OFAC provided long-awaited and detailed U.S. economic sanctions guidance for organizations that are subject to U.S. jurisdiction, as well as foreign entities that conduct business in or with the United States.

Entitled "A Framework for OFAC Compliance Commitments," the document (the "Framework") is a roadmap for the development of strong sanctions compliance programs ("SCPs"). The Framework outlines, among other things, (i) the essential components of an SCP, (ii) how OFAC evaluates potential violations, and (iii) some common "root causes" of U.S. sanctions violations.

Consistent with the compliance commitments contained in a number of recently published OFAC settlement agreements, the OFAC urged organizations to develop a risk-based approach to sanctions compliance, highlighting that each program should include at least five essential components of compliance:

  1. management commitment;
  2. risk assessment;
  3. internal controls;
  4. testing and auditing; and
  5. training.

A few other significant points were made in the guidance:

In determining the scope of a risk assessment, OFAC emphasized the wide range of potential touch points that an entity might have with prohibited persons, parties, counties and regions. Firms must consider clients, product lines, services, supply chains and geographic locations, among other factors.

In connection with an M&A transaction, OFAC advised that sanctions-related issues should be identified and analyzed pre-closing and, ultimately, incorporated into a firm's risk assessment process. In the event of a violation, the lack of a strong SCP may be viewed as an aggravating factor, potentially leading to increased monetary penalties.

Similarly, OFAC indicated that for enforcement purposes, it would be less forgiving of firms that fail to understand the applicability of U.S. sanctions regulations, especially if such failures are the result of willful blindness or reckless disregard.

Commentary / James Treanor

As covered in the Cabinet (see here, here, and here), OFAC's compliance Framework has been anticipated for months. The document is sure to be scrutinized closely for years to come. The overriding message is immediately clear, however, and already has been driven home by a slew of enforcement actions highlighting compliance failures, gaps, and lapses. That is, virtually anyone engaged in international commerce with a U.S. nexus - including financial institutions, exporters, and service providers of all kinds - must take steps to understand and effectively address their U.S. economic sanctions compliance risks, or else face the prospect of explaining themselves before an unsympathetic agency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.