The Office of Foreign Assets Control (OFAC), a division of the U.S. Department of the Treasury, administers and enforces economic and trade sanctions in line with U.S. foreign policy and national security goals.
OFAC's reach is vast, targeting foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction.
For individuals and businesses operating internationally, compliance with OFAC regulations is mandatory.
While many OFAC violations result in civil penalties, certain actions can trigger aggressive federal criminal prosecution, especially if the government believes these violations were willful or part of an organized criminal effort.
In such cases, procuring representation by a federal criminal defense attorney with experience in OFAC violations affords you the best chance to avoid the worst outcomes.
Key Takeaways
- OFAC sanctions comprise legal actions designed to limit economic interactions with specific countries, organizations, and individuals who threaten US national security, foreign policy, or economic interests.
- OFAC sanctions include everything from broad trade bans to specific restrictions on individuals or organizations listed in the Specially Designated Nationals and Blocked Persons List (SDN).
- Not complying with these sanctions may lead to serious legal consequences, such as heavy fines and possible criminal charges.
- The most frequent OFAC violations include engaging with Specially Designated Nationals (SDNs), conducting transactions for sanctioned countries such as Iran and North Korea, and neglecting to block illicit transfers or properly screen counterparties.
- OFAC violations often occur due to weak internal controls, human mistakes, insufficient employee training, or complex structures that conceal beneficial ownership, resulting in penalties for everything from basic transactions to crypto activities.
Why is Compliance Crucial?
Strict compliance with OFAC sanctions is essential for companies involved in international operations. Violations can threaten a company's finances and reputation and may result in hefty legal penalties, such as multimillion-pound fines, asset confiscation, and restrictions on working with American partners.
Companies that intentionally or negligently breach sanctions risk criminal charges, which can significantly damage their market standing.
The primary distinction between a civil enforcement action and a criminal indictment lies in the concept of willfulness.
When Does an OFAC Violation Become Criminal?
Most OFAC matters are handled administratively. However, prosecutors from the Department of Justice (DOJ) will pursue criminal charges if they believe they can prove that a defendant acted willfully.
In this context, "willfulness" generally means that the individual or entity knew of the sanctions or deliberately avoided learning of them and proceeded with the prohibited conduct anyway.
Federal prosecutors typically rely on several key statutes to charge criminal OFAC violations:
- International Emergency Economic Powers Act (IEEPA): This is the most common statute used, giving the President broad authority to regulate commerce after declaring a national emergency.
- Trading with the Enemy Act (TWEA): Used for specific legacy sanctions programs, such as those involving Cuba.
- Conspiracy (18 U.S.C. § 371): A general federal conspiracy statute used when two or more parties agree to commit an offense.
- Wire Fraud and Bank Fraud: These charges are frequently "stacked" on top of sanctions violations, especially if the conduct involved moving money through the U.S. financial system.
Federal investigations often focus on specific patterns of conduct. The following are among the most common OFAC violations that lead to criminal charges.
Willful Transactions with Sanctioned Parties
This is the most straightforward and common criminal violation. It involves knowingly conducting business with Specially Designated Nationals (SDNs), blocked entities, or sanctioned oligarchs. Conduct can range from selling goods and consulting to shipping products.
These transactions directly violate the IEEPA and can carry penalties of up to 20 years in prison per count and fines up to $1 million per violation.
Sanctions Evasion and "Routing Around" Controls
Attempting to hide the true nature of a transaction is a significant red flag for federal investigators. This often involves using third-party intermediaries, shell companies, or non-sanctioned countries (like the UAE or Turkey) to route payments or goods to a sanctioned jurisdiction.
To charge these crimes, investigators look for evidence of deliberate concealment, such as stripping wire data or falsifying invoices to remove references to sanctioned countries.
If you're charged with sanction evasion in this manner, in addition to IEEPA penalties, you may face money laundering charges, which carry sentences of up to 20 years and potential asset forfeiture.
Providing Services to Sanctioned Jurisdictions
OFAC regulations prohibit more than just the shipment of physical goods. Providing services-such as software access, cloud computing, engineering, or marketing countries like Iran, North Korea, or Syria is strictly prohibited.
Similar to physical exports, service violations under the IEEPA result in significant prison exposure and heavy fines.
False Statements to Banks or OFAC
The U.S. financial system relies on banks to enforce sanctions. Consequently, lying to a bank on a compliance questionnaire or falsifying an OFAC license application is a serious crime.
One of the most common triggers for an investigation is omitting sanctioned parties from disclosures or lying on Know Your Customer (KYC) forms.
False statement charges under 18 U.S.C. § 1001 carry up to 5 years in prison, but the penalty can be higher depending on the context.
Conspiracy to Violate OFAC
You do not need to complete a prohibited transaction to be charged. An agreement between two people or entities to violate sanctions, combined with an overt act (like sending an email or setting up a wire), is sufficient for a conspiracy charge under 18 U.S.C. § 371.
Conspiracy alone carries a maximum sentence of up to 5 years in prison, but it is often served consecutively with other charges related to IEEPA violations.
Defenses Against OFAC Charges
If you are facing criminal charges related to alleged OFAC violations, a skilled federal criminal attorney is your key to minimizing the damage and/or avoiding penalties. Some common defenses used may include:
- Lack of Willfulness (Intent): Arguing that the violation was a result of an innocent mistake, negligence, or a misunderstanding of complex regulations, rather than a willful criminal act.
- Voluntary Self-Disclosure: While usually relevant before charges are filed, prior disclosures can sometimes mitigate criminal liability.
- Statute of Limitations: Ensuring the government has brought charges within the legally required timeframe (typically five years for most federal offenses).
For a case evaluation, contact the federal defense lawyers at Eisner Gorin LLP in Los Angeles.
