United States: Sanctions Enforcement Tips From Former Ofacers

Morrison & Foerster’s National Security practice provides strategic advice and counseling to clients on a broad range of challenging regulatory and compliance matters in the national security space. In advising clients, the firm draws on the deep subject-matter experience of the firm’s attorneys, many of whom held key roles in government earlier in their careers. Recently, the firm welcomed into its ranks a new associate, Kristofer Readling, who previously served as an enforcement officer in the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). In joining the firm, Mr. Readling is reunited with his former colleagues John Smith, who left OFAC as its Director to become a co-head of the National Security group almost a year ago, and Michael Dobson, who served as one of the U.S. government’s leading sanctions officials in the development and implementation of U.S. sanctions policy toward Russia and throughout the Western Hemisphere. This new addition positions the firm as perhaps the only one in the world with three full-time OFAC alumni, and certainly the only firm with three recent OFAC veterans steeped in sanctions policy and implementation both historically and under the Trump Administration. During their time at OFAC, John, Mike, and Kris oversaw and participated in sanctions matters of every type, including designations, program rollouts, and hundreds of enforcement investigations and actions (including some mentioned in our recent enforcement-focused client alert). This experience allowed them to observe firsthand what actions contribute to successful outcomes, along with the mistakes companies too often make when appearing before OFAC. Here are a few of their best tips to help you avoid common missteps:

1.  If you’re going to disclose, disclose fully.

Many companies choose to disclose to OFAC situations in which they might have violated U.S. sanctions. Doing so provides three principal benefits to a company. First, a voluntary self-disclosure automatically entitles you to 50 percent off any resulting penalty, setting a ceiling on OFAC’s base penalty calculation at either one-half the transaction value or one-half the applicable statutory maximum, depending on whether a violation is determined to be egregious. Second, it allows a company to frame the narrative of the violations to OFAC in order to highlight the company’s compliance and remedial efforts. Finally, it incentivizes OFAC to mitigate any penalty under OFAC’s Enforcement Guidelines. Great deal, right?

All of this can go out the window if a disclosure is “materially incomplete.” Furthermore, filing an incomplete or misleading disclosure might actually cause OFAC to increase any penalties for non-cooperation—the opposite of the desired outcome. If you believe time is of the essence and want to report to OFAC while continuing to investigate a potentially broader range of apparent violations (perhaps to avoid the loss of voluntary self-disclosure credit if another company beats you to a report), then consider submitting a preliminary notification with a specific timeline for completing the review, and a promise to provide periodic updates.

2. Make sure to mention favorable laws and precedents.

Despite its mandate to implement and enforce U.S. sanctions globally, OFAC is a relatively small administrative agency with only a few hundred employees. Caseloads are heavy. Companies that disclose potential violations often mention relevant specific and general licenses, as well as relevant provisions from OFAC’s regulations, but forget to mention other areas of the law relevant to their case, such as agency law. “Agency” law here means the law of principal-agent relationships (i.e., employer-employee, parent-sub, etc.), not the administrative law applicable to government agencies.

Agency law is especially important for companies that bestow titles on their employees indicating seniority and managerial rank but not managerial responsibilities. OFAC enforcement staff are going to read titles like “vice president,” “director,” and “project manager” through the lens of OFAC’s Enforcement Guidelines, which direct them to look at whether a company willfully or recklessly violated sanctions, and whether there was awareness on the part of the company of the problematic conduct. When a managerial employee willfully or recklessly violates sanctions, the employer is deemed to have been willful or reckless; similarly, if a managerial employee is aware of the conduct, the employer is deemed to be aware. When a contractor or nonmanagerial employee willfully or recklessly violates sanctions, or is aware of the problematic conduct, however, the employer is not necessarily deemed willful or reckless, or deemed even aware of the conduct, and the distinction may turn on agency law. However, very few companies provide job descriptions in their correspondence with OFAC without being asked first.

3. Don’t ignore OFAC’s policy goals.

Sanctions are a major U.S. national security and foreign policy tool. Often, a single sanctions regime will reflect multiple policy priorities. For example, almost every sanctions program contains exemptions and general licenses designed to facilitate the free flow of ideas, humanitarian aid, and nonsanctioned people throughout the world. Don’t ignore these policy considerations when going before OFAC. OFAC’s Enforcement Guidelines specifically direct the agency to review whether a violation harmed the relevant sanctions program’s objectives. Before communicating with OFAC about a potential violation, review the relevant program objectives and consider how the activity at issue fits into that policy framework. If there are credible arguments that the activity doesn’t undermine policy objectives, make them. Doing so could lead OFAC to decide that the case isn’t worth the resources required by an enforcement action.

4. Don’t treat OFAC like the SEC or litigation.

Sanctions law is a sufficiently niche practice area that the outside/in-house counsel interacting with OFAC frequently specializes in some other area of law, such as the Foreign Corrupt Practices Act or general litigation. Bringing those experiences and related mindsets to OFAC can be a mistake when you don’t have a clear understanding of the inner workings of OFAC. By the time OFAC calls you to discuss settlement, the debate over whether a violation occurred is essentially over. Many litigators make the mistake of trying to debate elements of the offense and citing improperly to the Federal Rules of Civil Procedure, which do not apply to OFAC proceedings. SEC practitioners often seek to “appeal” enforcement actions to OFAC’s director or political officials in the Treasury Department in the same way they would appeal an SEC action to the Commission. This can lead OFAC to view a party as relatively unsophisticated, and is unlikely to change the outcome of an enforcement case. If you believe the penalty OFAC intends to issue is unjust or unlawful, the person to discuss that with is the same enforcement or compliance officer who’s been handling your case all along; if you still believe the result is unfair, at that point feel free to request a meeting with the head of OFAC’s Enforcement Division or with OFAC’s Director, but do so with eyes wide open. Those OFAC officials will have already reviewed and approved the resolution of the case, presumably after considering and rejecting the arguments you are making. OFAC takes mitigation arguments provided by opposing counsel seriously, and usually addresses them in the administrative record. An example of this can be found in the public filings of Exxon Mobil Corporation et al. v. Mnuchin et al., where OFAC specifically addressed Exxon’s mitigation arguments in its penalty notice.

5. Take responsibility for compliance gaps.

Companies often try to pin sanctions violations on rogue employees or agents. While sometimes true, such arguments often signal to OFAC that the company isn’t really serious about trying to comply with U.S. sanctions, but is instead trying to find a scapegoat. If the person at a company most responsible for a violation of the law is a senior manager, then the company is responsible and should take responsibility. It frustrates OFAC enforcement staff when senior managers are painted as low-level employees to be scapegoated, and when this discrepancy is discovered, it often prolongs OFAC investigations by requiring OFAC to issue additional subpoenas, driving up legal costs for firms under investigation.

A much better approach is to factually state who at the company was involved and what their job titles and responsibilities were, and let OFAC make the determination as to whether they’re senior or not. This shows that the company is doing its best to remediate its violations by coming clean. This is also true when the underlying cause of a violation was a compliance program gap rather than a willful employee. Rather than state that “it would have been impossible to comply,” factually describe the compliance program that was in place at the time, explain why that compliance program was reasonable given the firm’s risk profile, and discuss what you will do to prevent similar missteps in the future.

Following these tips won’t necessarily prevent your company from receiving a penalty, but they are likely to reduce your legal expenses, increase the level of mitigation that OFAC grants, and provide you, your company, and your counsel with long-term OFAC goodwill.

John Smith served as the Director of OFAC (and, for a time, acting as the U.S. Department of Treasury’s Undersecretary for Terrorism and Financial Intelligence), a role in which he was responsible for overseeing all aspects of U.S. sanctions policy and implementation.

Michael Dobson served as an OFAC Senior Sanctions Policy Advisor, working within Treasury and across the interagency to develop and implement sanctions policy toward Russia, Venezuela, and other jurisdictions.

Kristofer Readling served as an Enforcement Officer in OFAC’s Enforcement Division, where he was responsible for investigating and settling violations of OFAC’s sanctions programs.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions