Date: July 21, 2016

The US has one of the most complex national systems of sanctions enforcement in the world. This system derives from the number of agencies that are empowered to initiate actions against violators of US sanctions. Because each US agency maintains a different “Do Not Touch” list, organizations and individuals on the various lists may overlap. It is not uncommon for three or four US agencies to take action jointly, thus exposing a business to multiple investigations and varying penalties.

This article is the first of a series on the role US agencies play in sanctions enforcement. The series focuses on the role departments and agencies play in enforcement, administration and investigation of sanctions violations.

We begin with the US Department of the Treasury, which is the most visible, important and active US sanctions enforcement body.

OFAC

The Treasury’s Office of Foreign Assets Control (OFAC) plays a primary role in administering and enforcing US sanctions programs. Its website says OFAC “administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States”.

The International Emergency Economic Powers Act of October 1977, known as the IEEPA, is the primary source of OFAC’s powers. It authorizes the President to declare the existence of an “unusual and extraordinary threat… to the national security, foreign policy, or economy of the United States” from a foreign source. IEEPA makes it a crime to willfully violate, or attempt to violate, any IEEPA regulation. In coordination with the Department of State, OFAC may issue licenses to conduct transactions with a variety of goods and services in sanctioned countries.

OFAC has a wide investigative mandate but relies on the financial institution functional regulators to detect violations and weak compliance policies and procedures. These agencies include the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve System and FINRA. The Department of Commerce’s Bureau of Industry and Security (BIS) enforces laws and regulations concerning strategic trade controls, including supervision and examination of trade in “dual-use” items under the Export Administration Regulations (EAR). Nonetheless, transactions involving sanctioned countries or persons may still fall under OFAC’s purview. The same applies to the State Department’s Directorate of Defense Trade Controls (DDTC), which enforces laws dealing with trade in items pertaining to military defense under the International Traffic in Arms Regulations (ITAR).

OFAC publishes a list covering ‘Specially Designated Nationals’ (SDNs). To see the full list, click here.

OFAC also publishes and maintains lists containing:

  • Sectoral Sanctions Identifications
  • Foreign Sanctions Evaders
  • Non-SDN Palestinian Legislative Council
  • Non SDN Iranian Sanctions
  • Foreign Financial Institutions subject to Part 561 (the “Part 561 List”)

FinCEN

Another US Treasury Department bureau that plays an indirect role in sanctions enforcement is the Financial Crimes Enforcement Network. Known as FinCEN, it collects and analyzes information, primarily from US financial institutions, about currency and electronic financial transactions and movements in order to combat domestic and international money laundering, terrorist financing, and other financial crimes. It also implements, administers and enforces compliance with the Currency and Foreign Transactions Reporting Act of 1970, commonly known as the Bank Secrecy Act, or BSA.

As its powers are mainly derived from the BSA, which does not directly apply to or govern sanctions, FinCEN enforcement actions do not deal with sanctions violations directly but often involve an anti-money laundering violation or action.

FinCEN imposes “Special Measures” under Section 311 of the USA Patriot Act (31 USC Section 5318A), which addresses US concerns about sanctions violations, money laundering and terrorist financing. This provision authorizes FinCEN to impose “special measures” on financial institutions, nations or jurisdictions if it finds that they are of “primary money laundering concern.” Special measures may prohibit or restrict the opening or operation of correspondent or payable-through accounts for a financial institution.

Internal Revenue Service

The Internal Revenue Service has several components that may play an indirect role in sanctions enforcement and compliance. The Examination Division, which employs more than 15,000 examiners, examines compliance with tax laws and tens of thousands of businesses throughout the United States. If it finds a possible criminal violation, it refers the matter to its constituent unit, the Criminal Investigation Division (IRS-CI), which investigates criminal violations of the US tax code and related financial crimes, such as money laundering.

The IRS-CI cooperates closely with other US agencies, including OFAC, to identify terrorists and terrorist fundraising activities for inclusion in the counterterrorism sanctions program.

All of these constituent agencies of the Treasury Department coordinate their work closely with other departments, particularly if a criminal prosecution is being contemplated. In that case, it’s imperative that the United States Department of Justice be involved in the analysis of the matter and the decision of whether to prosecute for a criminal offense.

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