Earlier this year, I wrote that it seemed the days of large penalties and settlements for violations of U.S. economic sanctions administered by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) was over. This belief was based upon the fact that in 2009 and 2010, OFAC had either penalized or settled sanctions violations in approximately the amount of $700 million each year. However, in 2011, OFAC settled or penalized less than $100 million for sanctions violations. This was coupled with the fact that in the years prior to 2009 OFAC did not have a single year in which they issued over $100 million in penalties or settlements for violations. Well my belief that the days of the big OFAC penalties were over was mistaken. This year OFAC has issued well over $1 billion in penalties and settlements for OFAC administered sanctions violations. This was highlighted by the massive $619 million settlement with ING Bank this summer and the recent announcement of settlements of $375 million and $132 million with HSBC Holdings and HSBC earlier this month.

In 2012, there were 17 penalties or settlements of OFAC violations for a grand total of $1,138,554,339. Of these penalties seven (7) were issued against exporters, six (6) were issued against financial institutions, one (1) was issued against an entity in the transportation industry, one (1) was issued against a company working in the energy sector, one (1) was issued against a homeowner’s association, and one (1) issued against a private individual. The exporters engaged in violations were involved in exporting medical supplies, food, cosmetics, computers and acoustic equipment. The overwhelming majority of these penalties and settlements involved violations of the Iranian Transactions Regulations, the Cuban Assets Control Regulations, and the Sudanese Sanctions Regulations, three country based sanctions programs.

Although a large portion of the fines constituting the $1,13 billion noted above involved penalties or settlements against financial institutions, it is interesting to note that the number of such enforcement actions targeting exporters outpaced financial institutions. This is unusual but could be a sign of things to come. As financial institutions continue to ramp up their compliance programs to account for U.S. economic sanctions, the likelihood that we will see activity like that which lead to the HSBC and ING settlements is unlikely. As such, OFAC enforcement may begin to go after exporters of goods and services to sanctioned countries and targeted parties whose compliance programs may be non-existent or not up to par. 2013 may be the year when exporters really begin to fell the wrath of OFAC and wake up to the fact that if you are doing business internationally that OFAC should be a concern and a compliance program addressing OFAC administered sanctions programs is a must.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.