On April 20, the U.S. Treasury Department said it would consider the Coronavirus pandemic’s impact of potentially reducing corporate resources as a mitigating factor in determining the appropriate response to sanctions violations. Something else was left unsaid.
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), which administers and enforces U.S. trade and economic sanctions, issued the notice acknowledging that the Coronavirus pandemic may force some companies into “reallocating sanctions compliance resources.” Shifting resources could erode a company’s compliance functions, including its ability to conduct thorough due diligence on business partners and customers. Complications from Covid-19 may exacerbate these challenges as companies are forced into new and unexpected business relationships.
In addition, OFAC reminded businesses of the existing exemptions and authorizations to provide humanitarian assistance in relation to its sanctions programs and encouraged businesses to inform it as quickly as practicable if they are unable to meet certain reporting or filing deadlines.
What is Not in the Notice
OFAC’s notice serves to help companies prioritize actions under this new paradigm. It acknowledges that companies may need to draw from their compliance resources to fulfill other needs, and it will account for these difficult decisions, on a case-by-case basis, when pursuing enforcement actions. But—to be clear—nothing in the notice indicates OFAC will scale back its enforcement programs or let violative conduct slide. A sanctions violation is still a sanctions violation.
Indeed, OFAC continues to actively pursue enforcement actions and issue findings of violations in this new Covid-19 era. On May 1, it designated an Iranian national and the company he controls for involvement in the Islamic Revolutionary Guard Corps-Qods Force’s efforts to generate revenue and smuggle weapons. Concurrent with OFAC’s designation, the U.S. Attorney’s Office for the District of Columbia filed criminal charges for violations of sanctions and anti-money laundering laws. On April 30, OFAC issued a Finding of Violation in connection with a financial institution providing a credit card to, and processing over 40 transactions for, an individual on the List of Specially Designated Nationals and Blocked Persons. OFAC did not assess a monetary penalty in this case because the financial institution did not engage in willful or reckless behavior, had no knowledge of the violation, remediated the compliance procedure that caused the violation, cooperated in OFAC’s investigation, and had no violations in the previous five years.
Compliance Still Required
All this is to say that companies should not interpret the Treasury’s modest rearrangement of priorities as free reign to neglect their compliance responsibilities. While companies may find some cost savings and efficiency gains by reorganizing compliance procedures, there are serious risks to eliminating compliance functions. A short term gain could lead to troubles down the road.