OFAC Director Andrea Gacki dishes advice on mitigating sanctions risk

“Although OFAC has a variety of sanctions programs across different areas, when it comes to compliance and enforcement, it still comes down to the basics: sufficient screening; identifying any U.S. nexus; keeping compliance programs updated; and appropriate remediation as issues arise,” Gacki said during the Association of Certified Anti-Money Laundering Specialists’ (ACAMS) virtual Sanctions Space Summit. One of the best ways to understand OFAC’s compliance expectations and enforcement priorities is to review its enforcement guidelines, she said.

“As articulated in our enforcement guidelines, OFAC will consider the totality of facts and circumstances in determining an appropriate administrative outcome, including the timing of any apparent violations in relation to the imposition of sanctions, the individual characteristics of this subject person, and a subject’s remedial response,” Gacki continued.

Another important resource in understanding OFAC’s enforcement priorities are its settlement agreements and web postings of its public enforcement actions, Gacki said. These resources are helpful because they not only help the private sector understand the compliance breakdowns that led to a sanctions violation, but also highlight the remedial steps the company put in place to address the issue, she noted.

Humanitarian aid

Gacki also addressed OFAC sanctions in the context of sanctioned countries where humanitarian aid is needed and how to address that from a compliance standpoint. “As the director of OFAC, it is a priority of mine to ensure our sanctions regimes do not impede humanitarian assistance or humanitarian efforts to sanctioned jurisdictions,” she said.

U.S. sanctions contain longstanding exemptions and authorizations for legitimate humanitarian trade and assistance involving Iran and Syria, she noted. “To this end, OFAC has issued an extensive amount of public guidance directed to non-U.S. persons to limit concerns over possible exposure to sanctions conducting humanitarian-related activities,” Gacki said.

She cited as an example OFAC FAQ 637, which clarifies that transactions related to the provision of humanitarian and consumer goods to Iran are not subject to secondary sanctions. Other FAQs that address the issue of humanitarian aid to sanctioned countries include 867 and 868, both of which have to do with sanctions applying to Syria.

Additionally, OFAC in April 2020 issued a fact sheet “highlighting the most relevant exemptions, exceptions, and authorizations for humanitarian assistance and trade under the Iran, Venezuela, North Korea, Syria, Cuba, and Ukraine/Russia-related sanctions programs.” It further outlines specific guidance for OFAC-administered sanctions programs related to personal protective equipment (PPE) and other humanitarian assistance and trade to combat the coronavirus pandemic.

“If existing issues persist related to sanctions, we welcome outreach to OFAC so we can intercede and provide what guidance or comfort is needed to make sure assistance is provided in the most challenging of jurisdictions,” Gacki said.

China sanctions

During her remarks, Gacki also addressed compliance concerns related to sanctions imposed in July 2020 against Chinese government entity Xinjiang Production and Construction Corps (XPCC)—a paramilitary organization in the Xinjiang region that is subordinate to the Chinese Communist Party—and two government officials for serious rights abuses against ethnic minorities in the Xinjiang region.

For companies seeking additional information, Gacki recommended reviewing the joint “Xinjiang Supply Chain Business Advisory” that was issued in July 2020 by the U.S. Department of State, the U.S. Department of the Treasury, the U.S. Department of Commerce, and the U.S. Department of Homeland Security. That advisory calls on companies with potential supply chain exposure to Xinjiang “to consider the reputational, economic, and legal risks of involvement with entities that engage in human rights abuses in Xinjiang, such as forced labor.”

“Companies conducting business in Xinjiang, or would otherwise be exposed to XPCC, should conduct risk-based due diligence and institute appropriate controls to ensure they are not engaging in prohibited transactions,” Gacki advised. “In the event of an apparent violation involving XPCC, OFAC will consider all relevant factors, as it does in every case, including the opacity of XPCC’s business structure.”

Sanctions mitigation

Because sanctions are a frequently used tool regarding matters of foreign policy, Gacki advised companies that when it comes to sanctions compliance best practices, to “continue to monitor foreign policy events.” It’s important for companies to constantly reevaluate potential sanctions risks, “including geographic risks, the risks to various products and services offered, as well as know-your-customer and counter-party-related risks,” she said.

A second factor: new and emerging technologies, which give banks and others in the private sector new tools to detect and report to OFAC any illicit activity. “We encourage the private sector to leverage those new technologies,” Gacki said. “We want you to experiment with artificial intelligence, machine-learning, and other emerging tools. We encourage innovation. We support its development, and we stand ready to engage with the private sector to the extent we can provide any useful guidance along those lines.”