Trade sanctions against targeted countries, foreign regimes, and individuals including terrorists and narcotics traffickers are typically issued through Executive Order of the president under the International Emergency Economic Powers Act (IEEPA) or through acts of congressional legislation. The Office of Foreign Assets Control (OFAC) is the division of the United States Treasury Department that is given the task of administering and enforcing these sanctions regulations.

OFAC enforcement takes many forms, beginning with the designation of targeted persons and the blocking of property involving such persons and including civil and administrative penalties against those with apparent OFAC violations. In some cases, OFAC may refer an individual or entity accused of violating sanctions regulations to the appropriate agency for criminal investigation and prosecution. If you are unsure whether your property could potentially blocked consult with an OFAC lawyer today to discuss your situation.

Blocked Property

When an OFAC sanctions program prohibits trade or transactions with an individual, a business, or a foreign government, property involved in a violation of OFAC regulations may be “blocked” or frozen.

OFAC regulations mandate the blocking of property when a blocked or targeted person has an interest in such property.  OFAC blocks property with the intent to deprive targeted countries and Specially Designated Nationals of the funds and materials used to further their aims which threaten to harm the national security or foreign policy of the United States. It also restricts access to United States bank accounts and financial services which may be used to further terrorism, narcotics trafficking, human rights abuses and genocide, and weapons of mass destruction (WMD) proliferation.

Property and transactions which violate OFAC sanctions can be blocked by the shipper or the financial institution, which has a duty to inspect the SDN list and prevent the flow of funds or goods between the United States (and U.S. citizens living abroad) and the targeted nation or individual. When the property is blocked, the shipper does not return the item to its original sender, nor does the financial institution return the money to the account of origin. Rather, these assets become frozen, held by the shipper or financial institution and reported to OFAC within 10 days of becoming blocked in accordance with specified reporting guidelines. Additionally, any entity holding blocked property must file annual reports as stipulated in 31 C.F.R. 501.603.

Contrary to popular belief, OFAC does not take control of or have access to blocked funds. Instead, the financial institution that blocks a prohibited transaction places the funds in a separate account and reports the blocked property to OFAC. The Office of Foreign Assets Control has the authority to release blocked property, but it does not have access to the blocked accounts or property.  In other words, these funds are not forfeited to the government unless there is a separate legal authority or theory to do so.

In some cases, particularly those in which a prohibited transaction does not involve a blocked person or Specially Designated National (SDN), the transaction may be rejected rather than blocked. In this case, the property may be returned to the originator rather than frozen.  An example of this are property transactions involving a non-SDN Iranian resident.

Rejected transactions are not required to be reported on a financial institution’s annual report of blocked property; however, they must be reported to OFAC so that the agency can look for patterns of behaviors that violate sanctions regulations.

If you have received a request for more information, an OFAC administrative subpoena, or a pre-penalty notice from OFAC, contact an experienced sanctions lawyer as soon as possible for help with your case.

Rejected transactions are not required to be reported on a financial institution’s annual report of blocked property; however, they must be reported to OFAC so that the agency can look for patterns of behaviors that violate sanctions regulations.

OFAC Enforcement

Enforcement of OFAC sanctions programs is a multi-step process.  If a person or entity is suspected of an apparent OFAC violation, the agency can take one of several steps in enforcing sanctions and assessing penalties:

  • OFAC may take no action. If there is insufficient evidence to indicate a violation, or if no violation has occurred, the OFAC will take no action in pursuing the alleged transaction.
  • OFAC may request more information. The OFAC has the authority to request additional information from the subject person or any third parties in order to further its investigation of an apparent OFAC violation.
  • OFAC may issue a cautionary letter. In some cases, although there is insufficient evidence to support a violation, OFAC may find that the subject person did not exercise due diligence in conducting transactions or may be engaged in “borderline” activities. In such a case, the agency may issue a warning to the individual or entity engaged in questionable activity.
  • OFAC may issue a Finding of Violation. Sometimes, an OFAC violation has occurred, but the violation is not sufficient to warrant civil monetary penalties. A Finding of Violation addresses concerns about the sanctions violation and failures within the organization’s OFAC compliance policies.
  • OFAC may assess civil monetary penalties. Before assessing civil penalties for OFAC violation, the agency will issue a pre-penalty notice describing the nature of the violation and both the maximum and suggested penalties for commission of the violation. The subject person is entitled to respond to the pre-penalty notice prior to the assessment of any fines.

Civil penalties are determined by whether the violation is considered egregious or non-egregious.

Non-egregious violations are typically punishable by a penalty of half the value of the prohibited transaction with a maximum penalty of $250,000. However, transactions pursuant to the Trading with the Enemy Act (TWEA) are subject to a penalty of $65,000 and transactions pursuant to the Foreign Narcotics Kingpin Designation Act are subject to a penalty of $1,075,000.

Egregious violations are those which are willful or reckless, which are committed with awareness of the issue, and which harm sanctions program objectives. These may be not only subject to higher civil penalties, but also may be referred for criminal prosecution.