The U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) imposes sanctions on foreign governments, organizations, businesses and individuals who pose a threat to U.S. economic and national security. Comprehensive and selective sanctions administered by OFAC are aimed at curtailing terrorism and terrorist financing, international narcotics trafficking, human rights offenses and other nefarious activities, such as organized transnational crimes and weapons of mass destruction proliferation.
Request for Interpretive Guidance
Given the scope and complexity of sanctions programs, U.S. parties conducting commerce or engaging in other cross-border activities with sanctioned subjects risk participating in OFAC-prohibited transactions. Such activities can result in harsh criminal and civil penalties. Moreover, transacting with blocked persons appearing on OFAC’s SDN List can result in the blocking of property by U.S. banks and other U.S. persons.
Understanding OFAC’s regulatory requirements is a challenging task for any organization or individual. Complicating factors impacting regulated participants in the global marketplace stem from continually evolving sanctions programs, each having different foreign policy and national security imperatives. To help a company or individual navigate sanctions regulations, a qualified OFAC sanctions attorney can submit a Request for Interpretive Guidance to OFAC on behalf of a client to clarify applicable regulations prior to the client’s execution of a transaction. OFAC responds to interpretive requests on a case-by-case basis (given the issue to which the inquiry relates has not been reasonably and fairly implied in existing rules). Even if interpretive guidance is appropriate, OFAC may take several months – perhaps longer — to issue a response.
As OFAC’s regulatory oversight expands, its sanctions programs are not without challenges and deficiencies. Where regulations are vague, without stated standards, inconsistent, or overly broad, a Request for Interpretive Guidance can be crucial in providing clarification. This guidance allows attorneys to properly advise clients on permissible and prohibitive actions when conducting transactions that might trigger sanctions liability. Oftentimes, U.S. persons and businesses unwittingly participate in prohibited transactions with little to no understanding of the unlawful nature of their transaction. OFAC-administered sanctions are, however, strict liability offenses not requiring willfulness or knowledge to be considered violations. Involvement in prohibited acts, knowingly or not, can place violators under enhanced OFAC scrutiny. Even third-party or facilitative roles in restricted trade activities can violate OFAC sanctions. As such, comprehensive due diligence is warranted when interacting with sanctioned entities and in sanctioned countries.
Published Interpretive Guidance
The need for clarity on sanctions regulations in various markets — such as tourism, publishing, financial, technical, and shipping — periodically prompts OFAC to publish industry-specific guidance on regulated activities. Some of the published interpretative rulings on OFAC policy include topics on translating informational materials from Iran (pdf), transshipments of goods through certain areas of Sudan (pdf), and peer reviews of scholarly articles submitted to scientific journals and authored by nationals of sanctioned countries, including Cuba, Iran, Libya, and Sudan. Click here for a pdf copy.
Beyond Interpretive Guidance: Licenses and Self-disclosure
Requests for Interpretive Guidance can alternatively be drafted as specific license applications in the event OFAC’s guidance construes a particular regulation as prohibiting a client’s proposed transaction. If granted, the license authorizes applicants to proceed with participating in otherwise prohibited transactions.
Also, if an entity or individual inadvertently violates economic sanctions, the offending party can voluntarily self-disclose the nature of the violation in an effort to attain leniency from OFAC in its enforcement response. Requests for Interpretive Guidance regarding a transaction that has already taken place can also be filed concurrently with a Voluntary Self-Disclosure to preserve the benefits of self-disclosing if a persons is unsure whether a violation has occurred.
Cross-border and Domestic Commerce
Dealings with entities and individuals in or from certain geographic areas may raise investigative interest with OFAC. This can include (but is not limited to) hiring of foreign nationals, import/export relationships, international investments and financial transactions, diamond trading, joint ventures, mergers and acquisitions, or procurement of inherited money or property located in sanctioned countries and areas. To ensure OFAC compliance, parties engaging in such activities may submit a Request for Interpretive Guidance to ensure proper application of law to fact.
Penalties for Sanctions Violations
OFAC’s enforcement response to sanctions violations includes criminal and civil penalties. Depending on the particular law that is violated, criminal penalties can include up to 30 years imprisonment, fines as high as $20 million, and the forfeiture of assets involved in the violation. Civil penalties also vary based on the particular sanctions program that is violated. Fines for the Trading With the Enemy Act can reach $65,000 per violation, while violating the International Emergency Economic Powers Act carries a fine of up to $250,000 per transaction (or twice the amount of the underlying transaction). The fine for violating the Foreign Narcotics Kingpin Designation Act caps at $1.75 million for each violation.
In general, parties subject to OFAC authority—and thus, its harsh penalties—include, but are not limited to:
- U.S. citizens
- Permanent residents, regardless of physical whereabouts
- Non-citizens dwelling within U.S. domain
- S. businesses and organizations and their international branches and subsidiaries
- Foreign businesses and organizations with U.S.-based branches and subsidiaries
One example of a situation where a request for interpretive guidance may help is the movement of money from Iran to the United States. Because sanctions are often enforced through private actors such as banks, producing a document from OFAC stating that the transaction is authorized may go a long way in relieving the bank’s own concerns about sanctions liability.
Other situations can include obtaining clarity regarding the treatment of U.S. nationals working for international companies and whether or not sanctions apply to particular activities of the company when done through or involving a U.S. person. Such requests can also be helpful in better understanding the scope and breadth of exemptions, general licenses, and statements of licensing policy.
Click here to read Frequently Asked Questions about Requests for Interpretive Guidance.