OFAC update 3/27/03

April 4, 2003--

Lessons from the
OFAC Civil Penalties
by Mary Beth Guard

On April 4, 2003, the Office of Foreign Assets Control published its first set of OFAC civil penalties data on the Internet. This is being done pursuant to a rule recently adopted by OFAC which calls for publication of penalty information every two weeks.

Fifty-three civil penalty actions are listed. A large number of them are against non-banks, such as Royal Crown, Chevron, and Amazon.com. Fifteen civil penalty actions are targeted at financial institutions.

The new publication details:

the name and address of the affected entity,
the executive order or CFR section actually violated,
the type of actual alleged violation,
whether the violator voluntarily disclosed the violation,
the amount, and
whether the penalty was assessed or settled.

By far, the largest number of alleged violations (23) involve funds transfers. The amounts of the civil penalties varied considerably from one action to the next, with the lowest amount being $500, and the highest amount being $250,000. The lowest amount assessed/settled involving a financial institution was $2,500. The highest amount involving a financial institution waas $63,200. All violations involving financial institutions related to funds transfers, with three exceptions. Two also involved export violations, and one involved dealing in property in violation of the sanctions.

Voluntary disclosure of a violation is a mitigating factor that can reduce the size of a penalty, yet in only one of the actions against financial institutions did the institution voluntarily disclose the violation to OFAC. We have no way of knowing whether the violations were not self-discovered by the other financial institutions, or simply not reported after they were discovered.

In all but eight cases, the amount of the penalty stemmed from a settlement of the allegations -- rather than from an assessment. Five of those eight assessments (as opposed to settlements) were against financial institutions.

Bottom line: The danger of incurring a penalty for OFAC violations is very real and could be significant, money-wise. Beef up your OFAC compliance, particularly in the funds transfer area, and consider voluntarily disclosing a violation if you find one has occurred to try to reduce your liability.

Related links:
OFAC Penalties Information

This page gives you access to each of the corresponding sections of Title 31 CFR, so you can see precisely which sanctions program each action was taken under. Sections of 31 CFR. The ones involving financial institutions included Libyan, Yugoslavian/Bosian, Sudanese and Terrorism sanctions regulations, Cuban Assets control regulations and Iranian transactions regulations (Sections 515, 538, 550, 560, 585, 595). Executive Order 13121 was the subject of an one violation.

The largest two involving financial institutions were both under 31 CFR 560 -- Iranian transactions regulations:
$63,200
$41,050

First published on BankersOnline.com 4/4/03