Although I always hesitate to make predictions, it is my belief that we are in a period of relaxed penalization for violations of U.S. economic sanctions administered by the United States Department of the Treasury Office of Foreign Assets Control (“OFAC”). This does not mean that enforcement is necessarily down, as it does seem from calls I have received that OFAC is still very much investigating potential violations. However, let us consider the numbers for a moment.

In the first six months of 2009, OFAC issued or settled for a total of $1,157,913.00 in penalties derived from sixteen (16) violations. In the same period in 2010 the total was $18,796,011 for nine (9) violations. Yet, in 2011 we have only seen $460,566 in penalties for nine (9) violations. That’s a massive drop in penalty amounts over the last year, despite the number of violations remaining constant.

So why would penalties decline in size? Well I think there are several reasons:

1. I think the penalties handed down in recent years have really made an impact from a compliance standpoint. It seems to me through discussions I have had with clients, potential clients, and everyone else, that OFAC compliance is something that needs to be taken very seriously. As a result, I think the violations which have been from recent transactions are less egregious than those of the past.

2. There were some major penalties handed down due to egregious cases in both 2009 and 2010. This includes the 2010 Balli Aviation case which resulted in $15,000,000 in settlement penalties. Again, I think this was the result of the nonchalant manner in which OFAC compliance was approached in previous years.

3. There is a lot going on at OFAC this year. For example, in the first six months of this year, there has been major managerial shakeups which include Stuart Levey the former Undersecretary for Terrorism and Financial Intelligence leaving and being replaced by David Cohen and the former OFAC Enforcement Section Chief for Iran Sanctions leaving for the private sector. In addition, OFAC has been forced to scramble as President Obama has ordered into effect a variety of new sanctions programs targeting Libya, Syria, and North Korea. As anyone practicing in this field can you tell you, this has caused quite a backlog at licensing and I wouldn’t be surprised if all that is going on was impacting the enforcement division as well.

Despite the statistics and the potential reasoning behind them, OFAC is still very much a strong agency with an important mission; a mission they very proactively pursue. Regardless of whether the days of massive OFAC penalties are over, the rules and regulations that OFAC administers need to be followed, lest we see a return of the big OFAC penalty era once again.

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@ferrari-legal.com.