing scrutiny from OFAC (or facing the prospect of scrutiny due to an apparent sanctions violation), it is imperative to promptly conduct a comprehensive OFAC compliance assessment. By engaging outside counsel to manage and oversee this process, companies and firms can ensure that the outcome of this assessment is protected by the attorney-client privilege.
At this stage, the purpose of an OFAC compliance assessment is not to disprove any allegations (or potential allegations) of non-compliance. Rather, the goal should be to gain a comprehensive and unbiased understanding of the circumstances at hand. With a clear understanding of the facts, it will be possible to make informed and strategic decisions with the company’s or firm’s best interests in mind.
2. Consider Voluntary Self-Disclosure (if It’s Not Already Too Late)
One of the most effective defense strategies for companies and firms facing exposure due to apparent OFAC sanctions violations is voluntary self-disclosure. Under the Guidelines, voluntary self-disclosure mitigates companies’ and firms’ CMP liability substantially, and OFAC considers voluntary self-disclosure (or the lack thereof) when negotiating settlements during its enforcement actions.
However, the Guidelines also specify when a company’s or firm’s self-disclosure of an apparent violation will be considered “voluntary.” Among other restrictions, once OFAC initiates an investigation or enforcement action, it is too late to make a voluntary self-disclosure. At this stage, voluntarily disclosing information to OFAC could do more harm than good, so an informed and measured approach is paramount.
3. Apply the Economic Sanctions Enforcement Guidelines to the Circumstances at Hand
Along with voluntary self-disclosure, OFAC’s Guidelines also provide for consideration of a variety of other factors when calculating the CMP for apparent violations. When facing the possibility of OFAC enforcement, companies and firms should apply the Guidelines to the circumstances at hand so that they have a clear understanding of the penalties—and the opportunities—that are on the table.
For example, under the Guidelines, voluntary self-disclosure is one of several mitigating factors that can reduce the CMP for apparent violations. Conversely, the aggravating factors listed in the Guidelines can enhance the risks of facing OFAC scrutiny. Thus, understanding how the Guidelines apply is critical for developing and executing an effective OFAC sanctions defense.
4. Formulate a Comprehensive and Cohesive Defense Strategy
After conducting a comprehensive OFAC compliance assessment and applying the Guidelines to the circumstances at hand, it should be possible to develop a comprehensive and cohesive defense strategy. Even when a company or firm has clearly violated an OFAC sanctions program, there will still be defenses available to mitigate the consequences of the mistake. Depending on the circumstances, the options that a company or firm has available may include highlighting the applicability of mitigating factors or disputing the applicability of aggravating factors, among others.
Of course, if a company or firm has not violated OFAC sanctions, then its defense strategy should focus on avoiding CMP liability entirely. OFAC’s sanctions programs can be extraordinarily complex, and not all apparent violations actually run afoul of the prohibitions that OFAC has put in place.
5. Consider the Viability (and Desirability) of Settling with OFAC
OFAC regularly settles its enforcement actions. In fact, of the 12 enforcement actions that OFAC has finalized so far in 2023, all 12 have been resolved via settlement. If it appears likely (or certain) that OFAC will be able to prove an apparent sanctions violation, then settling may be in a company’s or firm’s best interests—and settling with OFAC will most likely be an option that the company or firm should seriously consider.
In many cases, settling can substantially reduce a company’s or firm’s penalty exposure. This is evident from the example highlighted in the introduction, and there are several other significant examples in OFAC’s recent enforcement history as well. If it appears unlikely that a company or firm will be able to avoid CMP liability entirely, then settling may serve to minimize the company’s or firm’s liability while also providing certainty, reducing the costs of the company’s defense, and allowing the company or firm to move forward while maintaining a positive relationship with OFAC.
6. Work Collaboratively with OFAC (Within Reason)
Regardless of whether settling is in a company’s or firm’s best interests, it will usually make sense to work collaboratively with OFAC, within reason. For companies and firms that are subject to OFAC’s oversight, maintaining a positive relationship with the Office is important, as this is a relationship that can greatly influence their overall compliance-related risk on an ongoing basis.
But, while cooperating during an OFAC investigation can be beneficial, it can also be risky. Sharing too much information about apparent sanctions violations can enhance companies’ and firms’ risk in some cases. Again, an informed approach is paramount, and any decision to cooperate with OFAC should be made with a clear strategy in mind.
7. Proactively Address Any OFAC Compliance Program Deficiencies
If an apparent sanctions violation is the result of an OFAC compliance program deficiency that still exists, the company or firm should address this deficiency promptly. Failure to prevent additional violations can enhance a company’s or firm’s exposure while also leading to enhanced scrutiny from OFAC. Conversely, taking proactive steps to address compliance program failures is listed as a mitigating factor under the Guidelines and can help to facilitate a favorable resolution.
8. Consider the Viability of Other Mitigating Efforts
Along with voluntary self-disclosure and proactively addressing compliance program deficiencies, the Guidelines list several other mitigating factors as well. Targeted companies and firms should work with their counsel to assess the viability of asserting other mitigating factors in their defense. While some of these mitigating factors are based on past circumstances (i.e., isolated, rather than systemic, apparent violations), others are based on steps that targeted companies and firms take during OFAC’s investigative process.
9. Make an Informed Decision About How to Resolve OFAC’s Enforcement Action
While settling is the best option for resolving OFAC enforcement actions in many cases, this is not always the best approach. Targeted companies and firms must make informed decisions about how to resolve their OFAC enforcement actions that take into account all pertinent facts and circumstances. The decision to settle should be made based on an acknowledgement that this is the company’s or firm’s best option, while the decision not to settle should be based on a realistic assessment of the company’s or firm’s likelihood of success in avoiding penalties entirely.
10. Engage Highly Experienced OFAC Sanctions Defense Counsel
Due to the challenges (and risks) involved with facing OFAC scrutiny, companies and firms targeted in investigations and enforcement actions need to rely on the experience and representation of highly experienced OFAC sanctions defense counsel. Experienced counsel will be able to efficiently assist with evaluating the company’s or firm’s risk, applying the Guidelines, and formulating a targeted defense strategy. Experienced counsel will be able to communicate effectively with OFAC as well, whether this involves negotiating a settlement or working to steer OFAC’s investigation or enforcement action toward a resolution that avoids CMP entirely.
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.