{"id":122,"date":"2015-11-30T18:55:49","date_gmt":"2015-11-30T18:55:49","guid":{"rendered":"http:\/\/exportcompliancesolutions.com\/blog\/?p=122"},"modified":"2015-11-30T19:01:51","modified_gmt":"2015-11-30T19:01:51","slug":"ofac-the-not-to-be-forgotten-part-of-export-compliance-part-3-of-3","status":"publish","type":"post","link":"https:\/\/exportcompliancesolutions.com\/blog\/2015\/11\/30\/ofac-the-not-to-be-forgotten-part-of-export-compliance-part-3-of-3\/","title":{"rendered":"OFAC: The Not to Be Forgotten Part of Export Compliance (Part 3 of 3)"},"content":{"rendered":"<p><strong><em>Question: I\u2019m seeing a lot of headlines about OFAC sanctions in the global trade news lately. Why has developing a corporate OFAC compliance program suddenly become so important?<\/em><\/strong><\/p>\n<p>Over the past few years, the U.S. Government has increasingly looked to trade embargoes and economic sanctions programs, which OFAC administers, to help achieve its foreign policy and national security objectives. Sanctions have also served as an integral component of America\u2019s counter-terrorism strategy and campaign to halt the spread of weapons of mass destruction. More recently, they are being employed in innovative ways to combat malicious cyber activity and transnational organized crime.<\/p>\n<p>Not surprisingly, given that America\u2019s economy and capital markets are still the largest in the world, U.S. sanctions have had a dramatic impact on international trade; in multiple instances, they appear to have been effective in influencing the behavior of countries that the government viewed as national security threats. Because of the proven effectiveness of these measures, and probably also because of the nation\u2019s current economic state and a generally war-weary public, sanctions have become a tool of first resort for U.S. foreign policy. Consequently, we have seen OFAC (with help from the Department of Justice) ramping up their sanctions enforcement and aggressively pursuing potential violators throughout the world.<\/p>\n<p>Major prosecutions under the Foreign Corrupt Practices Act have made the headlines several times this past year. Economic sanctions enforcement seems poised to be the next big focus for government regulators. U.S. businesses that operate, or intend to operate, in the global marketplace urgently need to take a close look at their corporate export compliance programs and develop strategies for complying with rapidly changing regulations and enforcement policies in this area.<\/p>\n<p><strong><em>(1)\u00a0\u00a0\u00a0 Proactive is always better than reactive.<\/em><\/strong><\/p>\n<p>More and more large U.S. and multi-national corporations, especially those who are prime U.S. Government contractors, are now addressing the OFAC compliance challenge <em>and<\/em> requiring all those with whom they do business\u2014subcontractors, vendors, suppliers, partners\u2014to demonstrate a similar diligence. Addressing the OFAC compliance challenge on your own timeline, rather than waiting until you are obligated by a contract or business transaction to do so, will allow you to choose compliance options that are cost-effective for your company\u2019s business model, circumstances, and goals.<\/p>\n<p><strong><em>(2)\u00a0\u00a0\u00a0 The recent Yates Memo has sounded a new warning note and made enforcement more personal. <\/em><\/strong><\/p>\n<p>The <a href=\"http:\/\/www.justice.gov\/dag\/file\/769036\/download\">policy memorandum<\/a> issued on September 15, 2015 by Deputy Attorney General Sally Quillian Yates appears to signal a more aggressive approach by the U.S. Government that prioritizes the prosecution of individual corporate executives in cases of corporate wrongdoing, including sanctions violations. While the insistence on individual accountability for corporate misdeeds is not new, the policy outlined in the Yates Memorandum places a greater emphasis than before on requiring the corporation\u2019s internal investigation to identify the individual decision-makers who were involved in, or were responsible for, the regulatory noncompliance. Essentially, companies that want any \u201ccooperation credit\u201d from the U.S. Government (i.e., mitigation of penalties) will first need to fully disclose to the prosecutors the results of their internal investigation concerning the employees and senior executives involved.<\/p>\n<p>Although the significance and implications of the Yates Memo are not yet entirely clear, the trend in regulatory enforcement that it represents underscores the need for companies to have more effective export compliance policies and procedures in place. You may want to consider including policies that spotlight individual accountability and processes that facilitate the rapid triage of incident reports and immediate and thorough investigations when appropriate.<\/p>\n<p><strong>Question: In what ways is achieving and maintaining OFAC compliance a greater challenge for a company than ITAR and EAR compliance?<\/strong><\/p>\n<p><strong><em>(1)\u00a0\u00a0\u00a0 OFAC sanctions are continually evolving.<\/em><\/strong> U.S. trade embargoes and economic sanctions, and the names of entities on the SDN List, can and do change <em>very quickly<\/em>\u2014even overnight. For that reason, keeping abreast of new and evolving programs and ensuring compliance with recordkeeping, reporting, licensing, and other OFAC requirements can be extraordinarily difficult.<\/p>\n<p>The Treasury Department\u2019s SDN List contains several thousand names, and people or organizations can be removed from it, or added to it, at any time. Several foreign jurisdictions, including the European Union, Canada, and Mexico, also maintain \u201cblocking statutes\u201d that may address the U.S. trade embargoes and sanctions concerns, and a wide range of other restrictive measures as well, so your company\u2019s transactions may need to be screened against multiple lists. What is more, some of these restrictive measures may conflict with U.S. regulations. Due diligence requires continuous, real-time, comprehensive monitoring to ensure that your dealings and transactions with foreign countries and individuals are not in violation of OFAC prohibitions.<\/p>\n<p><strong><em>(2)\u00a0\u00a0\u00a0 OFAC sanctions are extraordinarily comprehensive. <\/em><\/strong> In addition to prohibiting certain transactions, OFAC regulations prohibit U.S. persons from \u201cfacilitating\u201d (i.e., assisting, supporting, directing, or approving) a transaction by, or with, a sanctioned entity. The regulatory definition of \u201cfacilitation\u201d is quite general, and its concrete interpretation has not been clear, since enforcement actions against companies for \u201cfacilitation\u201d violations have been fairly infrequent. That situation has now changed dramatically. In the past few years, the U.S. Government has begun aggressively pursuing criminal actions against individuals and firms that \u201cwillfully facilitate\u201d sanctions violations. Referring prohibited business to a foreign party, providing guidance or advice on a prohibited activity, financing or insuring or guaranteeing a prohibited transaction, providing merchandise or services in connection with a prohibited activity\u2014any or all of these may constitute facilitation, and thus violate the OFAC regulations.<\/p>\n<p>Most OFAC Sanctions Programs apply to \u2018\u2018U.S. persons,\u2019\u2019 a term embracing U.S. citizens, permanent resident aliens, entities organized under the laws of the U.S. or any jurisdiction within the U.S. (including foreign branches of U.S. corporations), and any persons in the U.S. However, some sanctions programs state a wider jurisdiction. The Cuban Assets Control Regulations (CACR), 31 C.F.R. Part 515, use a more broadly defined term, \u2018\u2018Persons subject to the jurisdiction of the U.S.,\u2019\u2019 which includes foreign <em>subsidiaries<\/em> of U.S. companies (see 31 C.F.R \u00a7515.329 and \u00a7515.330).<\/p>\n<p><strong><em>(3)\u00a0\u00a0\u00a0 OFAC violations can carry staggering penalties<\/em><\/strong>.<\/p>\n<p>Violations of the OFAC regulations may incur either civil or criminal penalties, or both. We have seen a very aggressive enforcement trend over the past few years. Increasingly, the U.S. Government has chosen to pursue criminal charges against violators (or has settled cases using criminal allegations), and a series of record-setting penalties have been imposed for OFAC sanctions violations. Examples within the last year include the almost $1 billion in fines handed down to BNP Paribas, and more recently Commerzbank\u2019s agreement to pay $258 million in fines for falsifying business records for sanctioned countries. Nor is it only banks that have been prosecuted for sanctions violations. The Department of Justice recently agreed to a fine of $232 million to settle criminal charges with Schlumberger Oilfield Holdings Ltd for violating U.S. sanctions. That action and a few others are indications that regulators may soon be turning their attention to U.S. manufacturing companies as well.<\/p>\n<p style=\"text-align: center;\"><strong>* * *<\/strong><\/p>\n<p>A serious OFAC compliance program demonstrates that your company is aware of the SDN List and sanctions regulations, understands the risks, and is actively trying to prevent OFAC violations. If a violation does occur, it will be a strong mitigating factor against severe penalties. In some recent criminal prosecutions, the U.S. Government has contended\u2014and the Courts have agreed\u2014that failing to have an adequate compliance program in place was an indication of \u201creckless disregard\u201d and therefore supported prosecution of the company and individual employees for willful, criminal violations of regulations. Depending on the sanctions program, criminal penalties for willful violations can include fines of up to $20 million and imprisonment of up to 30 years. Even worse, a single transaction can produce multiple violations, placing a company at risk of significant liability.<\/p>\n<p>In addition to avoiding draconian penalties, another good reason for making OFAC compliance (and EAR\/ITAR compliance) a high priority is minimizing costly and time-consuming investigations. Even if the finding is that no violation has occurred, or if civil penalties are eventually waived due to mitigating factors, responding to U.S. Government queries regarding potential violations and conducting comprehensive internal investigations can place a heavy and damaging burden on corporate resources.<\/p>\n<p>Given those risks, it\u2019s hardly surprising that more and more company boards and senior executives are moving enhanced OFAC compliance measures to the top of their agendas.<\/p>\n<p>Catch next week\u2019s post \u201cThe Key Elements of an Effective OFAC Compliance Program\u201d for advice on how to set up and maintain a successful OFAC compliance program.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Question:  I\u2019m seeing a lot of headlines about OFAC sanctions in the global trade news lately. Why has developing a corporate OFAC compliance program suddenly become so important?<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","footnotes":""},"categories":[7,3],"tags":[],"class_list":["post-122","post","type-post","status-publish","format-standard","hentry","category-all","category-compliance"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>OFAC: The Not to Be Forgotten Part of Export Compliance (Part 3 of 3) - Export Compliance Solutions<\/title>\n<meta name=\"description\" content=\"OFAC sanctions enforcement is intensifying and its scope has widened beyond the banks. 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