International Law Advisory - Civil Penalties

Details of Civil Penalty Settlements Between the Office of Foreign Assets Control and US Companies Are Available to the Public

Documents disclosing over 100 settlements between US companies and the US Department of Treasury’s Office of Foreign Assets Control ("OFAC") for violations of sanctions regulations have been made public.  The documents address settlements dating from early 1998, and involve violations of nearly every sanctions regime administered by OFAC.

As disclosed in these documents, a large number of the entities that paid civil penalties were financial institutions who made fund transfers to persons who were subject to sanctions administered by OFAC.  In many cases, the settlements resulted from an institution transferring funds to an individual or entity identified by OFAC as a specially designated national ("SDN").  Many other companies exported or imported goods or services from embargoed destinations.  Some examples include shipments of goods to Cuba through foreign subsidiaries, providing insurance for shipments of goods to or from an embargoed country, or extending credit to an individual or entity on the SDN list.
As OFAC continues to make additions and clarifications to the list of SDNs, which has recently been occurring more frequently, it is important to carefully review the SDN list before conducting business with an individual or entity in countries sanctioned by the United States.  Furthermore, individuals and entities identified as terrorists or narcotics traffickers are also under sanction and listed as SDNs, and must be considered carefully as well.

The settlement documents indicate that OFAC is willing to consider mitigating factors when arriving at a final settlement.  Although there are a number of cases where mitigating factors did not reduce a proposed fine, the vast majority of settlements arrived at a fine that was less than OFAC’s initial proposal.  Unfortunately, the description of mitigating and aggravating factors in the documents has been redacted, therefore it is difficult to know which factors OFAC found most persuasive.  (However, the "Report of the Judicial Review Commission on Foreign Asset Control," dated January 2001, does include information received from OFAC regarding the mitigation factors that OFAC utilizes in resolving cases.)

These settlement documents have been released in light of a lawsuit filed by the Corporate Crime Reporter and Public Citizen.  In the past, OFAC has not been required or been willing to release information about the settlements they have made for violations.  Recently, however, OFAC has announced that they will begin releasing information on civil penalties and settlements on a periodic basis.  It is unclear how the on-going disclosure of settlement information may affect OFAC’s internal procedures for considering settlement offers, as well as whether companies may seek confidential treatment in enforcement cases.