OFAC Getting 'Worse and Worse' at Responding to Industry Sanctions Questions, Lawyer Says

The Treasury’s Office of Foreign Assets Control is becoming progressively worse at addressing specific sanctions questions from industry stakeholders, leaving queries unanswered and causing companies to hesitate before completing transactions, according to Nixon Peabody trade lawyer Alexandra Lopez-Casero. Companies can employ certain strategies to get responses from OFAC, Lopez-Casero said, but OFAC is typically not as responsive and helpful as other agencies, such as the Commerce Department Bureau of Industry and Security.

Although OFAC is thinly staffed, the agency will likely increase sanctions enforcement in 2020 by turning investigations over to the Justice Department or other agencies, added Nixon Peabody trade lawyer Robert Fisher, a former assistant attorney with the Justice Department. Speaking during a Jan. 30 webinar hosted by the Massachusetts Export Council, both lawyers said companies should expect more sanctions penalties, investigations and enforcement this year.

OFAC has increased its pushback on specific due-diligence questions from companies that are unsure if they should proceed with a transaction, Lopez-Casero said. The agency’s approach to industry requests for guidance has shifted from several years ago, she said, when OFAC would routinely provide personalized responses. “It’s getting worse and worse. Years ago we would call OFAC and we would get some pretty good responses,” Lopez-Casero said. “Things have really changed.” Unlike BIS, which is “much more customer-friendly” and will sometimes answer questions within two weeks when companies are unsure if a potential customer is connected to a denied party, OFAC will usually ignore specific, detailed industry questions, she said.

“They don't want to provide guidance on an individual transaction. They don't want to know all the facts. They will tell you either to submit a license application or to get an advisory opinion,” Lopez-Casero said. “If you submit something that's longer than [three sentences] in an email ... they won't deal with it because it's too much.” Lopez-Casero said companies should only send short questions to OFAC because “that sometimes works” in eliciting a response. She also said OFAC sometimes responds or issues guidance as a frequently asked question when companies “team up in a specific industry sector” and draft a letter to the agency about a common problem. She said that “carries much more weight” than a question from a single company. “Teaming up with others and pushing back on some of the restrictions and trying to get guidance for a particular industry can be very beneficial and actually make a difference,” she said.

In other cases, OFAC responses, including on license applications, can sometimes take “six months, eight months, even more than a year,” Lopez-Casero said. “For most companies, that just doesn't work … so what you see is companies typically erring on the side of caution and just not moving forward.”

OFAC is also “thinly staffed,” Lopez-Casero and Fisher said. Veteran officials are leaving for banks that pay “three times” the amount those officials made at OFAC, the lawyers said. The replacements are often less experienced officials. “We’re just seeing a lot of new people that feel even less comfortable responding to questions,” Lopez-Casero said.

Even as OFAC loses experienced officials, the agency is placing more of an emphasis on sanctions investigations and will “beef up enforcement” in 2020, Fisher said. If OFAC does not have enough staffing to cover all of its enforcement cases, “they'll turn it over” to other agencies, including the Justice Department, Fisher said, which relishes OFAC enforcement cases. Fisher said sanctions investigations are some of the most popular among agents at the Federal Bureau of Investigation and the Department of Homeland Security. “They have witnesses from foreign countries and they travel around the world interviewing witnesses and gathering evidence,” Fisher said. “It's the kind of case a lot of people want to work.” That, combined with the fact that banks and large companies are hiring officials experienced in sanctions enforcement, makes those cases more attractive. “There’s a lot of money in it,” Fisher said, “so I think you will see a continued interest in that.”