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What Do You Need to Know When Facing an OFAC Investigation?

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) investigates companies and individuals suspected of violating federal sanctions against transactions involving certain foreign nations and specially designated nationals (SDNs). Since sanction violations can have national security implications in some cases, OFAC takes apparent violations extremely seriously, and it thoroughly investigates companies and individuals suspected of committing violations in the U.S. and abroad.

For companies and individuals targeted in OFAC investigations, executing an effective defense needs to be a priority. Findings of OFAC regulations violations can lead to steep penalties, and violations can have criminal implications in some cases.

“OFAC enforcement investigations present significant risks for targeted companies and individuals. Companies that are facing scrutiny need to quickly discern if their compliance efforts are an asset or a liability, and individual targets must work closely with their defense counsel to determine what options they have available.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.

When facing OFAC enforcement investigations, there is a lot that company leaders and individual targets need to know. This includes discerning the investigation’s trigger, understanding the potential outcomes, and understanding how they can execute a strategic defense.

7 Potential Triggers of an OFAC Investigation

A key first step toward building an effective defense strategy is to discern what triggered the OFAC investigation. This will provide important insights into the focus and scope of the investigation, and it will provide insight into whether the target may have other law enforcement concerns as well. Typically, an OFAC investigation results from one of the following:

  • Self-Reporting – There are various circumstances in which companies and individuals may have obligations to self-report OFAC sanction violations. While self-reporting violations can help companies and individuals avoid certain risks, if not handled carefully self-reporting can lead to enhanced scrutiny from OFAC (Office of Foreign Assets Control) as well.

  • U.S. Financial Institution Reporting – Under federal law, financial institutions have an obligation to report transactions that raise red flags under their OFAC regulations compliance enforcement protocols. Even if a financial institution blocks a prohibited transaction, the attempted transaction could still lead to OFAC scrutiny and enforcement action.

  • U.S. Law Enforcement Agency Referral – OFAC also acts on information received from the Federal Bureau of Investigation (FBI), Financial Crimes Enforcement Network (FinCEN), and various other federal law enforcement agencies. Referrals from these agencies will often present risks not only for OFAC enforcement, but for other federal allegations as well.

  • Foreign Law Enforcement Agency Referral – OFAC’s counterparts around the world may refer transactions of concern to OFAC as well. Similar to referrals from U.S. law enforcement agencies, referrals from foreign governmental entities may also present risks for multiple types of allegations.

  • Whistleblower Complaint – Like other federal agencies, OFAC relies heavily on whistleblowers to come forward with information about suspected violations. Whistleblower complaints filed by current employees, former employees, and other parties can expose companies to intensive scrutiny.

  • Confidential Informant – Tips from confidential informants can also trigger OFAC investigations. While less common, these cases often present significant challenges for companies and individuals accused of OFAC sanction violations.

  • Media Reports – Media reports of pending or executed deals (which may also be spurred by whistleblowers) can trigger scrutiny from OFAC. In these cases, getting out in front of the story and proactively engaging with OFAC’s Office of Compliance and Enforcement can be critical for preventing the issue from getting out of hand.

7 Potential Outcomes of OFAC Investigations

Understanding the potential outcomes of an OFAC investigation is important as well. With a clear understanding of what is at risk, targeted companies and individuals can execute a proportionate response. Potential outcomes of an OFAC investigation vary widely, from no action to criminal fines and prison time:

  • No Action – Not all OFAC investigations lead to penalties. In many cases, working with OFAC to demonstrate compliance will result in a formal decision not to take action in relation to the subject transaction. But, convincing OFAC not to take action after devoting resources to an investigation can be a time-consuming process, and targets must be able to rely on their counsel to demonstrate their compliance effectively.

  • Administrative Subpoena – If OFAC’s preliminary investigative efforts uncover evidence of a possible sanction violation, OFAC may choose to issue an administrative subpoena. An OFAC administrative subpoena is a judicially enforceable subpoena and can require testimony and production of voluminous records, and subpoena recipients must begin working with their defense counsel immediately to begin formulating their response.

  • Cautionary Letter – Short of no action, the most favorable outcome of an OFAC investigation is to resolve the investigation with the issuance of a cautionary letter. A cautionary letter acknowledges that the suspect transaction does not violate OFAC sanctions, but also states OFAC’s position that similar transactions could trigger enforcement action in different circumstances.

  • Finding of a Violation – If OFAC determines that a transaction violates one of its sanctions programs, it will issue a formal finding. This triggers an opportunity to respond; and, at this stage, submitting an effective response is the last step before facing penalties and being forced to challenge the outcome of the investigation in the judiciary.

  • Administrative Penalties – After issuing a formal finding of a violation, representing a final enforcement response, OFAC has the authority to impose various administrative penalties and OFAC enforcement actions. An example of a final civil enforcement response can include cease-and-desist orders, suspension or revocation of a specific license, and various other forms of intervention.

  • Civil Monetary Penalty (CMP) – OFAC has the authority to impose civil monetary penalties (CMP) as well. While the civil monetary penalty for sanction violations vary widely, they can climb quickly in cases involving substantial transactions and allegations of significant compliance failures.

  • Referral to the DOJ – In some circumstances, violations of OFAC sanctions can rise to the level of federal criminal offenses. If a criminal investigation uncovers evidence of potential criminal misconduct, OFAC will typically refer the matter to the DOJ for further investigation and possible criminal prosecution.

7 Defense Considerations for OFAC Investigations

To defend against OFAC investigations effectively, targeted companies and individuals need to address several key considerations. Among others, these key considerations include:

  • Why Is OFAC Investigating? As discussed above, determining what triggered OFAC’s investigation is a key first step toward building an informed defense strategy. To determine the trigger, the target’s defense counsel can engage with OFAC’s Office of Compliance and Enforcement. While the Office may or may not disclose the trigger directly, it will often be possible to discern the trigger based on other information secured.

  • What Is OFAC Investigating? Next, targeted companies and individuals need to ensure that they have an accurate and specific understanding of what OFAC is investigating. OFAC investigates a broad range of sanctions regulations violations, and different allegations present different risks and require different defenses. To build an effective defense, targeted companies and individuals need to identify both the specific transaction in question and the specific sanction at issue.

  • Can the Allegations Be Substantiated? After identifying the focus of the investigation, the next step is to determine if the allegations can be substantiated. This requires a prompt, targeted, and comprehensive internal investigation. When conducting internal investigations, companies need to work with their outside counsel to preserve the attorney-client privilege, and their counsel should ensure that the investigation is structured to gather all of the information needed to build a defense strategy that takes into account all relevant facts and circumstances and whether there is sufficient or insufficient evidence.

  • Could the Violation Have Been Prevented? If the allegations can be substantiated, then the next key question is whether the violation could have been prevented. If a company’s OFAC compliance program is deficient, this can increase the risks involved with facing scrutiny from OFAC. But, if the violation occurred despite comprehensive and good-faith efforts to maintain compliance through an OFAC compliance program, then this can form the basis for an effective defense strategy.

  • What Are the Likely Outcomes? After assessing all of the relevant facts and circumstances, then it is important to assess the likely outcomes. Is no action (or potentially a cautionary letter) a realistic possibility? Or, should defense counsel focus on minimizing potential administrative penalties or CMP? Is criminal prosecution a possibility? If so, this may require a different approach altogether.

  • Should You Cooperate (and To What Extent)? The risks involved should also inform targeted companies’ and individuals’ approach to dealing with OFAC. While it will often be beneficial to cooperate with OFAC’s investigators, this is not always the case. Additionally, even when cooperation is warranted, the extent to which a target should cooperate is hugely dependent on the circumstances at hand. As with all aspects of defending against an OFAC investigation, determining whether (and to what extent) to cooperate requires an informed decision based on the advice of experienced defense counsel.

  • Are There Additional Concerns You Need to Address? Finally, when facing an OFAC investigation, it is also critical to assess whether there are any additional concerns that need to be addressed. For example, as noted above, many OFAC investigations result from referrals from other agencies. If the FBI, FinCEN, or any other U.S. or foreign governmental entity is looking into your (or your company’s) international financial transactions alongside OFAC, this is something you need to know—and it is likely something that you will need to address immediately.

Oberheiden P.C. © 2023 National Law Review, Volume XIII, Number 26

About this Author

Nick Oberheiden Criminal Defense Attorney Oberheiden PC
Federal Criminal Defense Attorney

Dr. Nick Oberheiden focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation. He has defended clients in PPP Loan Fraud cases and COVID-19 investigations. Nick also directs internal corporate investigations and he leads defense teams in whistleblower actions, corporate defense cases, as well as cases involving national security and elected officials.

Clients from more than 45 U.S. states have hired Nick to seek effective protection against government...