The Office of Foreign Assets Control (OFAC), a division under the Department of Treasury (DoT) is the prime agency for enforcing unilateral sanctions based on powers of the US presidency. The OFAC has a long history of sanctions enforcement — from its inception during the Korean War of 1950 to date. It has evolved over time; this blog summarises its recent sanctions and key takeaways for companies to comply with them.
Types of sanctions imposed by the OFAC:
- Primary/comprehensive sanctions: Prohibits citizens and companies of the sanctioning country from engaging with their counterparts in the sanctioned country
- Secondary/supplementary sanctions: Halts activity with the sanctioned country by threatening to sever its access to the US market
- Sectoral/targeted sanctions: Prohibits citizens and companies of the sanctioning country from engaging with people and companies in sector-specific transactions
The OFAC has accrued c.USD9.20m through civil penalties for violations from four companies so far in 2020. Trends are changing, and its focus is now on non-financial sectors, due to their lack of understanding of sanctions.
Emerging trends from 2020 OFAC settlements:
Summary of settlements:
- Settlement 1: Société Internationale de Télécommunications Aéronautiques SCRL (SITA)
- Settlement 2: Eagle Shipping International USA LLC (Eagle Shipping)
- Settlement 3: Park Strategies, LLC (Park Strategies)
- Entered into a contract with a Somalian company to engage in lobbying activity in relation to real estate deals with various divisions of the US government, violating GTSR
- The OFAC identified violations through the company’s self-disclosure, and the company blocked the first payment of the contract as soon as it had realised the breach
- Settlement 4: BIOMIN America, Inc. (BIOMIN)
- Secondary sanctions are applicable not only to companies in the home country but also to companies that leverage a global network of offices to deliver their services
- To transact under sanctions regimes, a company could obtain a general licence or a specific one from the OFAC
- Sanctions could be enforced even though the original executive order is no longer effective
- Sanctions regimes cover vast areas and could relate to transactions where a company acts as a third party to buy/sell goods or services
- It is important to conduct a fool-proof due diligence review and audit, both before and after an acquisition
- Self-disclosure is a good thing and leads only to nominal fines, with minimal business impact. Companies should also constantly and closely watch for the following:
How Acuity Knowledge Partners can help:
We are equipped to assist companies to identify and deal with an offense/sanction nexus in their customer bases, supplier lists, projects, or transactions through the following:
- Extensive sanctions due diligence, remedial proposals and accurate sanction reporting on companies/groups of companies
- Expert advice from a team of sanction compliance specialists on deals, projects, mergers and other such activity
- Training and development programmes to up-skill compliance teams to deal with real-time sanction risks
Originally published at https://www.acuitykp.com.
About the Author
Ganesh Hebbar, Delivery Lead, Compliance, has over 9 years of experience in compliance, having worked for various firms including Goldman Sachs and Societe Generale. His expertise spans across the risk and compliance sector, focusing on know your customer (KYC) and risk management. Ganesh has done his MBA from Ramaiah Institute of Technology Bangalore.