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Office of Foreign Assets Controls Considers Many Factors in Determining Egregiousness of Violations

Office of Foreign Assets Controls Considers Many Factors in Determining Egregiousness of Violations

If your company is involved with importing products overseas, it’s especially important to stay ahead of federal regulations regarding shipments to sanctioned countries and regimes and to avoid enforcement by the Office of Foreign Assets Controls (OFAC).

David Brummond, Senior Sanctions Advisor of OFAC, Peter Quinter of Gray Robinson, P.A. and Mark Stevens, president, SCB Training Center, Inc. were the panelists during the recent LexisNexis Trade and Sanctions Webinar. At the close of the session, they answered questions from the audience about OFAC regulations, violations and investigations. The following was derived from that Q&A session:

Q: What does OFAC consider “egregious” in terms of a violation and what are the factors?

Brummond: OFAC will generally give substantial weight to factors such as willfulness or recklessness, awareness of the conduct at issue, harm to the sanctions program objective as well as individual characteristics in determining egregiousness.

As it relates to the sanctions program objective—if we’re talking about Iran and a possible cargo that has weapons of mass destruction types of materials—I don’t think there would be any question.

But if we’re talking some other program, we look at individual characteristics: How sophisticated is the enemy we’re dealing with? Should the company have known better? Do they have a 60% market share in the products and the services they provided or are they a smaller player? And just what type of expectation would you have of somebody of their nature and size and the type of conduct that you’d expect to see?

Quinter: What I emphasize to clients, the art of filing a response to a summons, a subpoena, a pre-penalty notice is important. Focusing on the factors that are identified in the 2009 Federal Register notice [Vol. 76, No. 197] is critical. Experience if doing so, the regular retraction of OFAC residuals is important in evaluating who you select to assist you and what information goes into that response and the attachment to that response.

If it was a sophisticated company that was a multi-national and they had no idea that there was an OFAC sanction program for Iran, that’s not believable. But even if there is a clear violation it does not mean that it will certainly result in a penalty and there’s no predefined amount of the penalty that will be determined. Again it’s all in the petition or the response that is filed with OFAC for them to evaluate and decide what penalty will be issued and the amount of such a penalty.

Q: Once you have responded to a subpoena by the United States Treasury Department related to OFAC non-compliance, is there a standard time of response or do you need to contact the Treasury Department to move forward?

Brummond: It really is a matter of “don’t call us, we’ll call you,” and if you don’t hear from us that’s probably a good thing. What will happen is, we will go through a very extensive process internally of vetting a recommendation memo among different divisions in the agency, particularly counsel’s office. Once that vetting process is concluded, the recommendation memo goes to the director and any civil penalty that is issued by the agency has to have specific approval by the director. Once he approves the recommendation memo, we take it and reach out and contact the party that we’re dealing with—and that becomes the process to begin discussions.

We will then begin a dialogue about what the party wants to do in the way of settlement or not. We haven’t always come to a settlement, but we reached out to the parties when we get to a point where we ‘ve concluded our internal process and have a recommendation that we feel is what the outcome should be.

It’s a very formal, internal process of making sure that the analysis of the violation by the case officer is consistent with across-the-board OFAC policy in all areas. And then that produces an outcome for which the director signs off.

The process that I described can go not months, but years. And one of the issues we confront sometimes is the need to get a tolling agreement because we’re at the end of the line with the statute of limitations for the transaction that’s involved. And by the way, that’s five years.

A year is usually enough to give them the time to resolve the matter but not necessarily. We’ve had situations where I’ve had to sign more than two tolling agreements just because the complexity of the case and the matter just required a considerable amount of more time.