For the second time this week, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) settled apparent violations of U.S. economic sanctions. A foreign bank, National Bank of Abu Dhabi, was the target of the second enforcement action this week, which means that both of the enforcement actions taken by OFAC this week were taken against foreign financial institutions. The settlement entered into with National Bank of Abu Dhabi was for violations of the Sudanese Sanctions Regulations between November 11, 2004 and December 27, 2005, and was in the amount of $855,000. There were forty-five (45) prohibited transactions facilitated by National Bank of Abu Dhabi. According, to OFAC’s enforcement notice, the violations occurred when clerical staff removed references regarding Sudan from payment instructions on behalf of its Sudan Branch which were routed through a U.S. financial institution.

Traditionally, OFAC violations have a statute of limitations of five (5) years. This means that any violation which occurred over five (5) years ago cannot be enforced by OFAC. However, when a violation OFAC is investigating nears in on that five (5) year mark, OFAC will traditionally request that the target of the investigation sign a tolling agreement, which tolls that statute of limitations so OFAC can be free to enforce the matter regardless of five (5) years passing since the date of the violation. Signing these tolling agreements typically is positive for the target of the investigation as they receive mitigated penalties for entering into such agreements.

OFAC enforcement has always levied the most and the largest fines against financial institutions. Naturally, they are the ones most susceptible to engaging in sanctions violations due to their potential facilitation of payment transfers related to prohibited activity; therefore, making an example of them makes sense. However, the penalty and settlement amounts for OFAC violations have been increasing and financial institutions are getting the message. The result is that many banks, domestic and foreign, are taking a zero-tolerance policy towards facilitating payments for any type of transaction with a sanctioned country, be they authorized or otherwise. Indeed, even a number of clients of mine who were involved in receiving funds for OFAC licensed transactions have had their accounts closed down and asked to bank elsewhere. While it is the bank’s prerogative to service whom they like, this pattern of behavior is disturbing. My fear is that if OFAC continues this massive crackdown on financial institutions this phenomenon will only get worse.

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.