OFAC 2022 Predictions and Sanctions Enforcement | Michael Volkov
The Treasury Department’s Office of Foreign Asset Control (“OFAC”) has been a stable player in this difficult pandemic environment. Since the pandemic, OFAC has maintained a strong profile, while managing a challenging portfolio of economic sanctions. The last two administrations have relied on strong sanctions programs to leverage foreign policy interests. With the ongoing tension between the United States, China, and Russia, OFAC will play a critical role in designing and implementing additional sanctions against China and Russia.
OFAC has played a key role, along with the Department of Justice, in promoting the importance of ethics and compliance programs. In 2019, OFAC published its Framework for Sanctions Compliance Programs. OFAC’s Compliance Program Guidelines provide important guidance that applies to all types of compliance programs, not just sanctions-based compliance programs. OFAC has strengthened elements of its compliance guidelines in its enforcement actions.
In 2021, OFAC filed 20 lawsuits and collected over $21 million in fines. This was relatively consistent with OFAC’s 2020 numbers. OFAC’s 2022 enforcement is poised to increase beyond those numbers.
OFAC’s focus on enforcement has extended far beyond its historical oversight of the financial sector. Over the years, OFAC has filed lawsuits against various companies involved in energy, pharmaceuticals, high technology and manufacturing. In doing so, OFAC has demonstrated a keen interest in compliance issues related to the integration of acquired companies, tracking down errors in deficient controls for escalating potential red flags, errors in understanding how sanctions apply to specific transactions and overall third party risk management. involving distributors and end-use certifications. OFAC will continue to prioritize enforcement in these general areas.
The Department of Justice has played – and will continue to play – a key role in the enforcement of economic sanctions. Last year, for example, the Justice Department charged about 27 people with criminal offenses involving export controls and trade sanctions. Twenty of these cases involved illegal exports to Iran, 5 illegal exports to Russia and 2 to China.
In a harbinger of things to come, the DOJ sued SAP, the German software company, for violating sanctions against Iran through its software exports to customers in Iran. SAP agreed to pay $8 million to the DOJ, OFAC and the Department of Commerce. SAP spent $27 million to improve and fix its compliance program. As part of its compliance commitment, the DOJ has subjected SAP to strict compliance commitments. The DOJ is likely to increase its compliance commitments for companies.
The DOJ has made numerous statements promising to increase the number of export cases and penalties. The National Security Division has adopted a law enforcement policy similar to the policy implemented by the Criminal Division. Lisa Monaco, Deputy Attorney General, in her October 2021 speech on white-collar enforcement, noted the DOJ’s intention to increase its criminal enforcement of export controls and sanctions. The DOJ will keep its word, and companies can expect increased investigation into export and sanctions violations.
The Department of Commerce’s Bureau of Industry Standards is also poised to reach new levels of enforcement. Matt Axelrod was recently appointed Deputy Secretary of the Bureau of Export Control at the BRI. During his confirmation hearing, Matt Axelrod said he intended to “raise the profile of export enforcement” as a way to encourage compliance programs and deter potential violations. The BRI is playing a leading role in designing export controls against China to increase pressure against the Chinese for its treatment of Muslim minorities.
In this environment, the DOJ, OFAC, and BRI are committed to increasing enforcement activities. Companies must respond accordingly – in fairness, the government has warned the private sector, and companies facing substantial trade compliance risks should allocate a commensurate number of resources to trade compliance programs.
The DOJ’s SAP lawsuit is one indicator. As new cases are filed, the SAP Framework for Enforcement and Compliance Commitments will serve as the basis for future requirements. SAP dodged a serious bullet by spending $27 million to improve its compliance program – given the risks businesses face in the global economy, business compliance managers need to communicate this new paradigm to senior management and to boards of directors.