The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has sanctioned almost 40 percent more entities compared to five years ago, according to research conducted by Accuity, a provider of financial crime screening, payments, and know-your-customer solutions. In contrast, the number of entities sanctioned by the United Kingdom, the European Union, and the United Nations has actually decreased since 2014. Sanctions can involve asset freezes, restrictions on trade, and travel restrictions.
As the number of entities subject to sanctions has increased in the United States, so has enforcement activity against companies that allegedly violated those sanctions. In 2019 alone, OFAC has reached settlements with more than 20 organizations, yielding almost $1.3 billion in penalties. Companies as varied as Apple, General Electric, Standard Chartered Bank, and e.l.f. Cosmetics have settled alleged sanctions violations this year.
“The current regulatory momentum is creating new challenges for firms that shoulder the responsibility for screening their customers and transactions—and face hefty penalties for non-compliance,” said Saskia Rietbroek, executive director of the Association of Certified Sanctions Specialists, at the time Accuity’s findings were announced.
Quick changes in direction
Indeed, the need for organizations to be on top of OFAC’s sanctions list is exemplified by one recent example involving the quickly changing situation in Turkey. On Oct. 14, the United States blocked a number of entities in Turkey due to the Turkish government’s military operations in Syria.
“The United States is holding the Turkish Government accountable for escalating violence by Turkish forces, endangering innocent civilians, and destabilizing the region,” said Treasury Secretary Steven Mnuchin at the time the block was announced.
Nine days later, OFAC lifted those sanctions after Turkey agreed to a ceasefire in Syria. Transactions involving property and interests in property that had been blocked on Oct. 14 became permissible on Oct. 23.
The speed of change to entries on official sanctions lists can be challenging for those responsible for sanctions compliance. “The frequency of change creates challenges for organizations responsible for conducting financial crime screening, necessitating access to refreshed lists and automated screening technology to eliminate gaps in coverage,” Accuity wrote in a statement.
Increased use of sanctions by U.S.
More than 8,900 entities were on OFAC’s sanctions list as of November 2019, compared to just 2,147 sanctioned entities in the European Union, 2,126 in the United Kingdom, and 1,054 entities sanctioned by the United Nations. Between 2014 and 2019, U.S. sanctions increased by 39.3 percent, but the EU’s decreased by 19.1 percent, the U.K.’s dropped by 17.5 percent, and the UN’s dipped by 5.8 percent, Accuity found.
The use of sanctions in the United States during the Trump administration increased by 34.6 percent, rising to 8,957 sanctioned entities in November of this year, up from 6,656 in January 2017 (the last month of the Obama administration), Accuity reported.
A more savvy OFAC?
At the same time, OFAC’s enforcement activity demonstrates that “no economic sector is beyond OFAC’s reach,” Accuity concluded. For instance, in 2019, OFAC pursued offshore banking (settling with British Arab Commercial Bank, which does not have any offices or presence in the United States). Also this year, OFAC targeted an insufficient supply chain due diligence problem as shown in its settlement with e.l.f. Cosmetics, which got into hot water over false eyelash kits with materials sourced from North Korea. In 2019, OFAC also focused on insufficient compliance oversight over foreign subsidiaries and acquisitions, as shown by Kollmorgen Corporation’s settlement on behalf of its Turkish affiliate, Accuity noted in materials prepared for a recent press briefing.
“The numerous OFAC enforcement actions published in 2019, affecting multiple sectors, show just how critical it is for financial institutions and corporations to have an effective sanctions compliance process in place,” said Vincent Gaudel, a compliance expert at Accuity.
Unfortunately for compliance professionals, lists of sanctioned entities don’t tell the full story of who is blocked. For instance, sanctions may also apply to other operations of a blocked entity if the entity owns or controls 50 percent or more of those operations. Sanctions might also apply to family members of individuals who have been sanctioned. Determining exactly who is included in more generic sanctions, such as that of a “government,” can also be daunting.
For example, Accuity noted, sanctions against the government of Venezuela include the government as well as political subdivisions, agencies, and instrumentalities, including the Central Bank of Venezuela and the state-owned energy company, Petroleos de Venezuela, S.A. Also included are people “controlled” by these entities and those who act for them.
OFAC’s enforcement decisions can be instructive as they increasingly reference OFAC’s Framework for Compliance, Accuity found. Under the framework, U.S. companies “can mitigate sanctions risk by conducting risk assessments, and exercising caution when doing business with entities that are affiliated with, or known to transact with, OFAC-sanctioned persons or jurisdictions, or that otherwise pose high risks due to their joint ventures, affiliates, subsidiaries, customers, suppliers, geographic location, or the products and services they offer,” OFAC wrote in its Nov. 25 settlement with Apple.
Companies are required to report blocked or rejected transactions to OFAC.
Nevertheless, “sanctions compliance is not just about filling out government forms,” Rietbroek cautioned. “It is about criminal laws and potential 20-year prison terms.”
Lori Tripoli is a writer based in the greater New York City area who focuses on legal and regulatory issues.
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