Site Loader

Two “Small” Enforcement Actions Telegraph OFAC’s Expectations as to Sanctions Reporting Rules

August 8, 2019

OFAC today published Findings of Violation made against two (smallish) companies for violations of OFAC’s Reporting, Procedures and Penalties Regulations (RPPR) at 31 C.F.R. part 501. In both cases, OFAC stated that the companies failed to provide accurate responses to administrative subpoenas, generally comply with the RPPR, and cooperate with OFAC.

In one of the findings, OFAC commented that one company’s outside counsel provided “contradictory, false, materially inaccurate, incomplete, and misleading” responses to an administrative subpoena. Lawyers  will note OFAC’s critical comments. More importantly, companies and other parties represented by outside counsel in OFAC enforcement matters should take OFAC’s comments as a reminder that, in legal proceedings, clients are generally bound by counsel’s actions.

The key compliance takeaway telegraphed by OFAC through the cases is that companies and individuals should take seriously their obligations under the RPPR. As OFAC put it in one finding (and nearly identically in the other):

This enforcement action highlights the compliance obligations of persons subject to the RPPR, and the importance for all subject persons to furnish information to OFAC during the course of an investigation in a manner consistent with such obligations. Companies and individuals alike should be diligent in their review of information and documentation that may be responsive to an administrative subpoena issued by OFAC. A person’s response to an administrative subpoena must be accurate, complete, timely, and in accordance with sanctions regulations and definitions. As exhibited in this matter, failure to provide complete or accurate information to OFAC in response to an administrative subpoena constitutes a violation of the RPPR.

The two cases (although underway from at least 2015 and 2016) demonstrate again that OFAC’s recent “small” cases are yielding significant information about its compliance expectations and enforcement posture. A notable recent example of a “small” OFAC enforcement that offered a big lesson involved a New Jersey software company that was penalized for “apparent” violations of U.S. Sectoral Sanctions on Russia’s energy sector. As MassPoint PLLC commented, the Russia Sectoral Sanctions enforcement made clear– for the first time– that OFAC interprets Sectoral Sanctions prohibitions on “new debt” to apply to trade-based debt, such as debt created by credit sale or licensing transactions.

Explore Related Topics

  • All
  • International Trade Law
  • Iran Sanctions
  • National Security Law
  • Sanctions

OFAC’s Expanded Sanctions Reporting Rules: Analysis and Public Comment

On June 21, the Office of Foreign Assets Control (OFAC) issued an interim final rule (IFR) substantially revising sanctions reporting regulations. The most significant amendment was to OFAC’s rejected transactions reporting rule, which now, for the first time, applies not just to U.S. financial institutions, but also to U.S. businesses, nonprofits, and individuals. The rule also appears to apply to foreign entities owned or controlled by U.S. persons. Public comments on the IFR are due by July 22, 2019.

Hdeel Abdelhady on NPR: United States Ratchets Up Iran and North Korea Sanctions

MassPoint’s Hdeel Abdelhady spoke with NPR about the ratcheting up of U.S. sanctions, secondary sanctions, and the potential consequences of sanctions overuse. To learn more about the mechanics of U.S. sanctions, and particularly about the role of the American dollar, financial system, and economy in extending the global reach of U.S. sanctions, read Hdeel Abdelhady’s Reuters insight piece, Reimposed U.S. anti-Iran sanctions leverage American economic power.

Trade-Based Debt is Subject to Russia Sectoral Sanctions Prohibitions (Haverly Systems)

The Haverly case is instructive as it clarifies OFAC’s position, with respect to Haverly and likely more broadly, as to the meaning of “debt” under Directive 2, which prohibits, by U.S. persons and within the United States, dealings in “new debt” issued by parties that are listed on the OFAC-maintained Sectoral Sanctions Identifications List (SSIL) or not so listed but are owned 50% or more by one or more sanctioned parties.

Post Author: MassPoint PLLC

MassPoint PLLC is a boutique law and strategy firm that works with diverse clients to meet legal, strategy, and risk management needs in a globalized, complex world.