Robust Enforcement of OFAC Sanctions by Federal Authorities

In recent years the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and other federal authorities have robustly enforced OFAC-administered sanctions against banks, particularly U.S. branches of foreign banks. Notable for their number, successiveness, and monetary penalty amounts imposed—often for U.S. sanctions and related violations, such as of the Bank Secrecy Act—these federal enforcement actions have nevertheless been overshadowed by state enforcement actions, in particular those of the New York State Department of Financial Services (NYDFS).

NYDFS Enforcement of OFAC Sanctions 

The NYDFS is the New York State agency with licensing, supervisory, and enforcement authority over, among others, New York branches of foreign banks. In 2012, the NYDFS made headlines when it, reportedly without coordinating with federal authorities, sharply enforced OFAC-administered sanctions against a New York branch of a European bank. This and other NYDFS OFAC sanctions enforcement actions have generated ample commentary, much of it focused on case facts, law as applied by the NYDFS, and enforcement style.

Whether State Banking Regulators Like the NYDFS Legal Authority to Enforce OFAC Sanctions

Beyond case recitations and optics, the enforcement of OFAC-administered sanctions by a state agency—even against banks by a banking regulator operating in a dual banking system—raises fundamental constitutional and other legal questions. Chief among them is the overarching question of whether U.S. states have authority to directly or effectively enforce OFAC-administered sanctions, particularly independently and prior to enforcement by competent federal authorities—namely OFAC. This question and some of the legal issues and policy and practical considerations appertaining to it are discussed in detail in a forthcoming publication. This document provides a summary preview of some of the key legal issues discussed in that publication. Additional summary previews may be provided separately.

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