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September 08, 2008 

OFAC Issues New Economic Sanctions Enforcement Guidelines

The Treasury Department's Office of Foreign Assets Control (OFAC) published in today's Federal Register new "Economic Sanctions Enforcement Guidelines" that take effect immediately and will be used in nearly all enforcement matters currently pending before OFAC or that will come before OFAC in the future.

These new Enforcement Guidelines will replace the proposed Enforcement Guidelines that OFAC published in January 2003 and will cover enforcement actions brought under the increased penalties in the International Emergency Economic Powers Enhancement Act and cases involving violations of OFAC's regulations issued under the Trading With the Enemy Act (i.e., Cuba and North Korea).

These new Enforcement Guidelines contain several significant changes from the 2003 proposed rule:

First, rather than identifying "aggravating'' and "mitigating'' factors, the Enforcement Guidelines set forth a number of "General Factors" that OFAC will consider in determining an appropriate enforcement response to a violation and, if a civil monetary penalty is warranted, in establishing the amount of that penalty. For example, these General Factors include, whether the conduct involved a willful or reckless violation of law, the awareness of the conduct at issue, the harm to the sanctions program, the existence of a compliance program, cooperation with OFAC, etc.

OFAC claims that the move away from "aggravating'' and "mitigating'' factors was motivated in part by the realization that in many cases, a particular factor could be considered either aggravating or mitigating (e.g., remedial action was considered a mitigating factor in the 2003 proposed rule, while the absence of remedial action was considered an aggravating factor). Thus, OFAC indicated that it believes it is better practice to identify the General Factors it will consider as part of a holistic consideration of the facts and circumstances of a particular case.

Second, the Enforcement Guidelines provide that an OFAC investigation may lead to one or more of the following actions:

  • No Action
  • Request Additional Information
  • Cautionary Letter
  • Finding of Violation (but no monetary penalty)
  • Civil Monetary Penalty
  • Criminal Referral
  • Other Administrative Actions (such as license denial or suspension or cease and desist order)
Third, OFAC stated that because the enhanced maximum civil penalties in the IEEPA Enhancement Act should be reserved for the most serious cases, the Enforcement Guidelines distinguish between "egregious" and "non-egregious" civil monetary penalty cases. "Egregious cases" are defined as those representing the most serious sanctions violations, based on an analysis of all applicable General Factors, with substantial weight given to considerations of willfulness or recklessness, awareness of the conduct giving rise to an apparent violation, harm to sanctions program objectives, and the individual characteristics of the Subject Person. Determinations whether a particular matter is an "egregious case" or not will be made by OFAC's Director or Deputy Director. OFAC will impose significantly higher civil penalties for egregious cases.

Fourth, in those cases in which the imposition of a civil monetary penalty is deemed appropriate, the Enforcement Guidelines provide a new process for determining the penalty amount. This process involves first determining a "base penalty amount." This base penalty amount is based on two primary considerations: (i) Whether the conduct, activity, or transaction giving rise to a violation is egregious or non-egregious and (ii) whether the case involves a voluntary self-disclosure.

The Enforcement Guidelines state that the existence (or lack) of a voluntary self-disclosure is a "major factor" in establishing the penalty amount and that the base penalty amount for a case involving a voluntary self-disclosure reflects a 50% or more reduction from the base penalty amount that would otherwise be applicable. Once a base penalty amount is calculated based on the transaction value and egregiousness/voluntary self-disclosure factors, the amount may be adjusted upward or downward based on the other General Factors set forth in the Guidelines and the resulting amount will be reflected in OFAC's proposed civil monetary penalty contained in its "pre-penalty notice".

For example, the Enforcement Guidelines specify that in a non-egregious case that is disclosed through a voluntary disclosure that the proposed civil penalty will be 50% of the transaction value, capped at a maximum base amount of $125,000 per violation (although the base amount cannot exceed the applicable statutory amount).

The PDF version of the Enforcement Guidelines contains a matrix showing how the penalty amounts will be calculated.

Although this interim final rule is effective on September 8, 2008, OFAC is seeking public comments and input on the new Enforcement Guidelines. The deadline for submitting comments is November 7, 2008.




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