OFAC Flexed Enforcement Jurisdiction, Targeted Broader Array of Companies in 2020, Lawyers Say

Although the Treasury’s Office of Foreign Assets Control saw a decrease in total sanctions settlements last year, the agency increased its output of sanctions guidance and advisories, shedding more light on OFAC’s compliance expectations, sanctions lawyers said. Lawyers also said the agency flexed its enforcement jurisdiction by pursuing penalties against a variety of industries beyond large commercial banks, a trend that should continue this year.

The COVID-19 pandemic likely contributed to the drop in settlement cases, said Kirkland & Ellis lawyer Abigail Cotterill, speaking during a Feb. 12 event hosted by the American Bar Association. The agency settled 26 cases worth nearly $1.3 billion in 2019 compared with just 16 cases worth $23 million in 2020, according to OFAC data. “One could speculate that’s related to the ongoing pandemic and resource challenges within the government,” Cotterill said. The agency didn’t comment.

She also said OFAC may have been prioritizing actions other than reaching a certain volume of settlements. Cotterill said there was an uptick in settlements against e-commerce companies, aviation services, financial services companies, shippers and other businesses as opposed to large banks. She pointed to one case in July in which OFAC fined Amazon $130,000 for sanctions violations stemming from a faulty screening program (see 2007080024), adding that clients often ask about OFAC’s expectations for screening software, which the case emphasized. “This one was really notable,” she said. “It was maybe somewhat surprising to some companies operating in the e-commerce space that OFAC does expect screening even on retail-like transactions.”

Alexandre Lamy, a trade lawyer with Baker McKenzie, said he noticed “a lot of different advisories and guidance” in 2020, “more than in previous years.” While previous years' guidance have usually covered specific sanctions programs, in 2020 OFAC pursued “cross-program sanctions advisories focusing on some high-level issues,” Lamy said during the event. Some guidance issued last year covered ransomware payments (see 2010010018) and humanitarian exemptions covering a broad range of sanctions regimes (see 2004160039).

“I think you're seeing a whole-of-government approach, that these different issues are not only being handled by OFAC or by [the Bureau of Industry and Security] only in this sort of sanctions and export control prism,” Lamy said. “Other agencies are really involved in these issues.”

Although there was an increase in guidance, companies still struggled to interpret certain OFAC sanctions. Foreign companies faced challenges after the U.S. authorized sanctions against Nord Stream 2, Dorsey & Whitney lawyer Lawrence Ward said. Although Ward said the U.S. has generally “refrained from actually imposing” secondary sanctions, the State Department earlier this year sanctioned a Russian entity and a vessel involved in the construction of the gas pipeline (see 2101190018). “The anticipation is that secondary sanctions programs will continue to be enforced” in the short-term, Ward said, adding that the policy could change under the Biden administration.

It also remains unclear how President Joe Biden will approach China sanctions. Agencies are undergoing a review of China-related restrictions implemented by the Trump administration (see 2101250049), and although Biden is expected to maintain many of the same restrictions, U.S. sanctions programs toward China could become more focused, Duane Morris lawyer Geoffrey Goodale said. He said the U.S. is less likely to adopt broad sectoral sanctions on separate sectors of China’s economy -- such as the military or banking sectors -- and more likely to impose specific restrictions with the help of allies. “I could envision the Biden administration, after its task force reviews things, scaling back some of the sanctions, making them more narrowly tailored,” Goodale said. “I think it's going to be more narrowly tailored than it was under the Trump administration and more collaboration with Europe and our other allies.”