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8 September 2008
[Federal Register: September 8, 2008 (Volume 73, Number 174)]
[Rules and Regulations]
[Page 51933-51941]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08se08-9]
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DEPARTMENT OF THE TREASURY
Office of Foreign Assets Control
31 CFR Part 501
Economic Sanctions Enforcement Guidelines
AGENCY: Office of Foreign Assets Control, Treasury.
ACTION: Interim final rule with request for comments.
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SUMMARY: The Office of Foreign Assets Control (OFAC) of the U.S.
Department of the Treasury is issuing this interim final rule,
``Economic Sanctions Enforcement Guidelines,'' as enforcement guidance
for persons subject to the requirements of U.S. sanctions statutes,
Executive orders and regulations. This interim final rule supersedes
the Economic Sanctions Enforcement Guidelines set forth in OFAC's
proposed rule of January 29, 2003 \1\ (with the exception of the
proposed Appendix to the Cuban Assets Control Regulations, 31 CFR Part
515, set forth therein) and the Economic Sanctions Enforcement
Procedures for Banking Institutions set forth in OFAC's interim final
rule of January 12, 2006.\2\ These Enforcement Guidelines are published
as an appendix to the Reporting, Procedures and Penalties Regulations,
31 CFR Part 501.
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\1\ 68 FR 4422-4429 (January 29, 2003).
\2\ 71 FR 1971-1976 (January 12, 2006).
DATES: The interim final rule is effective September 8, 2008. Written
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comments may be submitted on or before November 7, 2008.
ADDRESSES: You may submit comments by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Fax: Attn: Request for Comments (Enforcement Guidelines) (202) 622-
1657.
Mail: Attn: Request for Comments (Enforcement Guidelines), Office
of Foreign Assets Control, Department of the Treasury, 1500
Pennsylvania Avenue, NW., Washington, DC 20220.
Instructions: All submissions received must include the agency name
and the Federal Register Doc. number that appears at the end of this
document. Comments received will be made available to the public via
regulations.gov or upon request, without change and including any
personal information provided.
FOR FURTHER INFORMATION CONTACT: Elton Ellison, Assistant Director,
Civil Penalties, (202) 622-6140 (not a toll-free call).
SUPPLEMENTARY INFORMATION:
Electronic Availability
This document and additional information concerning OFAC are
available from OFAC's Web site (http://www.treas.gov/ofac) or via
facsimile through a 24-hour fax-on-demand service, tel.: (202) 622-
0077.
Procedural Requirements
Because this interim final rule imposes no obligations on any
person, but only explains OFAC's enforcement policy and procedures
based on existing substantive rules, prior notice and public comment
are not required pursuant to 5 U.S.C. 553(b)(A). Because no notice of
proposed rulemaking is required, the provisions of the Regulatory
Flexibility Act (5 U.S.C. chapter 6) do not apply. This interim final
rule is not a significant regulatory action for purposes of Executive
Order 12866.
Although a prior notice of proposed rulemaking is not required, as
discussed in more detail below, OFAC is soliciting comments on this
interim final rule in order to consider how it might make improvements
to these Guidelines. Comments must be submitted in writing. The
addresses and deadline for submitting comments appear near the
beginning of this notice. OFAC will not accept comments accompanied by
a request that all or part of the submission be treated confidentially
because of its business proprietary nature or for any other reason. All
comments received by the deadline will be a matter of public record and
will be made available to the public via regulations.gov.
The collections of information related to the Reporting, Procedures
and Penalties Regulations have been previously approved by the Office
of Management and Budget (OMB) under control number 1505-0164. A small
adjustment to that collection has been submitted to OMB in order to
take into account the voluntary self-disclosure process set forth in
these Guidelines. An agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless it
displays a valid control number assigned by OMB. This collection of
[[Page 51934]]
information is described in subpart F of Part I, subpart G of part III
and subpart B of part V of these Guidelines, which will constitute the
new Appendix to part 501. The referenced subparts explain that the
voluntary self-disclosure of an apparent violation to OFAC will be
considered in determining the appropriate agency response to the
apparent violation and, in cases where a civil monetary penalty is
deemed appropriate, the base penalty amount and the proposed penalty
amount. As set forth in subpart B of part V of the Guidelines, an
apparent violation involving a voluntary self-disclosure will result in
a base penalty amount at least 50 percent less than the base penalty
amount in similar cases that do not involve a voluntary self-
disclosure. This provides an incentive for persons who have or may have
violated economic sanctions laws to come forward and provide OFAC
information that it can use to better enforce its economic sanctions
programs. The submitters who will likely seek to avail themselves of
the benefits of voluntary self-disclosure are financial institutions,
businesses, other entities, and individuals who find that they have or
may have violated a sanctions prohibition and wish to disclose their
actual or potential violation.
The estimated total annual reporting and/or recordkeeping burden:
1,250 hours. The estimated annual burden per respondent/record keeper:
10 hours. Estimated number of respondents and/or record keepers: 125.
Estimated annual frequency of responses: Once or less, given that OFAC
expects that persons who voluntarily self disclose their violations
will take better care to avoid future violations. Comments are invited
on: (a) Whether this collection of information is necessary for the
proper performance of the functions of the agency, including whether
the information has practical utility; (b) the accuracy of the agency's
estimate of the burden of the collection of information; (c) ways to
enhance the quality, utility, and clarity of the information to be
collected; (d) ways to minimize the burden of the collection of
information on respondents, including through the use of automated
collection techniques or other forms of information technology; and (e)
estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information. Comments
concerning the above information, the accuracy of the estimated average
annual burden, and suggestions for reducing this burden should be
directed to OMB, Paperwork Reduction Project, control number 1505-0164,
Washington, DC 20503, with a copy to the Office of Foreign Assets
Control, Department of the Treasury, 1500 Pennsylvania Ave., NW.,
Washington, DC 20220. Any such comments should be submitted no later
than November 7, 2008. Comments on aspects of this rule other than
those involving collections of information subject to the Paperwork
Reduction Act should not be sent to OMB.
Background
The primary mission of OFAC is to administer and enforce economic
sanctions against targeted foreign countries and regimes, terrorists
and terrorist organizations, weapons of mass destruction proliferators,
narcotic traffickers, and others in furtherance of U.S. national
security, foreign policy, and economic objectives. OFAC acts under
Presidential national emergency powers, as well as specific
legislation, to prohibit transactions and block (or ``freeze'') assets
subject to U.S. jurisdiction. Economic sanctions are designed to
deprive the target of the use of its assets and deny the target access
to the U.S. financial system and the benefits of trade, transactions,
and services involving U.S. markets, businesses, and individuals. These
same authorities have also been used to protect assets subject to U.S.
jurisdiction of countries subject to foreign occupation and to further
important U.S. nonproliferation goals.
OFAC administers and enforces economic sanctions programs pursuant
to Presidential and statutory authorities. OFAC is responsible for
civil investigation and enforcement of economic sanctions violations
committed by Subject Persons, as defined in the Guidelines. Where
appropriate, OFAC may coordinate its investigative and enforcement
activities with federal, state, local and/or foreign regulators and/or
law enforcement agencies. Active enforcement of these programs is a
crucial element in preserving and advancing the national security,
foreign policy and economic objectives that underlie these initiatives.
Penalties, both civil and criminal, serve as a deterrent to conduct
that undermines or prevents these sanctions programs from achieving
their various goals.
On January 29, 2003, OFAC published, as a proposed rule, generally
applicable Economic Sanctions Enforcement Guidelines, as well as a
proposed Appendix to the Cuban Assets Control Regulations (CACR)
providing a schedule of proposed civil monetary penalties for certain
violations of the CACR (Cuba Penalty Schedule). Though this proposed
rule was not finalized, OFAC has used the generally applicable
guidelines set forth therein as a general framework for its enforcement
actions and the Cuban Penalty Schedule as a framework for the
imposition of civil monetary penalties for the violations of the CACR
described therein. On January 12, 2006, OFAC published, as an interim
final rule, Economic Sanctions Enforcement Procedures for Banking
Institutions which withdrew the January 29, 2003 proposed rule to the
extent that it applied to banking institutions, as defined in the
interim final rule.
On October 16, 2007, the President signed into law the
International Emergency Economic Powers Enhancement Act (Enhancement
Act),\3\ substantially increasing the maximum penalties for violations
of the International Emergency Economic Powers Act (IEEPA),\4\ a
principal statutory authority for most OFAC sanctions programs. The
increased maximum penalty amounts set forth in the Enhancement Act, as
well as its application to pending or commenced cases involving
apparent violations of IEEPA, prompted the development of these new
Guidelines for determining an appropriate enforcement response to
apparent violations of sanctions programs enforced by OFAC (as defined
in the Guidelines), and, in cases involving civil monetary penalties,
for determining the amount of any civil monetary penalty. The
Guidelines set forth in this interim final rule supersede the
enforcement procedures for banking institutions set forth in the
interim final rule of January 12, 2006, which is hereby withdrawn, as
well as the proposed guidelines set forth in the proposed rule of
January 29, 2003, which is also hereby withdrawn, with the exception of
the Cuba Penalty Schedule. (Those withdrawn enforcement procedures and
guidelines continue to apply to the categories of cases set forth in
OFAC's November 27, 2007 Civil Penalties--Interim Policy.) The
Guidelines set forth herein are applicable to all persons subject to
any of the sanctions programs administered by OFAC. As discussed in
greater detail below, OFAC requests comments on this interim final
rule. The Guidelines set forth in this interim final rule are not
applicable to penalty or enforcement actions by other agencies based on
the same underlying course of conduct, the
[[Page 51935]]
disposition of goods seized by Customs and Border Protection, or the
release of blocked property by OFAC.
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\3\ Pub. Law 110-96, 121 Stat. 1011 (October 16, 2007).
\4\ Pub. Law 95-223, 91 Stat. 1626 (December 28, 1977).
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The Guidelines set forth in this interim final rule are applicable
to all enforcement matters currently pending before OFAC or that will
come before OFAC in the future, whether such matters fall under IEEPA
or any of the other statutes pursuant to which OFAC is authorized to
enforce sanctions (including, but not limited to, the Trading With the
Enemy Act), with the exception of (i) those categories of cases set
forth in OFAC's November 27, 2007 Civil Penalties--Interim Policy and
(ii) those matters addressed in the Cuba Penalty Schedule or the
Service Provider Program Circular periodically issued by OFAC pursuant
to the CACR. The Guidelines reflect the factors that OFAC will consider
in determining the appropriate enforcement response to an apparent
violation of an OFAC sanctions program, and those factors are
consistent across programs. The civil penalty provisions of the
Guidelines take into account the maximum penalties available under the
various statutes pursuant to which OFAC is authorized to enforce its
sanctions programs.
The Guidelines reflect several changes from the 2003 proposed rule
and the 2006 interim final rule. First, rather than identifying
``aggravating'' and ``mitigating'' factors, the Guidelines set forth
General Factors that OFAC will consider in determining an appropriate
enforcement response to an apparent violation and, if a civil monetary
penalty is warranted, in establishing the amount of that penalty. The
General Factors reflect the considerations that OFAC believes are most
critical to a determination of appropriate agency action. The move away
from ``aggravating'' and ``mitigating'' factors was motivated in part
by the realization that in many cases, a particular factor could be
considered either aggravating or mitigating (e.g., remedial action was
considered a mitigating factor in the 2003 proposed rule, while the
absence of remedial action was considered an aggravating factor).
Rather than list such factors as both aggravating and mitigating
factors, OFAC believes it is better practice to identify the General
Factors it will consider as part of a holistic consideration of the
facts and circumstances of a particular case.
Second, the Guidelines provide for the issuance of either
cautionary letters or findings of violation under certain
circumstances, rather than the cautionary letters and warning letters
provided for in the 2003 proposed rule and the evaluative letters
provided for in the 2006 interim final rule. Cautionary letters reflect
OFAC's enforcement response to an apparent violation when OFAC
determines either that there is insufficient evidence to conclude that
a violation has occurred or that a finding of violation is not
warranted under the circumstances. A cautionary letter does not
constitute a final agency determination that a violation has or has not
occurred, but serves to place the Subject Person on notice that any
such similar conduct in the future may result in a finding of violation
or the imposition of a civil monetary penalty. Findings of violation
are reserved for cases in which OFAC determines that a violation has
occurred and considers it important to document the occurrence of a
violation, but nevertheless concludes that the imposition of a civil
monetary penalty is not the most appropriate enforcement response.
Because a finding of violation constitutes a final agency determination
that a violation has occurred, OFAC will afford the Subject Person an
opportunity to respond to OFAC's determination. OFAC will give careful
consideration to the appropriateness of issuing a cautionary letter or
finding of violation in lieu of the imposition of a civil monetary
penalty.
Third, in recognition of OFAC's position that the enhanced maximum
civil penalties authorized by the Enhancement Act should be reserved
for the most serious cases, the Guidelines distinguish between
egregious and non-egregious civil monetary penalty cases. Egregious
cases are defined as those representing the most serious sanctions
violations, based on an analysis of all applicable General Factors,
with substantial weight given to considerations of willfulness or
recklessness, awareness of the conduct giving rise to an apparent
violation, harm to sanctions program objectives, and the individual
characteristics of the Subject Person. As described below, the
Guidelines generally provide for significantly higher civil penalties
for egregious cases. OFAC anticipates that the majority of enforcement
cases will fall in the non-egregious category.
Fourth, in those cases in which the imposition of a civil monetary
penalty is deemed appropriate, the Guidelines provide a new process for
determining the penalty amount. This process involves first determining
a base penalty amount. This base penalty amount is based on two primary
considerations: (i) Whether the conduct, activity, or transaction
giving rise to a violation is egregious or non-egregious and (ii)
whether the case involves a voluntary self-disclosure by the Subject
Person. As discussed above, egregious cases are generally subject to
significantly higher penalties, a result reflected in the base penalty
amount for such cases. In keeping with the previous enforcement
guidelines and in recognition of the importance of voluntary self-
disclosures to OFAC, the existence (or lack) of a voluntary self-
disclosure is a major factor in establishing the penalty amount. The
base penalty amount for a case involving a voluntary self-disclosure
reflects a 50 percent or more reduction from the base penalty amount
that would otherwise be applicable. As set forth in greater detail in
the Guidelines themselves, once a base penalty amount is calculated
based on the transaction value and egregiousness/voluntary self-
disclosure factors, the amount may be adjusted upward or downward based
on the other General Factors set forth in the Guidelines. The resulting
amount reflects OFAC's proposed civil monetary penalty.
Pre-penalty notices issued pursuant to these Guidelines will set
forth the actual civil monetary penalty that OFAC proposes to impose.
Thus, the pre-penalty notice will provide a Subject Person with notice
of the actual penalty that the agency deems appropriate under the
circumstances, rather than merely identifying the maximum possible
penalty. Subject Persons will be afforded an opportunity to respond to
a pre-penalty notice with arguments and/or evidence respecting the
amount of the proposed penalty, which OFAC will consider prior to
issuing a final penalty notice. By adopting this approach, OFAC intends
to bring greater transparency to the civil penalty process and to
provide more useful notice to Subject Persons that may be subject to a
civil monetary penalty.
The Guidelines also address the process for settling allegations of
violations.
Although this interim final rule is effective immediately, OFAC is
soliciting comments for a 60-day period with a view to improving the
Guidelines. Comments are requested on all aspects of the Guidelines,
but are particularly sought with respect to the following:
Are the General Factors Affecting Administrative Action
the appropriate factors the agency should consider in determining the
type of enforcement response to an apparent violation, and, if a civil
monetary penalty is warranted, the amount of that penalty? Are there
other factors that should be identified in the Guidelines? Are there
factors that should be eliminated? Are there factors that should be
defined with greater specificity?
[[Page 51936]]
Is the definition of an egregious case appropriate?
Are the proposed base penalty amounts appropriate for the
types of cases to which they are applicable?
Does the new penalty process, whereby the pre-penalty
notice sets forth the penalty that OFAC proposes to impose, constitute
an improvement on current practice? Can the process be improved in
other ways?
List of Subjects in 31 CFR Part 501
Administrative practice and procedure, Banks, Banking, Insurance,
Money service business, Penalties, Reporting and recordkeeping
requirements, Securities.
0
For the reasons set forth in the preamble, 31 CFR Part 501 is amended
as follows:
PART 501--REPORTING, PROCEDURES AND PENALTIES REGULATIONS
0
1. The authority citation for Part 501 is revised to read as follows:
Authority: 8 U.S.C. 1189; 18 U.S.C. 2332d, 2339B; 19 U.S.C.
3901-3913; 21 U.S.C. 1901-1908; 22 U.S.C. 287c; 22 U.S.C. 2370(a),
6009, 6032, 7205; 28 U.S.C. 2461 note; 31 U.S.C. 321(b); 50 U.S.C.
1701-1706; 50 U.S.C. App. 1-44.
0
2. Part 501 is amended by revising Appendix A to Part 501 to read as
follows:
Appendix A to Part 501--Economic Sanctions Enforcement Guidelines
Note: This appendix provides a general framework for the
enforcement of all economic sanctions programs administered by the
Office of Foreign Assets Control (OFAC), with the exception of those
violations set forth in the proposed Appendix to the Cuban Assets
Control Regulations (CACR), 31 CFR Part 515 (see 68 FR 4422, 4429
(January 29, 2003)) or in the Service Provider Program Circular
periodically issued by OFAC pursuant to the CACR.
I. Definitions
A. Apparent violation means conduct that constitutes an actual
or possible violation of U.S. economic sanctions laws, including the
International Emergency Economic Powers Act (IEEPA), the Trading
With the Enemy Act (TWEA), the Foreign Narcotics Kingpin Designation
Act, and other statutes administered or enforced by OFAC, as well as
Executive orders, regulations, orders, directives, or licenses
issued pursuant thereto.
B. Applicable schedule amount means:
i. $1,000 with respect to a transaction valued at less than
$1,000;
ii. $10,000 with respect to a transaction valued at $1,000 or
more but less than $10,000;
iii. $25,000 with respect to a transaction valued at $10,000 or
more but less than $25,000;
iv. $50,000 with respect to a transaction valued at $25,000 or
more but less than $50,000;
v. $100,000 with respect to a transaction valued at $50,000 or
more but less than $100,000;
vi. $170,000 with respect to a transaction valued at $100,000 or
more but less than $170,000;
vii. $250,000 with respect to a transaction valued at $170,000
or more, except that where the applicable schedule amount as defined
above exceeds the statutory maximum civil penalty amount applicable
to an apparent violation, the applicable schedule amount shall equal
such statutory maximum civil penalty amount.
C. OFAC means the Department of the Treasury's Office of Foreign
Assets Control.
D. Penalty is the final civil penalty amount imposed in a
Penalty Notice.
E. Proposed penalty is the civil penalty amount set forth in a
Pre-Penalty Notice.
F. Regulator means any federal, state, local or foreign official
or agency that has authority to license or examine an entity for
compliance with federal, state, or foreign law.
G. Subject Person means an individual or entity subject to any
of the sanctions programs administered or enforced by OFAC.
H. Transaction value means the dollar value of a subject
transaction. In export and import cases, the transaction value
generally will be the domestic value in the United States of the
goods, technology, or services sought to be exported or imported
into the United States, as demonstrated by commercial invoices,
bills of lading, signed Customs declarations, or similar documents.
In cases involving seizures by U.S. Customs and Border Protection
(CBP), the transaction value generally will be the domestic value as
determined by CBP. If the apparent violation at issue is a
prohibited dealing in blocked property by a Subject Person, the
transaction value generally will be the dollar value of the
underlying transaction involved, such as the value of the property
dealt in or the amount of the funds transfer that a financial
institution failed to block or reject. Where the transaction value
is not otherwise ascertainable, OFAC may consider the market value
of the goods or services that were the subject of the transaction,
the economic benefit conferred on the sanctioned party, and/or the
economic benefit derived by the Subject Person from the transaction
in determining transaction value. For purposes of these Guidelines,
``transaction value'' will not necessarily have the same meaning,
nor be applied in the same manner, as that term is used for import
valuation purposes at 19 CFR 152.103.
I. Voluntary self-disclosure means self-initiated notification
to OFAC of an apparent violation by a Subject Person that has
committed, or otherwise participated in, an apparent violation of a
statute, Executive order, or regulation administered or enforced by
OFAC, prior to the time that OFAC, or any other federal, state or
local government agency or official, discovers the apparent
violation or another substantially similar apparent violation. For
these purposes, ``substantially similar apparent violation'' means
an apparent violation that is part of a series of similar apparent
violations or is related to the same pattern or practice of conduct.
Notification to OFAC of an apparent violation is not a voluntary
self-disclosure if: a third party is required to notify OFAC of the
apparent violation or a substantially similar apparent violation
because a transaction was blocked or rejected by that third party
(regardless of whether or when OFAC actually receives such notice
from the third party and regardless of whether the Subject Person
was aware of the third party's disclosure); the disclosure includes
false or misleading information; the disclosure (when considered
along with supplemental information provided by the Subject Person)
is materially incomplete; the disclosure is not self-initiated
(including when the disclosure results from a suggestion or order of
a federal or state agency or official); or, when the Subject Person
is an entity, the disclosure is made by an individual in a Subject
Person entity without the authorization of the entity's senior
management. Responding to an administrative subpoena or other
inquiry from, or filing a license application with, OFAC is not a
voluntary self-disclosure. In addition to notification, a voluntary
self-disclosure must include, or be followed within a reasonable
period of time by, a report of sufficient detail to afford a
complete understanding of an apparent violation's circumstances, and
should also be followed by responsiveness to any follow-up inquiries
by OFAC. (As discussed further below, a Subject Person's level of
cooperation with OFAC is an important factor in determining the
appropriate enforcement response to an apparent violation even in
the absence of a voluntary self-disclosure as defined herein;
disclosure by a Subject Person generally will result in mitigation
insofar as it represents cooperation with OFAC's investigation.)
II. Types of Responses to Apparent Violations
Depending on the facts and circumstances of a particular case,
an OFAC investigation may lead to one or more of the following
actions:
A. No Action. If OFAC determines that there is insufficient
evidence to conclude that a violation has occurred and/or, based on
an analysis of the General Factors outlined in Section III of these
Guidelines, concludes that the conduct or activity does not rise to
a level warranting an administrative response, then no action will
be taken. In those cases in which OFAC is aware that the Subject
Person has knowledge of OFAC's investigation, OFAC generally will
issue a letter to the Subject Person indicating that the
investigation is being closed with no administrative action being
taken. A no-action determination represents a final determination as
to the apparent violation, unless OFAC later learns of additional
related violations or other relevant facts.
B. Request Additional Information. If OFAC determines that
additional information regarding the apparent violation is needed,
it may request further information from the
[[Page 51937]]
Subject Person or third parties, including through an administrative
subpoena issued pursuant to 31 CFR Sec. 501.602. In the case of an
institution subject to regulation where OFAC has entered into a
Memorandum of Understanding (MOU) with the Subject Person's
regulator, OFAC will follow the procedures set forth in such MOU
regarding consultation with the regulator. Even in the absence of an
MOU, OFAC may seek relevant information about a regulated
institution and/or the conduct or activity constituting the apparent
violation from the institution's federal, state, or foreign
regulator. Upon receipt of information determined to be sufficient
to assess the apparent violation, OFAC will decide, based on an
analysis of the General Factors outlined in Section III of these
Guidelines, whether to pursue further enforcement action or whether
some other response to the apparent violation is appropriate.
C. Cautionary Letter: If OFAC determines that there is
insufficient evidence to conclude that a violation has occurred or
that a finding of violation is not warranted under the
circumstances, but believes that the underlying conduct could lead
to a violation in other circumstances and/or that a Subject Person
does not appear to be exercising due diligence in assuring
compliance with the statutes, Executive orders, and regulations that
OFAC enforces, OFAC may issue a cautionary letter that conveys its
concerns about the underlying conduct and/or the Subject Person's
OFAC compliance policies, practices and/or procedures. A cautionary
letter represents a final enforcement response to the apparent
violation, unless OFAC later learns of additional related violations
or other relevant facts, but does not constitute a final agency
determination as to whether a violation has occurred.
D. Finding of Violation: If OFAC determines that a violation has
occurred and considers it important to document the occurrence of a
violation and, based on an analysis of the General Factors outlined
in Section III of these Guidelines, concludes that the Subject
Person's conduct warrants an administrative response but that a
civil monetary penalty is not the most appropriate response, OFAC
may issue a finding of violation that identifies the violation,
conveys OFAC's concerns about the violation and/or the Subject
Person's OFAC compliance policies, practices and/or procedures, and/
or identifies the need for further compliance steps to be taken. A
finding of violation represents a final enforcement response to the
violation, unless OFAC later learns of additional related violations
or other relevant facts, and constitutes a final agency
determination that a violation has occurred. A finding of violation
will afford the Subject Person an opportunity to respond to OFAC's
determination that a violation has occurred.
E. Civil Monetary Penalty. If OFAC determines that a violation
has occurred and, based on an analysis of the General Factors
outlined in Section III of these Guidelines, concludes that the
Subject Person's conduct warrants the imposition of a monetary
penalty, OFAC may impose a civil monetary penalty. Civil monetary
penalty amounts will be determined as discussed in Section V of
these Guidelines. The imposition of a civil monetary penalty
constitutes a final agency determination that a violation has
occurred and represents a final civil enforcement response to the
violation.
F. Criminal Referral. In appropriate circumstances, OFAC may
refer the matter to appropriate law enforcement agencies for
criminal investigation and/or prosecution. Apparent sanctions
violations that OFAC has referred for criminal investigation and/or
prosecution also may be subject to OFAC civil penalty or other
administrative action.
G. Other Administrative Actions. In addition to or in lieu of
other administrative actions, OFAC may also take the following
administrative actions in response to an apparent violation:
1. License Denial, Suspension, Modification, or Revocation. OFAC
authorizations to engage in a transaction (including the release of
blocked funds) pursuant to a general or specific license may be
withheld, denied, suspended, modified, or revoked in response to an
apparent violation.
2. Cease and Desist Order. OFAC may order the Subject Person to
cease and desist from conduct or activities that are prohibited by
any of the sanctions programs enforced by OFAC when OFAC has reason
to believe that a Subject Person has engaged in such conduct or
activities and/or that such conduct or activities are ongoing or may
recur.
III. General Factors Affecting Administrative Action
The type of enforcement action undertaken by OFAC will depend on
the nature of the apparent violation and the harm caused to the
relevant sanctions program and its objectives. As a general matter,
OFAC will consider some or all of the following General Factors in
determining the appropriate administrative action in response to an
apparent violation of U.S. sanctions by a Subject Person, and, where
a civil monetary penalty is imposed, in determining the appropriate
amount of any such penalty:
A. Willful or Reckless Violation of Law: a Subject Person's
willfulness or recklessness in violating, attempting to violate,
conspiring to violate, or causing a violation of the law. Generally,
to the extent the conduct, activity or transaction at issue is the
result of willful misconduct or a deliberate intent to violate,
attempt to violate, conspire to violate, or cause a violation of the
law, the OFAC enforcement response will be stronger. Among the
factors OFAC may consider in evaluating willfulness or recklessness
are:
1. Willfulness. Was the conduct at issue the result of a
decision to take action with the knowledge that such action would
constitute a violation of U.S. law? Did the Subject Person know that
the underlying conduct constituted, or likely constituted, a
violation of U.S. law at the time of the conduct?
2. Recklessness. Did the Subject Person demonstrate reckless
disregard for U.S. sanctions requirements or otherwise fail to
exercise a minimal degree of caution or care in avoiding conduct,
activities or transactions that led to the apparent violation? Were
there warning signs that should have alerted the Subject Person that
an action or failure to act would lead to an apparent violation?
3. Concealment. Was there an effort by the Subject Person to
hide or purposely obfuscate its conduct, activities or transactions
in order to mislead OFAC, federal, state or foreign regulators, or
other parties involved in the transaction/conduct about an apparent
violation?
4. Pattern of Misconduct. Was the apparent violation the result
of a pattern or practice of conduct or was it relatively isolated
and atypical in nature?
5. Prior Notice. Was the Subject Person on notice, or should it
reasonably have been on notice, that the conduct at issue, or
similar conduct, constituted a violation of U.S. law?
6. Management Involvement. In cases of entities, at what level
within the organization did the willful or reckless misconduct
occur? Were supervisory or managerial level staff aware, or should
they reasonably have been aware, of the willful or reckless
misconduct?
B. Awareness of Conduct at Issue: The Subject Person's awareness
of the conduct, activity or transaction giving rise to the apparent
violation. Generally, the greater a Subject Person's actual
knowledge of, or reason to know about, the conduct, activity, or
transaction constituting an apparent violation, the stronger the
OFAC enforcement response will be. In the case of a corporation,
awareness will focus on supervisory or managerial level staff in the
business unit at issue, as well as other senior officers and
managers. Among the factors OFAC may consider in evaluating the
Subject Person's awareness of the conduct at issue are:
1. Actual Knowledge. Did the Subject Person have actual
knowledge that the conduct, activity, or transaction giving rise to
an apparent violation took place? Was the conduct, activity, or
transaction part of a business process, structure or arrangement
that was designed or implemented with the intent to prevent or
shield the Subject Person from having such actual knowledge, or was
the conduct, activity, or transaction part of a business process,
structure or arrangement implemented for other legitimate reasons
that made it difficult or impossible for the Subject Person to have
actual knowledge?
2. Reason to Know. If the Subject Person did not have actual
knowledge that the conduct, activity, or transaction took place, did
the Subject Person have reason to know, or should the Subject Person
reasonably have known, based on all readily available information
and with the exercise of reasonable due diligence, that the conduct,
activity, or transaction would or might take place?
3. Management Involvement. In the case of an entity, was the
conduct, activity or transaction undertaken with the explicit or
implicit knowledge of senior management, or was the conduct,
activity, or transaction undertaken by personnel outside the
knowledge of senior management? If the apparent violation was
undertaken without the knowledge of senior management, was there
oversight intended to detect and prevent violations, or did the lack
of knowledge by senior management result from disregard for its
responsibility to comply with applicable sanctions laws?
[[Page 51938]]
C. Harm to Sanctions Program Objectives: The actual or potential
harm to sanctions program objectives caused by the conduct,
activities, or transactions giving rise to the apparent violation.
Among the factors OFAC may consider in evaluating the harm to
sanctions program objectives are:
1. Economic or Other Benefit to the Sanctioned Individual,
Entity, or Country: The economic or other benefit conferred or
attempted to be conferred to sanctioned individuals, entities, or
countries as a result of an apparent violation, including the
number, size, and impact of the transactions or incidents
constituting an apparent violation(s), the length of time over which
they occurred, and the nature of the economic or other benefit
conferred. OFAC may also consider the causal link between the
Subject Person's conduct and the economic benefit conferred or
attempted to be conferred.
2. Implications for U.S. Policy: The effect that the
circumstances of the apparent violation had on the integrity of the
U.S. sanctions program and the related policy objectives involved.
3. License Eligibility: Whether the conduct constituting the
apparent violation likely would have been licensed by OFAC under
existing licensing policy.
4. Humanitarian activity: Whether the conduct at issue was in
support of a humanitarian activity.
D. Individual Characteristics: The particular circumstances and
characteristics of a Subject Person. Among the factors OFAC may
consider in evaluating individual characteristics are:
1. Commercial Sophistication: The commercial sophistication and
experience of the Subject Person. Is the Subject Person an
individual or an entity? If an individual, was the transaction
constituting the apparent violation conducted for personal or
business reasons?
2. Size of Operations and Financial Condition: The size of a
Subject Person's business operations and overall financial condition
may be considered, where such information is available and relevant.
Qualification of the Subject Person as a small business or
organization for the purposes of the Small Business Regulatory
Enforcement Fairness Act, as determined by reference to the
applicable regulations of the Small Business Administration, may
also be considered.
3. Volume of Transactions: The total volume of transactions
undertaken by the Subject Person on an annual basis, with attention
given to the apparent violations as compared with the total volume.
4. Sanctions Violation History: The Subject Person's history of
sanctions violations, including OFAC's issuance of prior findings of
violations or cautionary, warning or evaluative letters, or other
administrative actions.
E. Compliance Program: The existence and nature of a Subject
Person's OFAC compliance program at the time of the apparent
violation, where relevant. In the case of an institution subject to
regulation where OFAC has entered into a Memorandum of Understanding
(MOU) with the Subject Person's regulator, OFAC will follow the
procedures set forth in such MOU regarding consultation with the
regulator with regard to the quality and effectiveness of the
Subject Person's compliance program. Even in the absence of an MOU,
OFAC may take into consideration the views of federal, state, or
foreign regulators, where relevant.
F. Remedial Response: The Subject Person's corrective action
taken in response to the apparent violation. Among the factors OFAC
may consider in evaluating the remedial response are:
1. The steps taken by the Subject Person upon learning of the
apparent violation. Did the Subject Person immediately stop the
conduct at issue?
2. In the case of an entity, the processes followed to resolve
issues related to the apparent violation. Did the Subject Person
discover necessary information to ascertain the causes and extent of
the apparent violation, fully and expeditiously? Where applicable,
were the Audit Committee and the Board of Directors fully informed?
If so, when?
3. In the case of an entity, whether the Subject Person adopted
new and more effective internal controls and procedures to prevent a
recurrence of the apparent violation. If the Subject Person did not
have an OFAC compliance program in place at the time of the apparent
violation, did it implement one upon discovery or notification of
the violations? If it did have an OFAC compliance program, did it
take appropriate steps to enhance the program to prevent the
recurrence of similar violations? Did the entity provide the
individual(s) responsible for the apparent violation with additional
training, and/or take other appropriate action, to ensure that
similar violations do not occur in the future?
4. Where applicable, whether the Subject Person undertook a
thorough review to identify other possible violations.
G. Cooperation with OFAC: The nature and extent of the Subject
Person's cooperation with OFAC. Among the factors OFAC may consider
in evaluating cooperation with OFAC are:
1. Did the Subject Person voluntarily self-disclose the apparent
violation to OFAC?
2. Did the Subject Person provide OFAC with all relevant
information regarding an apparent violation (whether or not
voluntarily self-disclosed)?
3. Did the Subject Person research and disclose to OFAC relevant
information regarding any other apparent violations caused by the
same course of conduct?
4. Was information provided voluntarily or in response to an
administrative subpoena?
5. Did the Subject Person cooperate with, and promptly respond
to, all requests for information?
6. Did the Subject Person agree to a statute of limitations
waiver or tolling agreement, if requested by OFAC (particularly in
situations where the apparent violations were not immediately
notified to or discovered by OFAC)?
H. Timing of apparent violation in relation to imposition of
sanctions: The timing of the apparent violation in relation to the
adoption of the applicable prohibitions, particularly if the
apparent violation took place soon after relevant changes in the
sanctions program regulations or the addition of a new name to
OFAC's List of Specially Designated Nationals and Blocked Persons
(SDN List).
I. Other enforcement action: Other enforcement actions taken by
federal, state, or local agencies against the Subject Person for the
apparent violation or similar apparent violations, including whether
the settlement of alleged violations of OFAC regulations is part of
a comprehensive settlement with other federal, state, or local
agencies.
J. Future Compliance/Deterrence Effect: The impact
administrative action may have on promoting future compliance with
U.S. economic sanctions by the Subject Person and similar Subject
Persons, particularly those in the same industry sector.
K. Other relevant factors on a case-by-case basis: Such other
factors that OFAC deems relevant on a case-by-case basis in
determining the appropriate enforcement response and/or the amount
of any civil monetary penalty. OFAC will consider the totality of
the circumstances to ensure that its enforcement response is
proportionate to the nature of the violation.
IV. Civil Penalties for Failure to Furnish Information or Keep Records
Except in the instance of authorized service providers under the
Cuban Assets Control Regulations, for whom enforcement guidelines
appear in the Service Provider Program Circular periodically issued
by OFAC, as a general matter the following civil penalty amounts
shall apply to a Subject Person's failure to furnish information or
maintain records:
A. The failure to respond to a requirement to furnish
information pursuant to 31 CFR 501.602, or failure to furnish the
requested information, may result in a penalty in an amount up to
$20,000, irrespective of whether any other violation is alleged.
Where OFAC has reason to believe that the apparent violation(s) that
is the subject of the request to furnish information involves a
transaction(s) valued at greater than $500,000, a failure to respond
to a request to furnish information or failure to furnish the
requested information may result in a penalty in an amount up to
$50,000, irrespective of whether any other violation is alleged. A
failure to respond to a requirement to furnish information or a
failure to furnish the requested information shall be considered a
continuing violation, and the penalties described above may be
imposed each month that a party has continued to fail to respond or
to furnish the requested information. OFAC may also seek to have a
requirement to furnish information judicially enforced. Imposition
of a civil monetary penalty for failure to respond to a requirement
to furnish information or a failure to furnish the requested
information does not preclude OFAC from seeking such judicial
enforcement.
B. The late filing of a required report, whether set forth in
regulations or in a specific license, may result in a civil monetary
penalty in an amount up to $2,500, if filed within the first 30 days
after the report is due, and a penalty in an amount up
[[Page 51939]]
to $5,000 if filed more than 30 days after the report is due. If the
report relates to blocked assets, the penalty may include an
additional $1,000 for every 30 days that the report is overdue, up
to five years.
C. The first failure to maintain records in conformance with the
requirements of OFAC's regulations or of a specific license may
result in a penalty in an amount up to $5,000. Each additional
violation in this regard may result in a penalty in an amount up to
$10,000.
V. Civil Penalties
OFAC will review the facts and circumstances surrounding an
apparent violation and apply the General Factors for Taking
Administrative Action in Section III above in determining whether to
initiate a civil penalty proceeding and in determining the amount of
any civil monetary penalty. OFAC will give careful consideration to
the appropriateness of issuing a cautionary letter or finding of
violation in lieu of the imposition of a civil monetary penalty.
A. Civil Penalty Process
1. Pre-Penalty Notice. If OFAC has reason to believe that a
violation of U.S. sanctions has occurred and that a civil monetary
penalty is warranted, it will issue a Pre-Penalty Notice in
accordance with the procedures set forth in the particular
regulations governing the conduct, activity, or transactions giving
rise to the apparent violation. The amount of the proposed penalty
set forth in the Pre-Penalty Notice will reflect OFAC's preliminary
assessment of the appropriate penalty amount, based on information
then in OFAC's possession. The amount of the final penalty may
change as OFAC learns additional relevant information. If, after
issuance of a Pre-Penalty Notice, OFAC determines that a penalty in
an amount that represents an increase of more than 10 percent from
the proposed penalty set forth in the Pre-Penalty Notice is
appropriate, or if OFAC intends to allege additional violations, it
will issue a revised Pre-Penalty Notice setting forth the new
proposed penalty amount and/or alleged violations.
a. In general, the Pre-Penalty Notice will set forth the
following with respect to the specific violations alleged and the
proposed penalties:
i. Description of the alleged violations, including the number
of violations and their value, for which a penalty is being
proposed;
ii. Identification of the regulatory or other provisions alleged
to have been violated;
iii. Identification of the General Factors that were most
relevant to the determination of the proposed penalty amount,
including the base category (defined below) according to which the
proposed penalty amount was calculated;
iv. The maximum amount of the penalty to which the Subject
Person could be subject under applicable law; and
v. The proposed penalty amount, determined in accordance with
the provisions set forth in these Guidelines.
b. The Pre-Penalty Notice will also include information
regarding how to respond to the Pre-Penalty Notice including:
i. A statement that the Subject Person may submit a written
response to the Pre-Penalty Notice by a date certain addressing the
alleged violation(s), the General Factors Affecting Administrative
Action set forth in Section III of these Guidelines, and any other
information or evidence that the Subject Person deems relevant to
OFAC's consideration.
ii. A statement that a failure to respond to the Pre-Penalty
Notice likely will result in the imposition of a civil monetary
penalty in the amount set forth in the Pre-Penalty Notice.
2. Response to Pre-Penalty Notice. A Subject Person may submit a
written response to the Pre-Penalty Notice in accordance with the
procedures set forth in the particular regulations governing the
conduct, activity or transactions giving rise to the apparent
violation. Generally, the response should either agree to the
proposed penalty set forth in the Pre-Penalty Notice or set forth
reasons why a penalty should not be imposed or, if imposed, why it
should be a lesser amount than proposed, with particular attention
paid to the General Factors Affecting Administrative Action set
forth in Section III of these Guidelines. The response should
include all documentary or other evidence available to the Subject
Person that supports the arguments set forth in the response. OFAC
will consider all relevant materials submitted.
3. Penalty Notice. If OFAC receives no response to a Pre-Penalty
Notice within the time prescribed in the Pre-Penalty Notice, or if
following the receipt of a response to a Pre-Penalty Notice and a
review of the information and evidence contained therein OFAC
concludes that a violation warranting a civil monetary penalty has
occurred, a Penalty Notice generally will be issued in accordance
with the procedures set forth in the particular regulations
governing the conduct, activity or transactions giving rise to the
violation. A Penalty Notice constitutes a final agency finding that
a violation has occurred. The penalty amount set forth in the
Penalty Notice will take into account relevant additional
information provided in response to a Pre-Penalty Notice. In the
absence of a response to a Pre-Penalty Notice, the penalty amount
set forth in the Penalty Notice will generally be the same as the
proposed penalty set forth in the Pre-Penalty Notice.
4. Referral to Financial Management Division. The imposition of
a civil monetary penalty pursuant to a Penalty Notice creates a debt
due the U.S. Government. OFAC will advise Treasury's Financial
Management Division upon the imposition of a penalty. The Financial
Management Division may take follow-up action to collect the penalty
assessed if it is not paid within the prescribed time period set
forth in the Penalty Notice. In addition or instead, the matter may
be referred to the U.S. Department of Justice for appropriate action
to recover the penalty.
5. Final Agency Action. The imposition of a penalty pursuant to
a Penalty Notice constitutes final agency action with respect to the
violation(s) for which the penalty is assessed.
B. Amount of Civil Penalty
1. Egregious case. In those cases in which a civil monetary
penalty is deemed appropriate, OFAC will make a determination as to
whether a case is deemed ``egregious'' for purposes of the base
penalty calculation. This determination will be based on an analysis
of the applicable General Factors. In making the egregiousness
determination, OFAC generally will give substantial weight to
General Factors A (``willful or reckless violation of law''), B
(``awareness of conduct at issue''), C (``harm to sanctions program
objectives'') and D (``individual characteristics''), with
particular emphasis on General Factors A and B. A case will be
considered an ``egregious case'' where the analysis of the
applicable General Factors, with a focus on those General Factors
identified above, indicates that the case represents a particularly
serious violation of the law calling for a strong enforcement
response. A determination that a case is ``egregious'' will be made
by the Director or Deputy Director.
2. Pre-Penalty Notice. The penalty amount proposed in a Pre-
Penalty Notice shall generally be calculated as follows, except that
neither the base amount nor the proposed penalty will exceed the
applicable statutory maximum amount:
a. Base category calculation
i. In a non-egregious case, if the apparent violation is
disclosed through a voluntary self-disclosure by the Subject Person,
the base amount of the proposed civil penalty in the Pre-Penalty
Notice shall be one-half of the transaction value, capped at a
maximum base amount of $125,000 per violation.
ii. In a non-egregious case, if the apparent violation comes to
OFAC's attention by means other than a voluntary self-disclosure,
the base amount of the proposed civil penalty in the Pre-Penalty
Notice shall be the ``applicable schedule amount,'' as defined above
(capped at a maximum base amount of $250,000 per violation).
iii. In an egregious case, if the apparent violation is
disclosed through a voluntary self-disclosure by a Subject Person,
the base amount of the proposed civil penalty in the Pre-Penalty
Notice shall be one-half the statutory maximum penalty applicable to
the violation.
iv. In an egregious case, if the apparent violation comes to
OFAC's attention by means other than a voluntary self-disclosure,
the base amount of the proposed civil monetary penalty in the Pre-
Penalty Notice shall be the statutory maximum penalty amount
applicable to the violation.
The following matrix represents the base amount of the proposed
civil penalty for each category of violation:
[[Page 51940]]
[GRAPHIC] [TIFF OMITTED] TR08SE08.003
The base penalty amount will not exceed the applicable statutory
maximum amount.
b. Adjustment for applicable relevant General Factors
The base amount of the proposed civil penalty may be adjusted to
reflect applicable General Factors for Administrative Action set
forth in Section III of these Guidelines. Each factor may be
considered mitigating or aggravating, resulting in a lower or higher
proposed penalty amount. As a general matter, in those cases where
the following General Factors are present, OFAC will adjust the base
proposed penalty amount in the following manner:
i. In cases involving substantial cooperation with OFAC but no
voluntary self-disclosure as defined herein, including cases in
which an apparent violation is reported to OFAC by a third party but
the Subject Person provides substantial additional information
regarding the apparent violation and/or other related violations,
the base penalty amount generally will be reduced between 25 and 40
percent. Substantial cooperation in cases involving voluntary self-
disclosure may also be considered as a further mitigating factor.
ii. In cases involving a Subject Person's first violation, the
base penalty amount generally will be reduced up to 25 percent. The
extent of any such mitigation will be based, in part, on whether the
Subject Person had previously been issued a cautionary, warning or
evaluative letter.
In all cases, the proposed penalty amount will not exceed the
applicable statutory maximum.
In cases involving a large number of apparent violations, where
the transaction value of all apparent violations is either unknown
or would require a disproportionate allocation of resources to
determine, OFAC may estimate or extrapolate the transaction value of
the total universe of apparent violations in determining the amount
of any proposed civil monetary penalty.
3. Penalty Notice. The amount of the proposed civil penalty in
the Pre-Penalty Notice will be the presumptive starting point for
calculation of the civil penalty amount in the Penalty Notice. OFAC
may adjust the penalty amount in the Penalty Notice based on:
a. Evidence presented by the Subject Person in response to the
Pre-Penalty Notice, or otherwise received by OFAC with respect to
the underlying violation(s); and/or
b. Any modification resulting from further review and
reconsideration by OFAC of the proposed civil monetary penalty in
light of the General Factors for Administrative Action in Section
III above.
In no event will the amount of the civil monetary penalty in the
Penalty Notice exceed the proposed penalty set forth in the Pre-
Penalty Notice by more than 10 percent, or include additional
alleged violations, unless a revised Pre-Penalty Notice has first
been sent to the Subject Person as set forth above. In the event
that OFAC determines upon further review that no penalty is
appropriate, it will so inform the Subject Person in a no-action
letter, a cautionary letter, or a finding of violation.
C. Settlements
A settlement does not constitute a final agency determination
that a violation has occurred.
1. Settlement Process. Settlement discussions may be initiated
by OFAC, the Subject Person or the Subject Person's authorized
representative. Settlements generally will be negotiated in
accordance with the principles set forth in these Guidelines with
respect to appropriate penalty amounts. OFAC may condition the entry
into or continuation of settlement negotiations on the execution of
a tolling agreement with respect to the statute of limitations.
2. Settlement Prior to Issuance of Pre-Penalty Notice. Where
settlement discussions occur prior to the issuance of a Pre-Penalty
Notice, the Subject Person may request in writing that OFAC withhold
issuance of a Pre-Penalty Notice pending the conclusion of
settlement discussions. OFAC will generally agree to such a request
as long as settlement discussions are continuing in good faith and
the statute of limitations is not at risk of expiring.
3. Settlement Following Issuance of Pre-Penalty Notice. If a
matter is settled after a Pre-Penalty Notice has been issued, but
before a final Penalty Notice is issued, OFAC will not make a final
determination as to whether a sanctions violation has occurred. In
the event no settlement is reached, the period specified for written
response to the Pre-Penalty Notice remains in effect unless
additional time is granted by OFAC.
4. Settlements of Multiple Apparent Violations. A settlement
initiated for one apparent violation may also involve a
[[Page 51941]]
comprehensive or global settlement of multiple apparent violations
covered by other Pre-Penalty Notices, apparent violations for which
a Pre-Penalty Notice has not yet been issued by OFAC, or previously
unknown apparent violations reported to OFAC during the pendency of
an investigation of an apparent violation.
Dated: September 2, 2008.
Adam J. Szubin,
Director, Office of Foreign Assets Control.
[FR Doc. E8-20704 Filed 9-5-08; 8:45 am]
BILLING CODE 4811-45-P