[Federal Register: January 29, 2003 (Volume 68, Number 19)]
[Proposed Rules]
[Page 4422-4429]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29ja03-24]
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DEPARTMENT OF THE TREASURY
Office of Foreign Assets Control
31 CFR Parts 501 and 515
Reporting and Procedures Regulations; Cuban Assets Control
Regulations: Publication of Economic Sanctions Enforcement Guidelines
AGENCY: Office of Foreign Assets Control, Treasury.
ACTION: Proposed rule with request for comments.
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SUMMARY: The Office of Foreign Assets Control (``OFAC'') of the U.S.
Department of the Treasury is publishing for public comment an updated
version of its internal Economic Sanctions Enforcement Guidelines.
These Guidelines are being published as separate appendices to two
parts of the Code of Federal Regulations: general provisions are being
published as an appendix to the Reporting and Procedures Regulations,
31 CFR part 501, and specific provisions focusing on Cuba are being
published as an appendix to the Cuban Assets Control Regulations, 31
CFR part 515.
DATES: Written comments must be received on or before March 31, 2003.
ADDRESSES: Comments may be submitted by mail, by facsimile, or through
OFAC's Web site.
Mailing address: Chief of Records, ATTN Request for Comments,
Office of Foreign Assets Control, Department of the Treasury, 1500
Pennsylvania Avenue, NW., Washington, DC 20220.
Facsimile number: 202/622-1657.
OFAC's Web site: http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.treas.gov/offices/enforcement/ofac/comment.html
.
FOR FURTHER INFORMATION CONTACT: Chief of Records, tel.: 202/622-2500,
or Chief Counsel, tel.: 202/622-2410.
SUPPLEMENTARY INFORMATION:
Electronic Availability
This document and additional information concerning OFAC are
available from OFAC's Web site http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.treas.gov/offices/enforcement/ofac/index.html
or via facsimile through a 24-hour fax-on-
demand service, tel: 202/622-0077. Comments on these Guidelines may be
submitted electronically through OFAC's Web site http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.treas.gov/offices/
enforcement/ofac/comment.html.
Procedural Requirements; Request for Comment
Pursuant to the Regulatory Flexibility Act, 5 U.S.C. 601 et seq.,
it is hereby certified that this rule would not have a significant
economic impact on a substantial number of small entities. OFAC's
Guidelines impose no regulatory burdens on the public. The Guidelines
simply explain OFAC's enforcement practices based on existing
substantive and procedural rules. Accordingly, no regulatory
flexibility analysis is required. A regulatory assessment is not
required because this rule is not a ``significant regulatory action''
as defined in Executive Order 12866.
Comments must be submitted in writing. The addresses and deadline
for submitting comments appear near the beginning of this notice. OFAC
will not accept comments accompanied by a request that all or part of
the submission be treated confidentially because of its business
proprietary nature or for any other reason. All comments received by
the deadline will be a matter of public record and will be made
available on OFAC's Web site http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.treas.gov/offices/enforcement/ofac/index.html
.
Paperwork Reduction Act
The collections of information related to the Reporting and
Procedures Regulations and the Cuban Assets Control Regulations have
been previously approved by the Office of Management and Budget
(``OMB'') under control number 1505-0164. A small adjustment to that
collection has been submitted to OMB in order to take into account the
voluntary disclosure rule proposed in this notice. An agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a valid control number
assigned by OMB.
The new collection of information is contained in subpart B of part
III of the new Appendix to part 501--Economic Sanctions Enforcement
Guidelines. This subpart explains that when apparent violations are
voluntarily disclosed by the actor to OFAC, the proposed penalty will
generally be mitigated by at least 50%. This voluntary disclosure rule
provides an incentive for persons who have violated economic sanctions
laws to come forward and provide OFAC information that it can use to
better enforce its economic sanctions programs.
The likely submitters who will avail themselves of the voluntary
disclosure rule are financial institutions, business organizations,
other entities, and individuals who find that they have violated a
sanctions prohibition and wish to disclose their violation.
The estimated total annual reporting and/or recordkeeping burden:
50 hours. The estimated annual burden per respondent/record keeper: 1
hour.
[[Page 4423]]
Estimated number of respondents and/or record keepers: 50. Estimated
annual frequency of responses: once or less, given that OFAC expects
that persons who voluntarily disclose their violations will take better
care to avoid future violations.
Comments are invited on: (a) Whether this new collection of
information is necessary for the proper performance of the functions of
the agency, including whether the information has practical utility;
(b) the accuracy of the agency's estimate of the burden of the
collection of information; (c) ways to enhance the quality, utility,
and clarity of the information to be collected; (d) ways to minimize
the burden of the collection of information on respondents, including
through the use of automated collection techniques or other forms of
information technology; and (e) estimates of capital or start-up costs
and costs of operation, maintenance, and purchase of services to
provide information.
Comments concerning the above information, the accuracy of
estimated average annual burden, and suggestions for reducing this
burden should be directed to OMB, Paperwork Reduction Project, control
number 1505-0164, Washington, DC, 20503, with a copy to the Office of
Foreign Assets Control, Department of the Treasury, 1500 Pennsylvania
Ave., NW.,--Annex, Washington, DC 20220. Any such comments should be
submitted not later than March 31, 2003. Comments on aspects of this
proposed rule other than those involving collections of information
subject to the PRA should not be sent to OMB.
Background
OFAC hereby publishes as appendices to 31 CFR parts 501 and 515 its
Guidelines for the enforcement of the various economic sanctions
programs it administers. These Guidelines review OFAC's procedures for
determining whether an economic sanctions violation has occurred and
outline the range of enforcement options available, including the
imposition of a civil monetary penalty. A schedule of proposed
penalties for certain violations of the Cuban Assets Control
Regulations, 31 CFR part 515, is published as a separate appendix to
those particular regulations. These Guidelines serve as a general
framework for OFAC's enforcement activities, but OFAC may depart from
them in particular cases.
The primary mission of OFAC is to administer and enforce economic
sanctions against targeted foreign countries, terrorists and terrorist
organizations, and narcotic traffickers in furtherance of U.S. foreign
policy and national security objectives. OFAC acts under general
Presidential wartime and national emergency powers, as well as specific
legislation, to prohibit transactions and freeze (or ``block'') assets
subject to U.S. jurisdiction. Economic sanctions are designed to
deprive the target of the use of its assets and deny the target access
to the U.S. financial system and the benefits of trade, transactions,
and services involving U.S. markets, businesses, and individuals. These
same authorities have also been used to protect assets subject to U.S.
jurisdiction of countries subject to foreign occupation and to further
important U.S. nonproliferation goals.
OFAC currently administers and enforces 24 economic sanctions
programs pursuant to Presidential and Congressional mandates. Active
enforcement of these programs is a crucial element in preserving and
advancing the foreign policy and national security objectives that
underlie these initiatives, usually taken in conjunction with
diplomatic and occasionally military action. Penalties, both civil and
criminal, serve as a deterrent to conduct that undermines or prevents
these sanctions from achieving their foreign policy and national
security goals. When violations occur, penalties serve a punitive
purpose.
The Economic Sanctions Enforcement Guidelines (the ``Guidelines'')
published today are intended to provide OFAC with a procedural
framework of general applicability to promote consistency while
allowing for the appropriate exercise of agency discretion. They are
also intended to promote the transparency of OFAC's procedures and
better inform the regulated community. OFAC has always sought to
maximize voluntary compliance by the public with U.S. sanction laws and
regulations. To further its commitment to maximize voluntary
compliance, OFAC is publishing these Guidelines in the Federal Register
for comment. These Guidelines supersede and replace internal Guidelines
previously used by OFAC.
Historical Overview of Statutory Authorities and Regulatory Framework
The United States Department of the Treasury has a long history of
dealing with economic sanctions. Prior to the War of 1812, Secretary of
the Treasury Gallatin administered sanctions against Great Britain, in
the form of the Embargo Act and the Non-Intercourse Act, for British
harassment of American sailors. In 1861, during the Civil War, Congress
passed the ``Trading With the Enemy Act,'' which prohibited
transactions with the Confederacy, called for the forfeiture of goods
involved in such transactions, and provided a licensing system under
rules and regulations administered by the Treasury Department. This
Civil War legislation was updated as the Trading With the Enemy Act of
1917, 50 U.S.C. App. 1-44, for purposes of responding to World War I.
OFAC and The Trading with the Enemy Act of 1917. OFAC is the
successor to the Office of Foreign Funds Control (the ``FFC''), which
was established at the advent of World War II following the German
invasion of Norway in 1940. The FFC's initial purpose, in exercising
authorities under Section 5(b) of the Trading With the Enemy Act of
1917 (``TWEA''), was to prevent Nazi use of the occupied countries'
holdings of foreign exchange and securities and to prevent forced
repatriation of funds belonging to nationals of those countries. These
controls were later extended to protect assets of other invaded
countries.
After the United States formally entered World War II, the FFC
played a leading role in economic warfare against the Axis powers by
blocking enemy assets and prohibiting foreign trade and financial
transactions. These assets also would serve as a future source of war
reparations. The FFC program was administered by the Secretary of the
Treasury throughout the war. After the cessation of hostilities, most
foreign property subject to protective blocking was gradually released
by licenses under the Foreign Funds Control Regulations (the ``FFCR'').
Most enemy property was vested by the U.S. Government during and
immediately after the war. Responsibility for administering the FFCR
was transferred to the Attorney General (Office of Alien Property),
effective October 1, 1948.
OFAC was formally created in December 1950, following the entry of
China into the Korean War, when President Truman declared a national
emergency under TWEA in response to the threat of international
communism and blocked all Chinese and North Korean assets subject to
U.S. jurisdiction. Economic sanctions against these countries, later
expanded to include Vietnam and Cambodia, were promulgated at 31 CFR
part 500. Part 505 was added in 1953 to restrict offshore trade with
the Soviet Bloc in items of the kind controlled for export from the
United States for national security reasons.
In 1963, pursuant to TWEA, President Kennedy imposed a trade
embargo and ordered the blocking of assets of Cuba
[[Page 4424]]
and Cuban nationals in response to hostile acts against the United
States by the Castro regime. Regulations implementing these sanctions
are set forth at 31 CFR part 515. In 1966, the Justice Department
returned responsibility for administering the FFCR to the Treasury
Department, and these regulations were set forth at 31 CFR part 520.
Section 16 of TWEA provides for corporate criminal penalties of up
to $1,000,000, and individual criminal penalties not to exceed $100,000
or ten years' imprisonment, or both, per count. Fines for criminal
violations may be increased pursuant to 18 U.S.C. 3571. TWEA also
provides for forfeiture of property that is the subject of a violation.
TWEA authorizes civil penalties of up to $50,000 per count, adjusted
for inflation to $55,000. It also allows the respondent to request an
agency hearing, with the right to prehearing discovery, and, if the
respondent elects this option, the civil penalty may be imposed only
after such a hearing.
The International Emergency Economic Powers Act. In 1977, the
Congress passed the International Emergency Economic Powers Act
(``IEEPA''), 50 U.S.C. 1701-06, replacing TWEA as the statutory
authority for a Presidential declaration of a national emergency in
peacetime for the purpose of imposing economic sanctions. Pre-existing
programs continue to be administered under TWEA, but new programs under
TWEA may be established only during wartime. At this time, sanctions
remain in place under TWEA solely with respect to (1) comprehensive
sanctions against Cuba, (2) a residual blocking of North Korean assets
previously blocked and an ongoing prohibition against the importation
of certain goods from North Korea without an OFAC license, and (3)
certain offshore trade in strategic goods with the former Soviet Bloc.
A significant distinction between the two statutes is that, until
recently, IEEPA contained no Presidential vesting authority. With the
passage of the USA PATRIOT Act of 2001, Pub. L. No. 107-56, IEEPA was
amended to permit the vesting of assets under defined circumstances.
While IEEPA does not authorize forfeiture absent an exercise of vesting
authority, it does provide civil and criminal penalty authority, but in
amounts less than those provided in TWEA. OFAC relies upon the U.S.
Customs Service, operating under separate statutory authority, for the
forfeiture of seized property.
IEEPA provides for civil penalties not to exceed $10,000, adjusted
for inflation to $11,000. Criminal penalties range up to $50,000, or,
if a natural person, up to ten years imprisonment, or both. Fines for
criminal violations may be increased pursuant to 18 U.S.C. 3571.
National Emergencies under IEEPA. The first use of IEEPA occurred
in 1979, in response to the Iranian hostage crisis. President Carter
blocked over twelve billion dollars in Iranian assets subject to U.S.
jurisdiction, enabling those assets to be used as leverage in
negotiating the release of the U.S. hostages. Although most of the
prohibitions contained in these sanctions were lifted prospectively by
general license in 1981 in accordance with the Algiers Accords,
transactions involving Iranian property within the United States or in
the possession or control of U.S. persons remain regulated pursuant to
31 CFR part 535, that is, permitted only by general license. Import
sanctions were imposed against Iran by President Reagan in 1987, under
the authority of the International Security and Development Cooperation
Act of 1985 (``ISDCA''), 22 U.S.C. 2349aa-9. Since this statute does
not provide for criminal or civil penalty authority, OFAC relied upon
the U.S. Customs Service, operating under separate statutory authority,
for the imposition of criminal and civil penalties (including
forfeiture of merchandise). President Clinton invoked IEEPA in 1995 to
prohibit all trade with and investment in Iran, imposing the most
comprehensive economic sanctions currently in place short of an assets
freeze. Regulations implementing these sanctions are set forth at 31
CFR part 560.
President Reagan invoked IEEPA in 1985 to impose a trade embargo
against the Sandinista regime in Nicaragua, and then again in 1986 to
impose comprehensive economic sanctions, including an assets freeze,
against the Government of Libya. The Libyan Sanctions Regulations
remain in place at this time and are set forth at 31 CFR part 550. In
1986, Congress passed the Comprehensive Anti-Apartheid Act, prohibiting
trade in certain goods and new investment in South Africa by codifying
and expanding Executive Branch sanctions against that country imposed
under IEEPA in 1985.
President Bush invoked IEEPA in 1988 to impose comprehensive
economic sanctions against the Noriega regime in Panama, which
sanctions were lifted after the U.S. invasion of that country in 1989.
Assets of the Government of Panama remained blocked until the new
government settled claims against it by U.S. persons. President Bush
invoked IEEPA again in 1990 in response to the Iraqi invasion of
Kuwait. Kuwaiti assets subject to U.S. jurisdiction were protected
under an assets freeze until the Government of Kuwait was restored.
Although OFAC did not conduct a formal census of these assets, the
total Kuwaiti assets blocked under this program were estimated to
exceed sixty billion dollars. Punitive sanctions against Iraq,
including a comprehensive assets freeze, also were imposed in 1990 and
remain in effect as set forth at 31 CFR part 575.
Since 1990, other countries have been subject to economic sanctions
imposed under IEEPA, calibrated to respond to the given situation and
U.S. foreign policy and national security objectives. Many ``country-
based'' sanctions programs have a nexus to the U.S. government's
response over time to the threat to U.S. national security and foreign
policy posed by international terrorism. The Secretary of State has
designated seven countries--Cuba, North Korea, Libya, Iran, Iraq, Sudan
and Syria--as supporting international terrorism. Most of these
countries are subject to comprehensive economic sanctions.
In 1995, President Clinton used IEEPA to deal with the threat to
U.S. foreign policy and national security posed by terrorists who
threaten to disrupt the Middle East Peace Process. This marked an
expansion in the use of economic sanctions as a tool of U.S. foreign
policy to target groups and individuals, as well as foreign
governments. The Terrorism Sanctions Regulations are set forth at 31
CFR part 595. The trend of targeting groups and individuals continued
later in 1995 when President Clinton invoked IEEPA to block assets and
prohibit transactions with significant narcotics traffickers centered
in Colombia. Regulations implementing these sanctions are set forth at
31 CFR part 536.
IEEPA has also been invoked to promote the national security and
foreign policy objectives of the United States with respect to
nonproliferation. In 1998, certain foreign entities were designated by
the Secretary of State as promoting the proliferation of weapons of
mass destruction. As set forth in 31 CFR part 539, OFAC regulations
prohibit the importation of goods, technology, or services produced or
provided by these entities. In 2000, President Clinton also invoked
IEEPA to protect assets of the Russian Federation relating to the
implementation of the agreement between the United States and Russia on
the disposition of highly enriched uranium. Transfers of these assets
in support of the agreements are licensed by OFAC. These protective
[[Page 4425]]
blocking regulations are set forth at 31 CFR part 540.
Most recently, in Executive Order 13224 of September 23, 2001,
President George W. Bush declared a national emergency under IEEPA in
response to the unusual and extraordinary threat to the national
security, foreign policy, and economy of the United States posed by the
grave acts of terrorism and threats of terrorism committed by foreign
terrorists, including the terrorist attacks committed in New York and
Pennsylvania and at the Pentagon on September 11, 2001. The President
also relied on the United Nations Participation Act (discussed below)
as authority for the imposition of economic sanctions, citing United
Nations Security Council Resolution (``UNSCR'') 1214 of December 8,
1998, UNSCR 1267 of October 15, 1999, UNSCR 1333 of December 19, 2000,
and the multilateral sanctions contained therein.
The Iraq Sanctions Act. An additional statute containing penalty
authority with respect to Iraq is the Iraq Sanctions Act of 1990
(``ISA''), Pub. L. 101-513, 104 Stat. 1079, 2047-55. The ISA
dramatically increased the amount of civil and criminal penalties that
may be assessed against U.S. persons violating these sanctions. ISA
provides for civil penalties of up to $250,000, adjusted for inflation
to $275,000, and criminal penalties of up to $1,000,000 and 12 years
imprisonment.
The United Nations Participation Act. The Iraqi sanctions are also
multilateral and administered under the authority not only of IEEPA but
also the United Nations Participation Act (the ``UNPA''). The UNPA
permits the President to incorporate United Nations-mandated economic
sanctions into domestic law. The UNPA provides for criminal penalties
of up to $10,000 in fines and up to ten years' imprisonment. Fines for
criminal violations may be increased pursuant to 18 U.S.C. 3571. The
UNPA also provides for forfeiture authority. United Nations-sponsored
multilateral economic sanctions against the Federal Republic of
Yugoslavia (Serbia & Montenegro) were imposed in 1992 in response to
the disintegration of the former Yugoslavia and the civil strife
fomented and genocide committed by the Milosevic regime in Bosnia and
Herzegovina.
The Antiterrorism and Effective Death Penalty Act. Title III of the
Antiterrorism and Effective Death Penalty Act of 1996 (``AEDPA''), Pub.
L. 104-132, 110 Stat. 1214, makes it a criminal offense to (1) engage
in a financial transaction with the government of a country designated
as supporting international terrorism, or (2) provide material support
or resources to a designated foreign terrorist organization. Violators
may be fined or imprisoned for not more than ten years, or both. AEDPA
also provides that any financial institution that knowingly fails to
retain possession of or control over blocked funds or to report the
existence of such funds shall be subject to a civil penalty in an
amount that is the greater of $50,000 per violation, or twice the
amount of the funds at issue. Regulations implementing these sanctions
are set forth at 31 CFR parts 596 and 597.
The Foreign Narcotics Kingpin Designation Act. In 1999, new
legislation expanded the scope of the 1995 sanctions against narcotics
traffickers centered in Colombia. The Foreign Narcotics Kingpin
Designation Act (the ``FNKDA''), 21 U.S.C. 1901-08, provides for
criminal penalties of up to ten years imprisonment, fines in the
amounts provided in title 18 of the U.S. Code, or both, or, in the case
of an entity, fines of not more than $10,000,000 per violation.
Criminal penalties for any officer, director, or agent range up to
$5,000,000 or 30 years imprisonment, or both. Civil penalties not to
exceed $1,000,000 per violation also may be imposed. Regulations
implementing these sanctions are set forth at 31 CFR part 598.
List of Subjects
31 CFR Part 501
Administrative practice and procedure, Reporting and recordkeeping
requirements.
31 CFR Part 515
Administrative practice and procedure, Banks, Banking, Cuba,
Currency, Foreign investments in United States, Foreign trade,
Penalties, Reporting and recordkeeping requirements, Securities, Travel
restrictions.
For the reasons set forth in the preamble, 31 CFR parts 501 and 515
are amended as follows:
PART 501--REPORTING AND PROCEDURES REGULATIONS
1. Part 501 is amended by adding the following appendix to read as
follows:
Appendix to Part 501--Economic Sanctions Enforcement Guidelines
Note: These guidelines provide a procedural framework for the
enforcement of all economic sanctions programs administered by the
Office of Foreign Assets Control (``OFAC''). Attention is directed
to the appendix to the Cuban Assets Control Regulations, 31 CFR part
515, for additional guidelines specifically dealing with particular
violations of those regulations.
I. Enforcement of Economic Sanctions; Determination of Violation
A. OFAC Civil Investigation and Enforcement Action. Civil
investigation and enforcement with respect to economic sanctions
violations rest primarily with OFAC, with certain investigations
conducted by the U.S. Customs Service. OFAC investigations may lead to
one or more of the following: a cautionary letter, a warning letter, a
requirement to furnish information, an order to cease and desist, or a
civil penalty proceeding. In addition to or instead of such actions, if
the party involved is currently acting pursuant to an OFAC license,
that license may be suspended or revoked.
B. OFAC's Evaluation of Violative Conduct. The type of enforcement
action undertaken by OFAC depends on the nature of the apparent
violation and the foreign policy goals of the particular sanctions
program involved. In evaluating whether to initiate a civil penalty
action, OFAC determines whether there is reasonable cause to believe
that a violation of the regulations, pertinent statute, or Executive
Order has occurred. Parts II and III of these Guidelines set forth the
criteria used by OFAC to determine the appropriate response to an
apparent violation.
C. Criminal Investigations and Prosecutions. If the evidence
suggests willful violations of substantive prohibitions or
requirements, OFAC may refer those cases to other federal law
enforcement agencies for criminal investigation. Cases that are
referred to the Department of Justice for criminal prosecution also may
be processed by OFAC as civil penalty matters. This is generally done
after the Justice Department's declination of criminal prosecution or
the termination of criminal proceedings or as part of a global
settlement of criminal and civil violations by the Justice Department.
II. License Suspension and Revocation; Cautionary and Warning Letters
A. License Suspension and Revocation. In addition to or instead of
other administrative actions, OFAC authorization to engage in
transactions pursuant to a general or specific license may be suspended
or revoked for reasons including, but not limited to, the following:
1. The party has willfully made or caused to be made in any license
application, or in any report required pursuant to a license, any
statement that was, at the time and in light of the
[[Page 4426]]
circumstances under which it was made, false or misleading with respect
to any material fact or has omitted to state in any application or
report any material fact that was required;
2. The party has failed to file timely reports or comply with the
recordkeeping requirements of a general or specific license;
3. The party has violated any provision of law enforced by the
Office of Foreign Assets Control or the rules or regulations issued
under any such provision;
4. The party has counseled, commanded, induced, procured, or
knowingly aided or abetted the violation by any other person of any
provision of any law or regulations referred to above; or
5. The party has committed any other act or omission that
demonstrates unfitness to conduct the transactions authorized by the
general or specific license.
B. Cautionary Letters. OFAC issues ``cautionary letters'' where an
OFAC audit or civil investigation results in insufficient evidence to
conclude that a violation appears to have occurred, but which may
indicate activity that could lead to a violation in other circumstances
or cause problems for future transactions. From time to time, when
financial institutions appear not to be exercising due diligence in
assuring compliance with OFAC's regulations, but no violation has
occurred, a cautionary letter may be sent outlining the requirements of
the regulations and urging greater diligence.
C. Warning Letters. Warning letters represent OFAC's conclusion
that an apparent violation of the regulations occurred. In the exercise
of its discretion, OFAC may determine in certain instances that a
warning letter, citing the specific facts and relevant law, may achieve
the same result as a monetary penalty insofar as future compliance with
OFAC regulations is concerned. A warning letter will fully explain the
apparent violation and urge future compliance. A warning letter does
not constitute a final agency determination that a violation has
occurred.
1. Financial Transfers. OFAC recognizes the high volume and level
of automation of international funds transfers processed within the
United States banking system on a daily basis. With respect to
financial transfers, OFAC often issues warning letters in lieu of civil
penalties in cases that appear to involve violations based on
technicalities, where good faith efforts to comply with the law and no
aggravating factors are evident. Some examples of cases where a warning
letter might be issued in lieu of a proposed civil penalty include the
following:
(a) Transactions in which there are significant variations in name
and/or location specified in a funds transfer from those on OFAC's list
of blocked persons and vessels, specially designated nationals,
terrorists, narcotics traffickers and foreign terrorist organizations
(the ``SDN list'') or list of sanctioned countries;
(b) Transactions where the name of the blocked party is spelled
differently from the entry on OFAC's SDN list, thus bypassing an
electronic filter (in these instances, the bank is expected to add the
spelling variation to its filter);
(c) Transactions where funds are not intended to be sent to or
through a blocked or specially designated bank (an ``SDN bank'') but a
bank employee accidentally enters a code for an SDN bank;
(d) Transactions where a clerk accidentally hits a ``release'' key
instead of a ``block'' or ``reject'' key and immediately takes action
to try to recall the funds;
(e) Transactions that take place shortly after a new designation
where the bank has not had time to update its systems and procedures or
to review its account base;
(f) Transactions that are of a low value where the cost of pursuing
a penalty action would likely exceed the enforcement benefit;
(g) Transactions involving an activity for which a policy
determination has been made to authorize the activity by specific
license; and
(h) Other transactions where the fact pattern and underlying
transaction would appear to warrant a warning letter as opposed to a
civil penalty action.
2. Exports and Imports. Warning letters may be issued in response
to apparent violations solely involving the importation and exportation
of goods and/or services valued at $500 or less, unless aggravating
factors are present. Unauthorized importations in conjunction with
travel involving Cuba are addressed in the appendix to the Cuban Assets
Control Regulations, 31 CFR Part 515.
III. Civil Penalties
Prohibitions against engaging in various types of transactions in
the context of economic sanctions programs are set forth in applicable
statutes, Executive Orders, and regulations administered by OFAC. The
criteria for initiating civil penalty enforcement action may differ
depending upon the substantive nature of the apparent violation at
issue and existing foreign policy and national security objectives. For
purposes of the discussion below, ``proposed penalty'' is the amount
set forth in the prepenalty notice, as distinct from the final amount
imposed in the penalty notice.
A. Most Frequent Categories of Violations Resulting in Civil Penalty
Action, and the Penalties Proposed by OFAC
1. Prohibited Dealing in Blocked Property or Fund Transfers
(including Rejected Transfers). If the apparent violative transaction
at issue is a prohibited dealing in blocked property by a person
subject to the jurisdiction of the United States, the proposed penalty
generally will be the lesser of either the statutory maximum or the
dollar value of the transaction involved. For example, the dollar value
may be the value of the property dealt in or the amount of the funds
transfer that a financial institution failed to block or reject.
2. Imports and Exports. In import cases, the dollar value used in
proposing a penalty generally will be the transaction value for imports
of goods, technology, or services into the United States, as
demonstrated by commercial invoices, bills of lading, signed Customs
declarations, or similar documents. In U.S. Customs Service seizures
where no transaction value can be demonstrated by credible evidence,
the dollar value generally will be the foreign value as determined by
U.S. Customs Service. Where neither the transactional nor U.S. Customs
Service-determined foreign value is established in the administrative
record, a default value of $10 per item imported generally will be
assigned. For importations of Cuban-origin goods in conjunction with
travel-related transactions involving Cuba, please refer to the
appendix to the Cuban Assets Control Regulations, 31 CFR part 515. For
exports, the dollar value used in proposing a civil penalty generally
will be the U.S. domestic value of the goods, technology, or services.
3. Performance of a Contract; New Investment. The proposed penalty
for the performance of a contract or new investment generally will be
the lesser of the statutory maximum or the value of the contract or
investment.
4. Travel-Related Violations. Proposed penalties for travel-related
transactions involving Cuba are set forth in the appendix to the Cuban
Assets Control Regulations, 31 CFR part 515. Please note that other
sanctions programs, including the Iraqi Sanctions
[[Page 4427]]
Regulations (31 CFR part 575) and the Libyan Sanctions Regulations (31
CFR part 550), may include restrictions on travel-related transactions,
violations of which will be dealt with on a case-by-case basis.
5. Travel, Carrier, and Remittance-forwarding Service Provider
Violations (Cuba). The criteria for imposition of civil penalties for
violations relating to the provision of travel, carrier, and
remittance-forwarding service providers are contained in (1) the
appendix to 31 CFR part 515 with respect to service providers not
authorized by OFAC to provide such services and (2) the annual Service
Provider Program Circular issued by OFAC with respect to service
providers holding OFAC authorization.
6. Requirement to Furnish Information; Reporting and Recordkeeping.
The following criteria shall apply for purposes of proposing a penalty,
except in the instance of authorized service providers under the Cuban
Assets Control Regulations, which criteria appear in the annual Service
Provider Program Circular issued by OFAC:
(a) Each failure to respond to a requirement to furnish
information, issued pursuant to 31 CFR 501.602, generally will result
in a proposed penalty in the amount of $10,000, irrespective of whether
any other violation is alleged;
(b) Late filing of a required report generally will result in a
proposed penalty in the amount of $2,000, if filed within the first
month after it is due. Each failure to comply with a reporting
requirement, whether set forth in regulations or in a specific license,
generally will result in a proposed penalty in the amount of $5,000 if
the report is beyond one month late. If the report concerns blocked
assets, however, the proposed penalty generally will include an
additional $1,000 for every month beyond the second month that the
report is not submitted, up to five years or the statutory maximum,
whichever is lower.
(c) The first failure to maintain records in conformance with the
requirements of OFAC's regulations or of a specific license generally
will result in a proposed penalty in the amount of $2,000. Each
additional offense in this regard generally will result in a proposed
penalty in the amount of $10,000.
B. Evaluation of Mitigating and Aggravating Factors
In determining a settlement amount or penalty assessment at the
penalty notice stage, OFAC generally will balance the mitigating and
aggravating factors present in the administrative record, as well as
weigh any administrative considerations that the agency may deem
appropriate.
1. Mitigation and mitigating factors. The degree to which a
proposed penalty is mitigated is determined by the blend of mitigating
factors and aggravating factors present. The history of mitigation with
respect to cases having substantially identical fact patterns generally
will govern the degree of mitigation to be applied in subsequent cases.
However, departures from these Guidelines or from prior history will be
considered where appropriate. OFAC may attach more importance to a
particular factor, and administrative considerations may also be taken
into account. The individual circumstances of a violation, including
the balance of factors present, will also influence the outcome. OFAC
encourages evidentiary submissions indicating the presence or absence
of a mitigating or aggravating factor. In the case of funds transfer
violations by banks or other financial institutions, depending on the
balance of mitigating and aggravating factors present, penalties
generally will be mitigated 25-50% from the amount proposed in the
prepenalty notice. In all other instances, penalties for violations
generally will be mitigated 10% to 75% from the amount proposed in the
prepenalty notice depending upon the balance of mitigating and
aggravating factors present. Typical mitigating factors include, but
are not limited to, the following:
(a) Voluntary disclosure;
(b) First offense (but see the appendix to 31 CFR part 515 for
certain Cuba travel-related violations);
(c) Compliance program in place at time of violation;
(d) If no compliance program, implementation of one upon the
respondent's discovery of or OFAC notification of the violation;
(e) Other remedial measures taken;
(f) Provision of a written response to a prepenalty notice;
(g) Useful enforcement information provided during an OFAC audit,
investigation, or penalty proceeding;
(h) Part of comprehensive settlement with U.S. Customs Service;
(i) Other U.S. government enforcement action already completed;
(j) Lack of relevant commercial experience;
(k) Clerical error, inadvertence, or mistake of fact;
(l) Evidence in the administrative record that a transaction(s)
could have been licensed by OFAC under an existing licensing policy had
an application been submitted;
(m) Apparent language barrier or other impediment to understanding
of regulations (individuals only);
(n) Humanitarian nature of transaction;
(o) Such other matters as justice may require.
2. Aggravating Factors. Typical aggravating factors include, but
are not limited to, the following:
(a) Willfulness;
(b) Second or subsequent offense (but see the appendix to 31 CFR
part 515 for certain Cuba travel-related violations);
(c) Apparent disregard of prior notice from U.S. government
concerning transactions at issue;
(d) No remedial measure taken after notice or discovery;
(e) Deliberate effort to hide or conceal the violation;
(f) Extraordinary adverse economic sanctions impact;
(g) Lack of compliance program at the time of the violation;
(h) Familiarity with economic sanctions programs.
3. Voluntary Disclosure. When apparent violations are voluntarily
disclosed by the actor to OFAC, the proposed penalty generally will be
mitigated at least 50% from the amount that would otherwise be proposed
under these Guidelines. A disclosure to OFAC is considered to be a
voluntary disclosure where OFAC is notified of possible sanctions
violations. Notification to OFAC may not be considered to be a
voluntary disclosure if OFAC previously received information concerning
the transactions from another source, including but not limited to
another regulatory or law enforcement agency or another person's
blocking or funds-transfer rejection report. Responding to an
administrative subpoena or other inquiry from OFAC does not constitute
a voluntary disclosure. Similarly, the submission of a license
application does not constitute a voluntary disclosure unless it is
also accompanied by a separate disclosure.
4. First Offense. Proposed penalties for apparent violations that
constitute a first offense generally will be mitigated at least 25% in
the penalty notice, unless aggravating factors are also present.
Significant exceptions to this rule include apparent violations
involving willful misconduct or gross negligence and those involving
certain travel-related transactions described in the appendix to 31 CFR
part 515 (where the proposed penalties already distinguish between
first and subsequent offenses). In determining whether an apparent
violation constitutes a first or subsequent offense, a distinction
generally will be made
[[Page 4428]]
between prior OFAC penalty cases ending in an assessed civil monetary
penalty and those settled prior to a finding of violation. Another
factor considered is whether the OFAC regulations previously violated
were similar to those of the new case under review. For example, all
apparent reporting violations will be considered to be similar, as will
those involving a failure to block financial transfers or failure to
respond to a request for information. An apparent violation generally
will be considered a first offense if no similar violation has been
found within the past five years.
C. Settlement Generally
Settlements of penalty cases may be proposed at any stage of a
civil penalty proceeding prior to the issuance of a final agency
determination of violation. A settlement does not constitute a final
agency determination that a violation has occurred.
D. Settlement Prior to Issuance of Prepenalty Notice
1. Initiating settlement. OFAC may settle a matter without
initiating a formal action through the issuance of a prepenalty notice.
A party may request an informal settlement with OFAC prior to OFAC's
issuance of a prepenalty notice. To do so, the party may request in
writing that OFAC withhold issuance of a prepenalty notice for a period
of up to 60 days for the exclusive purpose of reaching settlement. If
the applicable statute of limitations is close to expiring, OFAC may
condition the entry into or continuation of informal settlement
negotiations on an agreement to execute a waiver with respect to the
statute of limitations. If such a waiver is not executed, OFAC may
decide that there should be no informal settlement period and issue a
prepenalty notice.
2. Settlement process. In informal settlement negotiations prior to
the issuance of a prepenalty notice, OFAC will inform the party of the
apparent violations OFAC intends to cite in the prepenalty notice, as
well as the penalty amount to be proposed therein. Whenever possible,
settlements will be negotiated in accordance with the mitigation
provisions set forth above; however, each settlement will be viewed on
its own merits, as factors present in one case may not appear in
another.
3. Settlements of multiple violations. A settlement initiated for
one apparent violation may also involve a comprehensive or global
settlement of multiple apparent violations covered by other prepenalty
notices, apparent violations for which a prepenalty has yet to be
issued by OFAC, or previously unknown violations reported to OFAC
during the penalty proceeding.
E. Settlement Following Issuance of Prepenalty Notice
1. Initiating settlement. After a prepenalty notice is issued and
served, OFAC may settle the matter through informal negotiations at
OFAC's initiation, at the request of the respondent or its authorized
representative, or through the respondent's payment of the proposed
penalty in full.
2. Settlement process. Settlements generally will be negotiated in
accordance with the mitigation provisions set forth above. If a matter
is settled at the prepenalty stage, that is, before a final penalty
notice is issued, the claim proposed in the prepenalty notice will be
withdrawn, the respondent will not be required to take a written
position on the allegations contained in the prepenalty notice, and
OFAC will not make a final determination as to whether a violation
occurred. In the event no settlement is reached, the period specified
for written response remains in effect unless additional time is
granted by OFAC.
3. Settlements of multiple violations. As in the case of
settlements prior to the issuance of a prepenalty notice, settlements
following the issuance of a prepenalty notice may be comprehensive
(global) settlements of multiple apparent violations covered by other
prepenalty notices or for which a prepenalty notice has yet to be
issued.
F. Cancellation of Proceedings
In the absence of a settlement, OFAC generally will not cancel a
penalty proposed in a prepenalty notice absent evidence substantiating
that the party named in the prepenalty notice did not commit or is not
responsible for the violation charged, or unless such cancellation is
otherwise appropriate for policy or legal reasons.
G. Assessment and Imposition of Final Penalty
1. Consideration of response to prepenalty notice. Prior to OFAC's
issuance of a penalty notice, the cited party may respond to the
allegations in OFAC's prepenalty notice. If a response is submitted,
OFAC will carefully and fully consider all explanations contained in
the response and weigh all information presented in making a final
determination whether a violation has occurred, whether a penalty
notice should be issued and, if so, in what amount the penalty should
be assessed. If the response discloses new apparent economic sanctions
violations, a revised prepenalty notice may be issued citing the newly-
disclosed apparent violations. When possible criminal conduct is
revealed in the response, the case may be referred for further
investigation.
2. Issuance of penalty notice. Absent a settlement of allegations,
OFAC generally will issue a penalty notice in accordance with the
procedures set forth in the applicable regulations. OFAC will consider
all information in the administrative record before assessing the final
penalty amount. The penalty generally will be assessed in an amount
that reflects the mitigating and aggravating factors present in the
record, determined in accordance with the mitigation provisions set
forth above.
3. Penalty assessment in absence of response to prepenalty notice.
Where OFAC receives no response to a prepenalty notice within the time
prescribed in the applicable regulations, a penalty notice generally
will be issued, taking into account the mitigating and/or aggravating
factors present in the record. If there are no mitigating factors
present in the record, or the record contains a preponderance of
aggravating factors, the proposed prepenalty amount generally will be
assessed as the final penalty.
4. Referral to Financial Management Division. The imposition of a
penalty pursuant to a penalty notice creates a debt due the U.S.
Government. OFAC advises Treasury's Financial Management Division
(``FMD'') upon the imposition of a penalty. FMD will take follow-up
action to collect the penalty assessed if it is not paid within the
prescribed time period set forth in the penalty notice.
5. Final agency action and judicial review. The imposition of a
penalty pursuant to a penalty notice constitutes final agency action,
which is subject to judicial review.
H. Disposition of Funds and Merchandise
1. Seizure, forfeiture, and release generally. Where import or
export violations of economic sanctions occur, the U.S. Customs Service
may have seized the goods involved pursuant to separate statutory
authorities. OFAC usually coordinates with the U.S. Customs Service
regarding the disposition of seized goods for purposes of resolving the
penalty action. Where OFAC lacks civil forfeiture authority, OFAC may
provide a recommendation to the U.S. Customs Service regarding
disposition of seized goods. The forfeiture of the goods may be
considered in addition to or in lieu of monetary penalties in
determining the
[[Page 4429]]
most equitable and appropriate penalty. OFAC may authorize or recommend
to the U.S. Customs Service the release of any funds or merchandise
involved in the violative transaction upon the payment of the penalty
assessed or settlement negotiated by OFAC. In settlements involving
seized goods, the disposition of the goods generally will be an element
of OFAC's agreement. When there has been no payment of an assessed
monetary penalty, OFAC generally will recommend the forfeiture of the
seized goods or funds to the U.S. Customs Service.
2. Seizure of blocked property. Where the funds or merchandise
seized by the U.S. Customs Service constitute property blocked pursuant
to the controlling Executive Order, statute, or regulations, such
property generally remains blocked. Those who might claim an interest
in the blocked property should refer to provisions in the Reporting and
Procedures Regulations, 31 CFR part 501, and in the regulations or
other legal authorities governing the relevant economic sanctions
program for additional information.
PART 515--CUBAN ASSETS CONTROL REGULATIONS
1. Part 515 is amended by adding the following appendix to read as
follows:
Appendix to Part 515--Cuba Travel-Related and Certain Other Violations
of 31 CFR Part 515
Note to Appendix to Part 515: This appendix provides a schedule of
proposed civil monetary penalties for certain violations of the Cuban
Assets Control Regulations, 31 CFR part 515. The civil penalty process
is described in detail in subpart G of 31 CFR part 515 and in the
appendix to the Reporting and Procedures Regulations, 31 CFR part 501.
A. Traveler Violations/Amounts for Prepenalty Notices
1. Tourist travel-related transactions:
First trip: $7,500
Each additional trip: $10,000
2. Business travel-related transactions:
First trip: $15,000
Each additional trip: $25,000
3. Travel-related transactions involving unlicensed visits to close
relatives:
First trip: warning letter
Each additional trip--
Prior to agency notice*: $1,000
Subsequent to agency notice*: $4,000
4. Travel-related transactions where no specific license was issued
under 31 CFR 515.560(a)(3)-(12) but where there is evidence that the
purpose of the travel fits within one of the categories of licensable
activities:
Each trip prior to agency notice*: $3,000
Each trip subsequent to agency notice*: $10,000
5. Exports (or attempted exports) of unauthorized funds in which
Cuba or a Cuban national has an interest: Value of unauthorized funds
Note to A.5.: Additional remittance forwarding penalties may be
considered.
6. Unauthorized use of a credit card in Cuba:
First trip: $1,000
Each additional trip: $2,000
7. Importations of Cuban-origin goods in conjunction with travel-
related violations:
Where aggregate value of goods is $500 or less: $250
Where aggregate value of goods exceeds $500: $250 plus excess value
above $500
Note to A.7.: Value generally will be determined by the
transactional value, if evidenced by a receipt, signed Customs
declaration, or similar document or, if none, the foreign value as
determined by the U.S. Customs Service. In the absence of either, a
default value of $10 per item generally will be assigned to the
goods, except in the case of boxes of cigars, which generally will
be valued at $250.
B. Provision of Travel, Carrier and Remittance Forwarding Services by
Persons Not Authorized as Service Providers
1. Provision of remittance forwarding services:
Prior to agency notice*: $2,000
Subsequent to agency notice*: $15,000
2. Provision of travel services:
Prior to agency notice*: $2,000, plus $500 per person assisted
Subsequent to agency notice*: $15,000, plus $500 per person assisted
3. Provision of carrier services:
Prior to agency notice*: $5,000, plus $500 per person assisted
Subsequent to agency notice*: $25,000, plus $500 per person assisted
Note to B.: Other violations that arise in the context of the
Cuba program are addressed in the main text of these Guidelines as
published in the appendix to 31 CFR part 501. Violations by persons
authorized as Service Providers are addressed in the annual Service
Provider Program Circular issued by OFAC.
* For purposes of determining prepenalty amounts as set forth in
this appendix, the term ``agency notice'' means any evidence in the
administrative record of written or oral communication between OFAC
and the party alleged to have committed a violation concerning the
same or a substantially similar violation. This evidence may
include, but is not limited to, a warning letter, a cease and desist
order, a prepenalty notice, or a notation of a telephonic
conversation or letter from OFAC advising the party that the conduct
is in violation of applicable regulations. A party may dispute the
adequacy of agency notice in its response to the prepenalty notice.
Dated: January 13, 2003.
R. Richard Newcomb,
Director, Office of Foreign Assets Control.
Approved: January 13, 2003.
Kenneth E. Lawson,
Assistant Secretary (Enforcement), Department of the Treasury.
[FR Doc. 03-1809 Filed 1-24-03; 12:16 pm]
BILLING CODE 4810-25-P