Client Alert

OFAC 2019 Year in Review (Part 1 of 3)

04 Feb 2020

As we enter 2020, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) may need time to catch its breath after an exceptionally busy year. 2019 showed us that the Trump Administration continues to rely on sanctions as a primary national security and foreign policy tool of choice, thrusting OFAC into an ever more active role to achieve the Administration’s objectives. To help you wrap your head around the stunning pace of OFAC’s activity, and to refresh your recollection of the year after too much holiday cheer, we are summarizing the significant U.S. sanctions developments of 2019 – including enforcement and designations statistics, programmatic changes, and major lessons gleaned from enforcement actions – in a three‑part series. In this first installment of our series, we summarize OFAC’s major actions and programmatic developments in 2019. Our next alert in this series will summarize the year’s financial institution enforcement cases and the lessons to be learned from them, and we’ll do the same in the third alert with respect to the non-financial institution enforcement cases of 2019.

I. OFAC 2019 Statistics

In 2019, OFAC assessed nearly $1.3 billion in monetary penalties across 30 public enforcement actions. This represents a significant increase compared to 2018, which saw $71 million in penalties levied across seven public enforcement actions (an artificially low total given that OFAC appeared to be holding on enforcement actions that year while finalizing its Framework for Compliance Commitments). The 2019 enforcement numbers are the highest in a decade, if not longer, surpassing 2014’s $1.2 billion in fines across 22 public enforcement actions. The graphs below provide a helpful visualization of OFAC’s extraordinarily busy 2019. 

Total Number of Enforcement Actions

Annual Penalties/Settlements

OFAC’s designation statistics are equally impressive, although more difficult to comparatively assess. OFAC imposed sanctions on more than 300 individuals, 350 entities, and 60 vessels, as well as six aircraft, in 2019. It is difficult to demonstrate the actual frenzy of OFAC designations activity last year by using these numbers, however, given that the snapback of Iran sanctions in 2018 resulted in more than 700 individuals, entities, aircraft, and vessels sanctioned/re-sanctioned in one day. Perhaps the pace of designation activity tells a truer story of the year, as multiple designations actions per week became commonplace (as did, unfortunately, Friday afternoon sanctions actions). Not only do these numbers show how active OFAC was in 2019, but they also demonstrate OFAC activity across the spectrum of its sanctions programs.

Overall, OFAC sanctioned persons under the authority of at least 14 of its sanctions programs. In terms of rounds of designations, Venezuela led the pack, with 24 different sanctions actions on individuals and entities under this program in 2019. Iran followed close behind, with 20 rounds of sanctions over the course of the year using a combination of OFAC’s counter-terrorism, counter‑proliferation, human rights, and Iranian jurisdictional authorities. Perhaps unsurprisingly, given President Trump’s rapprochement with North Korean leader Kim Jong-un and his desire to restore harmonious relations with the Kremlin, OFAC issued only four rounds of targeted sanctions against North Korea and three against Russia in 2019.  On the flip side, the number of OFAC delistings slowed to a trickle in 2019, with only 13 noted throughout the year.

II. Significant OFAC Developments in 2019

A. Venezuela

As noted above, Venezuela represented the most active of OFAC’s sanctions programs last year, beginning with a bang in January 2019 with sanctions against Venezuela’s oil sector.

PDVSA

In 2019, OFAC’s Venezuela sanctions program quickly evolved from a standard blocking program into a large-scale initiative to remove the Maduro regime. As a result of the country’s political crisis, on January 28, 2019, OFAC imposed sanctions on Venezuelan state-owned oil and gas company PDVSA, adding it to OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”). The move came just days after President Trump recognized Juan Guaidó as Venezuela’s rightful interim leader following sanctioned Venezuelan President Nicolás Maduro’s sham re-election, prompting many other nations and the Organization of American States to do the same. In an FAQ issued after the action, OFAC indicated that Guaidó or a democratically elected government assuming control of PDVSA is a condition precedent for the company’s removal from the SDN List.

As detailed in our alert on the PDVSA sanctions, at the same time it designated PDVSA, OFAC issued seven new general licenses and amended a preexisting one to allow certain activity involving PDVSA and its subsidiaries to continue for varying durations.

Government of Venezuela

In an effort to further tighten pressure on the Maduro regime, on August 5, 2019, President Trump issued Executive Order (“E.O.”) 13884, blocking the property and interests in property of the Government of Venezuela (“GOV”). Per section 6(d) of that E.O., “the term ‘Government of Venezuela’ includes the state and Government of Venezuela, any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela and PDVSA, any person owned or controlled, directly or indirectly, by the foregoing, and any person who has acted or purported to act directly or indirectly for or on behalf of, any of the foregoing, including as a member of the Maduro regime.”  

As we previously wrote, the GOV sanctions did not impose an embargo on Venezuela, as some media outlets suggested. Embargoes, at least as they are generally understood by OFAC and the sanctions bar, are comprehensive and prohibit dealings involving not only a country’s government, but its people – in other words, commercial relations involving the country’s individuals and industry. E.O. 13884 does not prohibit U.S. persons from engaging in transactions involving the country or people of Venezuela that do not involve the GOV.

As with the PDVSA sanctions, OFAC issued an additional 13 new general licenses at the same time it issued E.O. 13884 and amended 12 existing general licenses. By the end of 2019, the Venezuela sanctions program contained 28 web-based general licenses (on top of the standard general licenses in the regulations), evidence of the scope and complexity of the program.

B. Iran

Throughout 2019, the Trump Administration continued its “maximum pressure campaign” against Iran.

Islamic Revolutionary Guard Designated as Foreign Terrorist Organization

On April 15, 2019, the Trump administration designated the Islamic Revolutionary Guard Corps (“IRGC”) as a foreign terrorist organization (“FTO”) under Section 219 of the Immigration and Nationality Act. This designation marked the first time the United States designated an entire component of a foreign government as an FTO.

Removal of Oil Waivers

On April 22, 2019, the Trump Administration announced it would no longer grant “significant reduction waivers” to importers of Iranian oil, including for U.S. allies. Without these waivers, non-U.S. companies could now be subject to secondary sanctions for the purchase of Iranian oil, effectively cutting them off from the U.S. economy. “Secondary” sanctions are those sanctions – which foreign governments call “extraterritorial” – that the U.S. Government threatens to impose on non-U.S. persons for activity conducted entirely outside the United States (as opposed to “primary” sanctions, where the U.S. Government establishes and enforces the sanctions rules that apply to U.S. persons or to transactions with a “U.S. nexus,” such as involvement of the U.S. financial system or economy). Waivers were previously available to China, India, Italy, Greece, Japan, South Korea, Taiwan, and Turkey. All of these countries, with the exception of China and India, are treaty allies of the United States. The waivers for these eight jurisdictions went into effect on November 3, 2018 and expired on May 2, 2019. On April 22, 2019, Secretary of State Pompeo announced that no additional waivers would be granted, meaning that any country that imported Iranian petroleum products after May 2, 2019 could have its companies become subject to secondary sanctions that would prohibit them from engaging in most business with the United States.

Sanctions on Iran’s Iron, Steel, Aluminum, and Copper Industries

On May 8, 2019, President Trump issued E.O. 13871, authorizing new sanctions against the iron, steel, aluminum, and copper sectors of Iran. This E.O. did not impose any new sanctions on any specific individuals or entities, but it authorized the Secretary of the Treasury to do so (in consultation with the Secretary of State) for entities involved, directly or indirectly, with the aforementioned Iranian metal sectors. (Another E.O., of course, followed already this year, as a result of the recent heightened conflict with Iran, targeting the construction, mining, manufacturing, and textile sectors.)

Advisory to the Maritime Petroleum Shipping Community

OFAC published an advisory in September 2019 warning the petroleum shipping community of sanctions risks related to shipping petroleum and petroleum products from Iran. The advisory noted that targeting shipments of petroleum and petroleum products from Iran is a key component of the U.S. sanctions campaign as it helps to deny the Iranian regime access to financial resources to support its malign activities. Importantly, the advisory explained that individuals and entities knowingly engaged in certain transactions relating to the purchase, acquisition, sale, transport, or marketing of petroleum and petroleum products from Iran or providing material support to certain Iran-related persons on the SDN List risk being sanctioned themselves. To avoid such consequences, the advisory identified common deceptive shipping practices used to facilitate Iranian transactions (e.g. falsifying cargo and vessel documents, vessel name changes, etc.) and risk mitigation best practices to reduce any exposure to sanctions risks (including Know Your Customer due diligence, verifying country of origin, etc.).

Counter-Terrorism Designations of Iran’s Central Bank and National Development Fund

On September 20, 2019, OFAC took action against the Central Bank of Iran (“CBI”) and the National Development Fund of Iran (“NDF”), Iran’s sovereign wealth fund, under its counter-terrorism authority, E.O. 13224. Specifically, OFAC designated the NDF as an SDN, prohibiting U.S. persons and non-U.S. entities owned or controlled by U.S. persons from dealing directly or indirectly with the fund. Additionally, non-U.S. persons dealing with the fund now run the risk of secondary sanctions exposure. Regarding the CBI, OFAC imposed new sanctions under E.O. 13224. While the CBI was already an SDN and non-U.S. persons already risked the imposition of secondary sanctions for engaging in certain transactions with it, the counter-terrorism designation sent shockwaves around the world because it exposed even the CBI’s trading partners engaged in humanitarian activities to potential U.S. secondary sanctions.

In taking these actions, which are part of the Administration’s maximum pressure campaign against Iran, OFAC noted that the CBI has continually provided billions of dollars to the IRGC, its Qods Force (“IRGC-QF”), and its terrorist proxy, Hizballah. Similarly, OFAC accused the NDF of serving as a major source of foreign currency and funding for the IRGC-QF and Iran’s Ministry of Defense and Armed Forces Logistics (“MODAFL”). 

Humanitarian Mechanism to Increase Transparency of Trade Supporting Iranian People

In October 2019, Treasury and State announced a new humanitarian mechanism to ensure unprecedented transparency into humanitarian trade with Iran. The U.S. Government indicated that it hoped this mechanism will help the international community perform enhanced due diligence on humanitarian trade to ensure that funds associated with permissible trade in support of the Iranian people are not diverted by the Iranian regime to illicit activities. Specifically, the new mechanism required foreign governments and financial institutions that participate in the mechanism to conduct enhanced due diligence and provide Treasury a substantial and unprecedented amount of information on a monthly basis. Other governments and their companies greeted this mechanism with concern, fearing that it could scare away, rather than enhance, humanitarian trade.

C. Ukraine/Russia

Given President Trump’s desire for warmer relations with the Kremlin, it is perhaps no surprise that only a handful of sanctions actions against Russia occurred last year, with half of them forced by Congress.

Sanctions Over Continued Aggression in Ukraine

On March 15, 2019, OFAC designated six Russian individuals and eight entities in response to Russia’s continued and ongoing aggression in Ukraine. OFAC targeted individuals and entities that played a role in Russia’s attacks on Ukrainian naval vessels in the Kerch Strait, purported annexation of Crimea, and backing of separatist government elections in eastern Ukraine.

Sanctions Under the Chemical and Biological Weapons Control and Warfare Elimination Act

Under significant Congressional pressure, and approximately eight months past a statutory deadline, on August 1, 2019, President Trump issued a new E.O., “Administration of Proliferation Sanctions and Amendment of Executive Order 12851,” related to the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991, as amended (“CBW Act”).  OFAC subsequently issued a Russia-related Directive (“CBW Act Directive”). Effective August 26, 2019, the CBW Act Directive prohibited U.S. banks from participating in the primary market for non‑ruble denominated bonds issued by the Russian sovereign and prohibited U.S. banks from lending non-ruble denominated funds to the Russian sovereign. 

Sanctions on Attempted Election Interference in U.S. Midterm Elections

On September 30, 2019, OFAC sanctioned Russian actors who attempted to influence the 2018 U.S. midterm elections. Specifically, OFAC designated four entities, seven individuals, three aircraft, and a yacht, all of which are associated with the Internet Research Agency and its financier, Yevgeny Prigozhin. OFAC determined that the Internet Research Agency used fictitious personas on social media and disseminated false information in an effort to influence the 2018 U.S. midterm elections. This action represented the first time that OFAC imposed sanctions under E.O. 13848, “Imposing Certain Sanctions in the Event of Foreign Interference in a United States Election,” although it issued similar sanctions under E.O. 13757 in December 2016 after Russian interference in the November 2016 elections.  

Nord Stream 2 Project

In December 2019, President Trump signed into law the Protecting Europe’s Energy Security Act of 2019 (“PEESA”), as part of the National Defense Authorization Act for Fiscal Year 2020. As we discussed in a previous alert on the topic, PEESA requires the Secretary of State to issue a report within 60 days, and every 90 days thereafter, on (1) vessels that engaged in pipe-laying at depths of 100 feet or more below sea level for the construction of the Nord Stream 2 pipeline, the TurkStream pipeline, or any successor project; and (2) foreign persons determined to have knowingly: (i) sold, leased, or provided those vessels for the construction of any such pipeline; or (ii) facilitated deceptive or structured transactions to provide those vessels for such a project. As a result of being identified in any of the reports, the following sanctions would be mandatory (unless the President certifies that any identified foreign persons (individuals or entities) engaged in good faith efforts within 30 days of enactment to wind down sanctionable operations): (A) The assets subject to U.S. jurisdiction of any foreign persons identified in (2) above would be required to be blocked (or frozen); and (B) The corporate officers and principal shareholders of any company owning a vessel identified in (1) above, as well as any foreign persons identified in (2) above, would be denied visas and prohibited from entering the United States.

D. Cuba

In 2019, the Trump Administration furthered its policy of tightening sanctions against Cuba, which were previously relaxed under the Obama Administration.

Helms-Burton Act

On April 17, 2019, Secretary of State Pompeo announced that the Trump Administration would no longer waive Title III of the Cuban Liberty and Democratic Solidarity (Libertad) Act (the “Helms-Burton Act”), causing it to enter into full force on May 2, 2019. Title III of the Helms‑Burton Act, which was signed into law in 1996, allows U.S. nationals to sue any person who “traffics” in property confiscated from them by the Cuban government on or after January 1, 1959. After an E.U. challenge to the U.S. law before the World Trade Organization, and a subsequent settlement between the two jurisdictions in the late 1990s, the United States agreed to waive the application of Helms-Burton Title III – a position that Presidents of both parties continued for more than two decades – until the Trump Administration decided to allow Title III to enter into effect. As we detailed in an alert on the issue, the flood of lawsuits many expected under Title III has yet to pan out, but this is a space worth watching heading into 2020. Of note, the U.S. District Court for the Southern District of Florida recently dismissed two claims against cruise companies under Title III of the Helms-Burton Act. Specifically, the court held that the cruise companies did not traffic in property subject to Title III by docking at a port facility in Cuba previously owned by a U.S. national because the plaintiff’s Cuban lease would have expired several years before the arrival of the cruise ships. The cases can be found here and here.

Revocation of People-to-People Authorization

On June 5, 2019, the Trump Administration amended the Cuban Assets Control Regulations (“CACR”) to remove the authorization for individual people-to-people educational travel to Cuba. The people-to-people authorization was added to the CACR as part of the Obama Administration’s attempt to enhance U.S.-Cuba relations. The program’s intent was to increase the ability of U.S. citizens to travel to Cuba to directly engage with the Cuban people. Specifically, the people‑to‑people authorization allowed individuals to travel to Cuba, provided that the traveler engaged in a full-time schedule of educational exchange activities intended to enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people’s independence from Cuban authorities. Without the people-to-people authorization, U.S. persons may now only travel to Cuba under a more narrow set of exemptions, including to visit family, support humanitarian projects, or participate in religious activities, or as part of a structured group people-to-people trip, among others.

U-Turn Payments

In September 2019, OFAC amended the CACR again to revoke the so-called “U-turn” authorization allowing U.S. “banking institutions” to process Cuba-related payments, so long as they originated and terminated outside the United States and neither the originator nor the beneficiary were persons subject to U.S. jurisdiction. With the U-turn authorization’s revocation, financial institutions subject to U.S. jurisdiction may no longer process such payments.

E. China

Amid President Trump’s trade war with China, the United States continued to escalate sanctions pressure on China in 2019.

COSCO

As outlined above, the United States ended waivers in May 2019 for China to import Iranian oil. In the months following the termination of the waivers, rumors abounded that China continued to import such oil, perhaps daring the United States to take action against it. On September 25, 2019, OFAC responded, designating COSCO Shipping Tanker (Dalian) Co. Ltd. and certain other entities and individuals as Specially Designated Nationals (“SDNs”) for transporting Iranian oil and petroleum products. The sanctions were a significant, but limited, action, given that OFAC specifically noted that the sanctions targeted only certain subsidiaries of the massive COSCO shipping conglomerate.

Hong Kong

As outlined in our previous alert, President Trump signed two bills into law on November 27, 2019, mandating sanctions and export restrictions relating to Hong Kong.

The first bill, the Hong Kong Human Rights and Democracy Act of 2019 (the “Hong Kong Human Rights Act”), requires the Trump Administration to submit a report to Congress within six months, and at least annually thereafter, on each foreign person determined to be responsible for extrajudicial rendition, arbitrary detention, torture, or any other gross violations of “internationally recognized human rights” in Hong Kong. The Administration would then be obliged to sanction anyone named in the reports, which would include asset freezes, prohibitions on dealing, and visa bans. The Hong Kong Human Rights Act also requires the Administration to submit reports to Congress within six months, and at least annually thereafter, on whether the Hong Kong government was violating or being used by China to circumvent U.S. export control and sanctions laws. 

Congress also passed a companion bill, “An Act to prohibit the commercial export of covered munitions items to the Hong Kong Police Force,” which prohibits the Administration from issuing licenses to allow the export of covered munitions items such as tear gas, pepper spray, rubber bullets, stun guns, tasers, and other crowd control-related items to the Hong Kong Police Force. The bill includes narrow exceptions for U.S. national security and foreign policy interests.

In response to the bills above, on December 2, 2019, China announced the suspension of visits to Hong Kong by U.S. military ships and aircraft – which have visited Hong Kong periodically since China resumed sovereignty of the territory in 1997 – and vowed to impose unspecified sanctions on various U.S.-based non-governmental organizations for their purported support of the Hong Kong protests. Among the organizations identified as potentially subject to sanctions are Freedom House, Human Rights Watch, the International Republican Institute, the National Democratic Institute for International Affairs, and the National Endowment for Democracy.

F. Turkey

Perhaps the shortest, and among the strangest, sanctions program in OFAC history began after conversations between President Trump and Turkish President Erdogan resulted in the removal of U.S. troops from a portion of Syria along the Turkish border and the subsequent Turkish invasion into that region. On October 14, 2019, President Trump issued an E.O. imposing sanctions on Turkey in response to that Turkish military offensive in northern Syria. As we noted in a previous alert, E.O. 13894 “Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Syria” authorized Treasury to sanction Turkish government agencies, officials, and sectors of the economy, as well as to impose secondary sanctions on non‑U.S. financial institutions. Simultaneously with the issuance of E.O. 13894, OFAC designated three Turkish government officials and two Turkish ministries. As these actions were directed toward a NATO ally, they represented a dramatic shift in U.S. sanctions policy under the Trump Administration, since OFAC’s sanctions historically have been used against rogue states, terrorist organizations, and other malicious actors rather than toward international partners.

Just over a week after designating the parties above, the Trump Administration reversed course and removed the sanctions on all five persons designated under E.O. 13894, making these some of the shortest designations in OFAC’s history. However, the E.O. remains in place, leaving the possibility of renewed sanctions on Turkey in the future. Congress, meanwhile, continues to consider legislation to impose new sanctions on Turkey independent of the Trump Administration’s policies and E.O. 13894.

G.  Expanded Secondary Sanctions

2019 dawned with three secondary sanctions programs targeting non-U.S. persons for activity outside the United States: Iran/Hizballah, North Korea, and Russia. The year ended with three more such programs, along with dramatically expanded secondary sanctions against the original three. In addition to the expanded secondary sanctions on Iran and Russia noted in sections B and C above, and the new secondary sanctions on Turkey noted immediately above, the Administration and Congress expanded the secondary sanctions authorities in 2019 as follows.

On September 9, 2019, the President issued E.O. 13886, expanding the global terrorism E.O. 13224 issued shortly after the September 11 attacks in a variety of ways, including, as we detailed in our alert, authorizing secondary, “correspondent account” sanctions against any non‑U.S. financial institution that knowingly conducts or facilitates any “significant transaction” on behalf of any person blocked pursuant to the past and current terrorism-related authorities. OFAC followed up the President’s action by sanctioning the Central Bank of Iran as a supporter of terrorism, adding yet another basis for secondary sanctions for those who transact with it.

Congress also tucked the “Caesar Syria Civilian Protection Act of 2019” within the NDAA. That legislation would require the Treasury Department to impose broad secondary sanctions, and the State Department to impose visa restrictions, on foreign persons determined to knowingly:

- Provide significant financial, material, or technological support to, or knowingly engage in a significant transaction with: (i) the government of Syria, including entities it owns or controls and senior government officials; (ii) a foreign person that is a military contractor, mercenary, or paramilitary force operating in a military capacity inside Syria or for the Syrian, Russian, or Iranian governments; or (iii) foreign persons sanctioned by the United States in relation to Syria;

- Sell or provide significant goods, services, technology, information, or other support for the government of Syria’s domestic energy production;

- Sell or provide aircraft or aircraft parts or services that are used for military purposes in Syria; or

- Directly or indirectly provide significant construction or engineering services to the government of Syria.

The NDAA also includes the Otto Warmbier North Korea Nuclear Sanctions and Enforcement Act of 2019, named for the American college student who died in 2017 after being tortured in North Korean custody and returned to the United States in a coma. The Act expands the U.S. secondary sanctions already in place against North Korea by mandating blocking or correspondent account sanctions on any foreign entity providing significant financial services to any person sanctioned by the United States involving North Korea.

H. Compliance Commitments Guidelines

On May 2, 2019, OFAC published its first-ever Framework for OFAC Compliance Commitments (“Framework”), detailing the essential components of a sanctions compliance program. Although OFAC reiterated that every company’s risk-based sanctions compliance program will vary based on its own individual risk factors – including the company’s size and sophistication, products and services, customers and counterparties, and geographic locations – OFAC characterized the five “essential components” of compliance as requiring: (1) management commitment; (2) risk assessment; (3) internal controls; (4) testing and auditing; and (5) training. At the end of the Framework, OFAC provided a list of common “root causes” of sanctions violations to help companies evaluate their compliance programs. Companies should review their internal compliance programs and ensure that they align with these guidelines because the Framework makes clear that OFAC will “consider favorably” effective sanctions compliance programs (and unfavorably ineffective ones) when resolving enforcement cases. We provided a detailed analysis of OFAC’s compliance commitments and linked them to lessons we extrapolated from OFAC enforcement cases in the previous year.

I. Revised DOJ Policy on Voluntary Self-Disclosures

On December 13, 2019, the Department of Justice’s National Security Division (“NSD”) announced a revised policy to encourage voluntary self-disclosures (“VSDs”) of criminal violations of export control and sanctions laws. As we previously explained, the new guidance provides greater clarity regarding the incentives for companies that self-report, including a presumption that such companies will receive a non-prosecution agreement and not have to pay a fine, absent aggravating factors. The policy reflects NSD’s continued emphasis on private-sector cooperation as part of its overall strategy to enforce export control and sanctions laws. Key takeaways from the revised policy are summarized below.

The updated policy provides greater clarity and certainty regarding the outcome of a VSD. The policy encourages companies to voluntarily self-disclose potentially willful violations of export control and sanctions laws and provides that “there is a presumption that the company will receive a non-prosecution agreement and will not pay a fine, absent aggravating factors” when it:

  • voluntarily self-discloses such violations to NSD’s Counterintelligence and Export Control Section;
  • fully cooperates; and
  • timely and appropriately remediates.

When aggravating factors warrant a deferred prosecution agreement or guilty plea, DOJ nevertheless will accord, or recommend to a sentencing court, a 50% reduction in fine and not require the appointment of a monitor if the company has voluntarily self-disclosed, fully cooperated, and implemented an effective compliance program at the time of the case’s resolution. So, even if aggravating factors warrant penalties, the benefits offered to companies are concrete: fines are halved and a company will not have to undergo the costly and invasive process of continued supervision under a monitorship.

The updated policy applies to financial institutions. The prior 2016 policy excluded financial institutions from its scope, citing “unique reporting obligations” that apply to the financial sector. Many industry participants felt that the financial institutions carve-out in the 2016 policy was unfair and inconsistent with the aim of the policy to encourage cooperation in sanctions and export control violations, particularly for a sector that is a frequent player in the sanctions world. The updated policy removes that exclusion, offering financial institutions the same benefits of self‑disclosure as other companies.

The revised policy reflects efforts to standardize DOJ policy. The revised policy more closely tracks analogous DOJ voluntary self-disclosure policies, such as the FCPA Corporate Enforcement Policy and the Justice Manual guidance on voluntary self-disclosures. Although there are some notable differences (the primary benefit of the FCPA policy is a presumption of a declination rather than a non-prosecution agreement), the policies use common definitions and many of the disclosure, cooperation, and remediation processes closely mirror those found in the FCPA policy. Our assessments of the FCPA policy can be found here and here.

Compliance with the policy requires careful orchestration. To obtain the full benefit of a voluntary self-disclosure, NSD emphasizes that companies must report violations to NSD’s Counterintelligence and Export Control Section. Although NSD encourages reporting to regulatory agencies that handle administrative enforcement of export control and sanctions laws, reporting to such agencies – including the State, Commerce, and Treasury Departments – is not sufficient to qualify for the benefits of the voluntary self-disclosure policy. For that reason, companies must carefully consider whether identified violations may be criminal in nature, and, if so, how to sequence their disclosures to ensure compliance with the terms of the policy and to avoid a circumstance where a prior disclosure to another agency may bar the organization from obtaining the benefit of the policy.

J. A U.S. District Court Vacated an OFAC Penalty

2019 concluded with a twist: on December 31, 2019, the Northern District of Texas issued an order vacating a 2017 OFAC penalty issued against ExxonMobil Corp. (“Exxon”). In 2017, OFAC issued a $2 million penalty against Exxon because Exxon entered into several contracts with the Russian oil and gas firm, Rosneft, that were signed by Rosneft’s CEO Igor Sechin. Sechin was on OFAC’s SDN List at the time the contracts were signed. OFAC asserted that because Sechin signed the contracts, Exxon unlawfully “received services” (in the form of contract signatures) from an SDN in violation of OFAC’s Ukraine/Russia-related sanctions.

Exxon challenged OFAC’s penalty on three different grounds: (1) OFAC’s regulations did not prohibit Exxon’s conduct, and OFAC’s interpretation of its regulations was not entitled to deference; (2) OFAC’s interpretation was arbitrary and capricious; and (3) OFAC failed to provide fair notice of its interpretation in violation of due process. The Northern District of Texas declined to address (1) and (2), but it agreed with Exxon’s third contention that OFAC failed to provide fair notice that entering into a contract with a non-sanctioned party that was signed by an SDN constituted a violation of the Ukraine-Related Sanctions Regulations. Notably, the court cited conflicting White House press statements and noted that OFAC issued a related FAQ after it imposed the penalty on Exxon. The court also pointed out that an on-point FAQ for the Burmese sanctions program did not apply here, given OFAC’s repeated assertions throughout its regulations that “[d]iffering foreign policy and national security circumstances may result in differing interpretations of similar language among the parts of this chapter.”

The action is significant because OFAC actions are rarely challenged in court, much less successfully. It remains to be seen whether and how OFAC will respond or whether the decision will have future ramifications on the agency or those it seeks to penalize.


All in all, 2019 was an extraordinary year in sanctions. We here in MoFo’s National Security Practice look forward to updating you on the ups and downs, and twists and turns, as sanctions evolve over the course of 2020.

Reema Shocair Ali, a national security analyst in the firm’s D.C. office, assisted in the preparation of this client alert.

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