As almost all people reading this blog know, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) enforces violations of U.S. economic sanctions. And as many people reading this blog know, the hallmark of any OFAC investigation is the administrative subpoena. An OFAC administrative subpoena is a letter that invokes OFAC’s right to compel a U.S. persons’ disclosure of certain information and documentation related to transactions that the subpoenaed party may have engaged in with sanctioned parties or sanctioned jurisdictions. OFAC administrative subpoenas typically provide the recipient thirty (30) days to respond. In certain cases this thirty day window can be extended once or twice at OFAC’s discretion, however, I’ve never seen them grant more than two extensions…unless, of course the recipient of the subpoena was willing to toll the statute of limitations.

OFAC can only enforce a penalty that has occurred within the preceding five years. This is because the statute of limitations for the Government to bring civil penalty actions under IEEPA cases is five years, pursuant to 28 U.S.C. § 2462 (Sacks v. Office of Foreign Assets Control, 466 F.3d 764, 774 (9th Cir. 2006)). Likewise, were a sanctions violations to be criminally prosecuted, the defendant would have to be charged within five years of the violation’s occurrence pursuant to 18 U.S. § 3282(a); the statute which sets the default statute of limitations for non-capital federal offenses (United States v. Amirnazmi, 645 F.3d 564, 591 (3rd Cir. 2011)).

Further, OFAC’s own administrative regulations, found in 31 C.F.R. Part 501, the Agency’s Enforcement Guidelines (31 C.F.R. Part 501, Appendix A), state under the “General Factors Affecting Administrative Action” that, “[a]s a general matter, OFAC will only consider a Subject Person’s sanctions history for the five years preceding the date of the transaction giving rise to the apparent violation.” See 31 C.F.R., Pt. 501, App. A § III.D.4. The reason for that five year date is because of statute of limitations concerns.

Frankly, thirty days to respond to an OFAC administrative subpoena is not nearly enough time even for the most organized of clients. It takes quite a bit of time to carry out a factual investigation to gather everything potentially responsive to the subpoena , to hold interviews with key parties that may have information responsive to the subpoena, and to prepare the response for submission to OFAC, including preparation of privilege logs, organizing files, etc. As such, most OFAC subpoena recipients will need to request extensions to the response deadline.

Although OFAC is fairly liberal when it comes to granting extensions, there is often a significant period of time that has lapsed from the occurrence of an apparent violations to the time OFAC is able to investigate the matter. Therefore, OFAC’s granting of extensions may lead to situations where the apparent violations fall outside of OFAC’s five year window. This is of particular concern to OFAC given their backlog of cases, and the amount of time involved in processing an enforcement case. As such, OFAC often asks subpoenaed parties to enter into a tolling agreement to extend the period of time that OFAC can investigate the apparent violation beyond that five year period. These tolling agreements look like this.

The first reaction I get as an OFAC lawyer informing a client that OFAC wants them to enter into a tolling agreement is one of disbelief. After all, why would anyone give OFAC more time to investigate and punish them? This is a valid concern, however, there are a number of reasons why a party would want to toll the statute of limitations. First, you may legitimately need more time to investigate the subject of the subpoena and prepare a response. As it may be better in certain scenarios to not rush through the investigation and miss crucial items that could impact the case down the road, signing OFAC’s tolling agreement may be the only way to obtain the additional time necessary to prepare a proper response. Second, under OFAC’s Enforcement Guidelines General Factor G, you obtain cooperation credit for signing a tolling agreement that will mitigate OFAC’s enforcement response. Third, the rumor amongst those in the OFAC legal community is that OFAC doesn’t take well to parties not signing their tolling agreements. For example, in the 2014 Bank of America $16.5 million OFAC Settlement for processing approximately $91,000 in transactions on behalf of designated narcotics traffickers, as well as maintaing accounts on behalf of certain narcotics traffickers and failing to report those accounts, OFAC’s web notice credited Bank of America with both signing a tolling agreement and extending a tolling agreement. However, a source who purports to have additional information about the case, has stated that at a certain point in the investigation Bank of America refused to sign any further extensions. As a result, Bank of America was compelled to settle the case for an amount which surprised many in the OFAC community as it seemed exceedingly high given the nature of the conduct and volume of transactions involved. In the source’s own words: “Well now everyone knows the cost of a failing to sign a tolling agreement.”

As the above story has not be verified by actual party to the case, it should be taken with a grain of salt. However, it is notable that a common perception amongst those in the OFAC bar is that there is an unspoken price to be paid for failing to sign a tolling agreement. From my perspective, while acknowledging that every case is different, and therefore the decision to sign a tolling agreement could be considered on a case-by-case basis, unless the facts strongly suggest that OFAC will not be able to issue an enforcement response in time, its probably best to just go ahead and sign the tolling agreement. Once you are in the unenviable position of being investigated, further drawing the OFAC’s ire is probably not the best strategy.

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