The United States manages more than three dozen separate economic and trade sanctions programs. Those programs target specified foreign governments along with thousands of named individuals, groups and entities in accordance with U.S. national security and foreign policy goals and objectives. The government is laser focused on sanctions in a variety of industries and changes to the list of parties sanctioned by the United States are made on a near-daily basis.
The published guidance from the Department of the Treasury’s Office of Foreign Assets Control (OFAC) during 2023 reflects intense interagency coordination and robust civil and criminal enforcement efforts across government.1 For 2024, we expect an increase in enforcement everywhere, both in the number of actions brought and in the severity of the penalties sought. Because a number of new sanctions regimes have been put in place over the past several years, the overarching focus is now on enhancing enforcement of the laws and regulations in place.
Sanctions and export control compliance is therefore a mission critical matter for organizations of all shapes and sizes. Sanctions regulations are applicable to all organizations subject to U.S. jurisdiction, as well as foreign entities that conduct business in or with the United States, U.S. persons, or persons using U.S.-origin goods or services.
In the most egregious cases, knowing or willful violations of sanctions regulations under the International Emergency Economic Powers Act (IEEPA) carry steep civil and criminal penalties, of up to $1 million per violation and up to 20 years’ imprisonment. But even routine compliance lapses can result in civil monetary penalties imposed on a strict liability basis for each violation. DOJ is working closely with OFAC on sanctions and with the Department of Commerce on export controls, and as recently reported by Reuters, higher civil and criminal penalties are on the way.
Below we set out some notable lessons from OFAC’s 2023 enforcement releases, and the enforcement outlook and industry trends we are seeing as we head into 2024.
2023 Enforcement Releases: Lessons From Binance
In 2023, OFAC published sixteen enforcement releases detailing over $1.5 billion in settlements or penalties imposed on U.S. and non-U.S. persons for apparent violations of multiple sanctions programs administered by OFAC. The largest action involved Binance Holdings Ltd. Binance settled 1,667,153 apparent violations of multiple sanctions programs for more than $968 million in penalties – and its possible maximum statutory exposure was more than $592 billion dollars.2 In addition to Binance, the U.S. government’s enforcement efforts spanned numerous industries and locales, including both U.S. and non-U.S. persons.
Notably, Binance was ordered to retain a compliance monitor for a five-year term to revamp its sanctions compliance procedures and implement a number of best practices, which provide important “lessons learned” as to the kinds of practices that OFAC is looking for in a model sanctions compliance program. Binance’s court-ordered compliance obligations include:
- Promoting a culture of compliance by senior management and providing adequate resources to implement the company’s compliance program;
- Conducting a periodic risk assessment to account for sanctions risks;
- Developing methods to identify, analyze and address sanctions risks;
- Strengthening written policies and procedures;
- Adopting IT screening solutions as appropriate;
- Implementing an accountable testing and audit function; and
- Providing periodic OFAC-related training including through external parties with a scope appropriate for the organization.
2024 Enforcement Outlook and Industry Trends
Financial Services and Asset Management: In the financial services and investment management industries, investor and investment screening continues to be of crucial importance given the overall regulatory trends. As of January 1, 2024, for example, the Corporate Transparency Act requires many organizations doing business in the U.S. to report beneficial ownership information to FinCEN, and there is an ongoing regulatory focus on anti-money laundering (AML) and countering the finance of terrorism (CFT) risk controls. To the extent organizations identify any “blocked persons” in connection with their due diligence, U.S. persons have reporting and compliance obligations under applicable OFAC regulations.
In this area, opening a brokerage account for, or executing a trade involving, a blocked person or a person in a country subject to comprehensive sanctions could – unless authorized by OFAC or exempt – violate applicable OFAC sanctions. Other violations could include knowingly or unknowingly providing prohibited services to or for a sanctioned person (e.g., custody services, omnibus accounts, or investment advisory services); making investments in a sanctioned country or with a sanctioned person; or facilitating certain transactions by a foreign person where that transaction would be prohibited if performed by a U.S. person or within the United States.
Maritime and Transportation: In the maritime and transportation industry, OFAC and other agencies are sanctioning entire fleets of vessels where the shipowner was determined to have transported Russian oil that was not purchased in compliance with an internationally imposed price cap. In September 2023, DOJ also announced the first-ever criminal resolution against an operator of a crude oil tanker carrying contraband Iranian oil and a deferred prosecution agreement with that vessel’s manager. U.S. person service providers should take steps to review and implement OFAC’s revised guidance – published in December 2023 – in its compliance protocols.
Cryptocurrency: In the virtual currency industry, OFAC is scrutinizing compliance programs to ensure that firms that facilitate or engage in online commerce or process transactions using digital currency are not engaged in dealings with blocked persons or property, or engaging in prohibited trade or investment-related transactions; and operators of cryptocurrency mixing services continue to face OFAC sanctions designations, civil penalties and criminal prosecutions arising from charges of money laundering and U.S. sanctions violations.
If you have any questions regarding the matters covered in this post, please contact any of the attorneys listed below or your primary attorney at Seward & Kissel.
1In July 2023, for example, the U.S. Department of Justice (DOJ), the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), and OFAC issued a “Tri-Seal” compliance note encouraging voluntary self-disclosure of possible U.S. sanctions and export control violations, to encourage parties to seek mitigation of civil or criminal liability and alert national security agencies to bad actors or activities. Not to be outdone, in December 2023, the Department of Homeland Security and the State Department joined these agencies to release a “Quint Seal” compliance note for the maritime and transportation industry focused on international supply chain cargo risks.
2Binance’s settlement with OFAC was only one component of a coordinated multi-billion dollar resolution along with other agencies, including DOJ, OFAC, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), and the U.S. Commodity Futures Trading Commission (CFTC), which included a plea agreement under which Binance’s founder and CEO, CZ Zhao, agreed to resign and pleaded guilty to related federal money-laundering violations. Zhao awaits sentencing and reportedly faces up to 18 months in prison under federal sentencing guidelines.
