Understanding sanctions and embargoes is the most important factor of running an export business as there are many regulations and prohibitions set in place by the US Department of Treasury. The Office of Foreign Assets Control (OFAC) has a series of systems set in place to impose sanctions against foreign entities through comprehensive, limited and list programs.
If OFAC finds an entity or individual to be in violation of a sanction they subjectively apply a multi-tier system that guides their decision on the penalty that the violating entity will face. Sanctions violations are held to a strict liability standard so OFAC applies their tiered system as reasonably appropriate for the situation and increases the severity of the penalty proportionately to the extent of the negligent or blatant degree of the conduct. Typically an entire business or corporation is held liable for the violation of a single employee but a single individual can be held liable if the violation is extremely egregious.
OFAC often learns of violations in one of five ways; voluntary disclosures, blocking and rejecting reports, current investigations, on-site audits or referrals from other agencies. Each of these methods directly affect OFAC’s decision of how harshly they will penalize the violator, with voluntary disclosure being the most favorable method of reporting.
Upon discovery of a sanction violation OFAC may chose to take one of the following punitive actions:
No Action-This is a case where there is a report of a violation and no evidence of said violation is found or the violation is very minute.
Cautionary Letter-There is a violation but something that doesn't warrant a penalty but a record is kept so if another violation arises it is given more weight
Finding of Violation- There's a very clear violation but there is no need for a civil penalty but finding of violation is published on OFAC’s site so all other businesses know
Civil Penalties- There are statutory maximums that may be applied to each individual transaction that is in violation of the sanctions programs
Trading with the Enemy act: $65,000
International Emergency Economic Powers Act: $250,000 or twice the transaction value (whichever is greater)
Foreign Narcotics Kingpin Designation act - $1,075,000
Criminal Referral- Particularly egregious or blatant violations are referred to the Department of Justice for criminal prosecution.
OFAC has also given a comprehensive list of the factors that are examined in each instance of a violation when deciding to either mitigate or aggravate a penalty.
Characteristics of the Violation
• Willful or Reckless • Voluntary Remediation • Sanction Harm
• Awareness of Violation • Timing of Violation
Characteristics of the Institution that committed the violation
• Individual Characteristics • Previous Enforcement Actions
• Compliance Program • Future compliance/deterrent effect
• Cooperation with OFAC
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