At the beginning of the year, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) introduced a new regulation increasing fines for violations of U.S. economic and trade sanctions against foreign entities. These penalties were adjusted for inflation, which had risen notably in the previous year.
OFAC Regulation Boosts Civil Monetary Penalties for Sanction Violations by Over 7% Published in the Federal Register on January 13, 2023, the regulation aligns civil monetary penalties with inflation, as mandated by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. OFAC determined a 7.745% increase in these penalties to account for rising inflation from 2022 to 2023. This change is effective as of January 13, 2023, applying to ongoing cases, even those stemming from violations before this date.
This amplifies the cost of breaching U.S. economic sanctions and OFAC programs.
However, the specific penalty amount still hinges on the law authorizing the sanction. Therefore, OFAC’s maximum civil monetary penalty can range from approximately $16,000 to nearly $1.8 million.
This increase also extends to the recordkeeping regulations instituted by the Office of Foreign Assets Control to ensure a documented trail of economic sanctions violations. While these penalties have increased by over 7%, they remain relatively low.
Impact on All OFAC Sanctions Laws The U.S. employs several federal laws to impose economic sanctions on its adversaries and entities posing threats to its interests. These include the Clean Diamond Trade Act, Antiterrorism and Effective Death Penalty Act of 1996, Trading With the Enemy Act of 1917, International Emergency Economic Powers Act of 1977, and the Kingpin Act.
OFAC enforces these laws to address national security and foreign policy concerns, investigating potential violators and imposing civil monetary fines or pursuing criminal charges for deliberate violations of OFAC regulations.
For instance, under the Clean Diamond Act, the maximum civil monetary penalty for a violation or attempted violation increased from $14,950 to $16,108 as of January 13, 2023.
The Antiterrorism and Effective Death Penalty Act now imposes a maximum civil monetary penalty of $94,127, up from $87,361.
Violations under the Trading With the Enemy Act come with a maximum civil monetary penalty of $105,083 in 2023, up from $97,529.
The International Emergency Economic Powers Act’s maximum civil monetary penalty is now $356,579, up from $330,947.
Lastly, the Kingpin Act carries a maximum civil monetary penalty of $1,771,754 in 2023, up from $1,644,396.
Impact on Recordkeeping Regulations The inflation-related increase also affects OFAC’s recordkeeping regulations, ensuring traceable evidence of potential U.S. economic sanctions violations. These violations and associated penalties include:
- Late filing of a required report related to blocked assets: $1,377 for every 30 days of delay, capped at five years, up from $1,278.
- Late filing of a required report within 30 days of its due date: $3,439, up from $3,192.
- Late filing of a required report at least 30 days after its due date: $6,881, up from $6,386.
- Failure to provide requested information under 31 C.F.R. § 501.602: $27,520, up from $25,542.
- Failure to provide information under 31 C.F.R. § 501.602 when transactions involving at least $500,000 are suspected: $68,801, up from $63,855.
- Failure to adequately maintain records required by OFAC: $68,928, up from $63,973.
What This Means for U.S. Companies While these increases are tied to inflation, they represent a significant jump in the fines that OFAC can impose for violating U.S. sanctions. Businesses must consider these increased costs in their compliance program planning and implementation.
It’s important to remember that these are civil monetary penalties, and willful violations can result in criminal charges and potential jail time for individuals. The reputational damage from being accused of engaging in prohibited transactions or trading with entities targeted by OFAC sanctions, such as international narcotics traffickers or terrorist organizations, can have severe financial consequences beyond these increased penalties.
By FCCT Editorial Team
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