At the start of the year, the Office of Foreign Assets Control (OFAC) at the U.S. Department of the Treasury promulgated a regulation that increased the amounts of the fines that it could impose for violations of U.S. economic and trade sanctions that target foreign countries and parties. The regulation increases these civil monetary penalties to account for inflation, which has risen sharply in the past year.

In this article, Dr. Nick Oberheiden, an OFAC sanctions defense lawyer and compliance professional and the founding partner of the national law firm Oberheiden P.C., looks at the new penalties and explains what this means for companies.

OFAC Regulation Raises Civil Monetary Penalties for Violating Sanctions by Over 7%

The regulation, published at 88 Federal Register 2229 (Jan. 13, 2023), updates the civil monetary penalties to bring them in line with inflation under the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Section 701 of Public Law No. 114–74). Using a formula to determine the rate of inflation, the Office of Foreign Assets Control decided to raise the penalties it could impose for violating U.S. sanctions by 7.745 percent to reflect the sharp rise in inflation from 2022 to 2023. That increase goes into effect on January 13, 2023, and applies to all cases currently ongoing, even if the alleged violation occurred before that date.

This makes violating U.S. economic sanctions and OFAC sanctions programs significantly more costly. 

However, the penalties that get imposed still depend on which law the sanction was authorized by. As a result, the maximum civil monetary penalty that the Office of Foreign Assets Control (OFAC) can impose ranges from as little as around $16,000 to as much as nearly $1.8 million.

The increase in fines also applies to the recordkeeping regulations that the Foreign Assets Control Office has promulgated in order to ensure that there is a paper trail for violations of economic sanctions. These penalties, though they have been increased by over 7 percent, are still relatively low.

Increase Affects All of OFAC Sanctions Laws

The economic sanctions that the United States can impose on its enemies and individuals or parties that pose a threat to its interests are authorized by a handful of federal laws, including the:

1. Clean Diamond Trade Act (19 U.S.C. §§ 3901 – 3913)
2. Antiterrorism and Effective Death Penalty Act of 1996 (Public Law No. 104-132)
3. Trading With the Enemy Act of 1917 (50 U.S.C. §§ 4301 – 4341)
4. International Emergency Economic Powers Act of 1977 (50 U.S.C. §§ 1701 – 1709)
5. Foreign Narcotics Kingpin Designation Act (21 U.S.C. §§ 1901 – 1908), also referred to as just the Kingpin Act

OFAC acts under each of these Acts with enforcing the law and trade sanctions based on national security goals and foreign policy interests by investigating potential violators and imposing civil monetary fines or, in some cases, by pursuing criminal charges for willful violations of the OFAC regulations and sanctions that the law authorizes. 

Those civil monetary penalties, not the criminal fines, are tied to inflation, which increased significantly in the last few years.

For the Clean Diamond Act, this means that the maximum allowable civil monetary penalty for any violation or attempted violation of the law increased from $14,950 up to $16,108 starting on January 13, 2023. 

For sanctions under the Antiterrorism and Effective Death Penalty Act, violations now carry a maximum civil monetary penalty of $94,127, up from $87,361.

Violating sanctions under the Trading With the Enemy Act carries a maximum civil monetary penalty of $105,083 in 2023, up from $97,529.

The maximum civil monetary penalty for violating sanctions under the International Emergency Economic Powers Act is now $356,579, up from $330,947.

Finally, violating sanctions imposed under the authority of the Kingpin Act carries a maximum civil monetary penalty of $1,771,754 in 2023, up from $1,644,396.

Recordkeeping Regulations Also Affected

The inflation-related increase also affects the regulations that OFAC promulgated to ensure that companies would have traceable evidence of potential violations of U.S. economic sanctions. Just like with the other import / export laws that OFAC enforces, though, each regulation has its own maximum civil monetary penalty attached to it. Those violations, and the penalties associated with them, are:

• Late filing of a required report that relates to blocked assets - $1,377 for every 30 days that it is late, capped at five years, up from $1,278
• Filing a required report late, but within 30 days after it was due - $3,439, up from $3,192
• Filing a required report at least 30 days after it was due - $6,881, up from $6,386
• Failing to furnish the information under 31 C.F.R. § 501.602 upon request - $27,520, up from $25,542
• Failing to furnish information under 31 C.F.R. § 501.602 when OFAC has reason to believe that the violating transaction involved at least $500,000 - $68,801, up from $63,855
• Failing to adequately maintain records required by OFAC - $68,928, up from $63,973

What This Means for U.S. Companies

While these increases are tied to inflation, the significant jump in the amounts that OFAC can impose for a violation of U.S. sanctions is not trivial. Companies need to take that into account when planning and implementing OFAC compliance programs. The increased costs of violating OFAC sanctions should be included in the calculus that company decision-makers use to determine how much to invest in its compliance measures.

It should not be forgotten that these are just the civil monetary penalties that come with a violation of U.S. economic sanctions. Willful violations are crimes that can lead to jail time for responsible individuals. There is also the blow to a company’s reputation that comes with getting caught, or even just accused of, prohibited transactions or trading with the bad sorts of people and organizations that are targeted by OFAC sanctions, such as international narcotics traffickers, targeted foreign countries, or individuals or entities on the Specially Designated Nationals list. If there is even the perception that your company is doing business with terrorist organizations and the like, it can drastically hurt your bottom line in ways that far exceed even these increased penalties.