On May 2, 2019, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”)—the U.S. agency tasked with administering and enforcing the U.S.’s economic and trade sanctions programs—published A Framework for OFAC Compliance Commitments (the “Framework”). It summarizes and amplifies previous interpretative guidance on establishing and implementing an effective sanctions compliance program (“SCP”) for organizations subject to U.S. jurisdiction, as well as foreign entities that conduct business in or with the U.S. or U.S. persons, or that otherwise use U.S.-origin goods or services.
As economic sanctions have been playing a greater role in U.S. regulations of international businesses, and in light of the increasing need from the private sector to seek guidance in a turbulent and perhaps perplexing sanctions environment, OFAC’s Framework is both timely and useful. It probably is not a coincidence that over the last few years other U.S. law enforcement departments and agencies issued similarly important guidance, based upon the U.S. Sentencing Commission’s guidelines for corporate compliance and ethics.
Built on OFAC’s existing Economic Sanctions and Enforcement Guidelines (the “Guidelines”), the Framework establishes OFAC’s expectations for what an effective SCP should look like in a much more granular fashion than set forth in the Guidelines. The Framework highlights the essential components on which a risk-based compliance program should be predicated, including the following five components: (a) management commitment; (b) risk assessment; (c) internal controls; (d) testing and auditing; and (e) training. The Framework also outlines how these components will be factored into OFAC’s evaluation of an SCP upon detection of apparent violations of the U.S. sanctions program. In addition, the Appendix to the Framework helpfully provides ten “root causes” of OFAC sanctions compliance program breakdowns or deficiencies that have resulted in enforcement actions.
基于美国海外资产控制办公室的现有《经济制裁和执行指南》（简称“指南”），框架更为翔实地阐述了美国海外资产控制办公室对有效的制裁合规计划的期望。框架强调，基于风险制定的合规计划应包含以下五部分：(a) 管理层承诺；(b) 风险评估；(c) 内部管控；(d) 测试与审计；及(e) 培训。框架还说明在检测到明显违反美国制裁计划的情况下，如何将这些组成部分纳入美国海外资产控制办公室对制裁合规计划的评估中。此外，框架附件非常有帮助地提供了美国海外资产控制办公室制裁合规计划失效或缺陷而导致执法行动的十大“根本原因”。
This alert highlights the main aspects and key implications of the Framework, and then offers our follow-up observation and recommendations.
FIVE ESSENTIAL COMPONENTS OF COMPLIANCE
The Framework identifies the following components as being necessary for an effective SCP:
1. Management Commitment. OFAC considers senior management’s commitment to a company’s risk-based SCP “one of the most important factors in determining its success.” The Framework sets out five general aspects that a company’s senior management, including senior leadership, executives, and/or the board of directors, should be involved in. Senior management must ensure that “adequate resources” are allocated to a company’s compliance unit that effectively monitors and controls the company’s OFAC risks. Such efforts will be measured by a number of criteria, such as appointment of a dedicated OFAC compliance officer, the quality and experience of the personnel implementing the SCP, and the existence of sufficient control functions to support the SCP. The crux, therefore, is to create and promote “a culture of compliance throughout the organization.”
2. Risk Assessment. OFAC recommends that a company adopt a risk-based approach when designing or updating its SCP. The central tenet is that a company should conduct a routine and ongoing risk assessment to identify potential OFAC issues that it is likely to encounter, consisting of a holistic assessment review of its touchpoints to possible sanctions-related transactions. Risks may be associated with, among other things, a company’s clients, products and services, third parties such as supply chain and intermediaries, and geographical locations. In particular, the Framework singles out two of the most significant areas of risk, namely, customer on-boarding and mergers and acquisitions. The latter, as stressed by OFAC, has “presented numerous challenges with respect to OFAC sanctions” in recent years, hence risk-assessment must be conducted “particularly in scenarios involving non-U.S. companies.”
3. Internal Controls. An effective SCP must include policies and procedures for an internal control structure relevant to a company’s day-to-day operations to clearly and effectively identify, interdict, escalate, report and keep records pertaining to activity that may be prohibited by relevant laws and regulations. Moreover, internal controls should adequately address the results of its OFAC risk assessment, and be capable of adjusting rapidly to constantly-evolving guidance and dynamic sanction-related lists published by OFAC. Among other things, OFAC expects a company to design and implement written policies and procedures outlining the SCP and communicate them to relevant staff, to appoint personnel for integrating the SCP into its daily operation, and to ensure internal controls remain effective through internal and/or external audit procedures.
4. Testing and Auditing. A comprehensive, independent, and objective testing or audit function within a SCP ensures that a company identifies the weaknesses and deficiencies of the SCP. It is expected that the testing and auditing is accountable to senior management and sufficiently supported with expertise, resources and authority, proportionate to the level and sophistication of the company’s SCP.
5. Training. An OFAC-related training program accompanied by easily accessible resources and materials should be provided to employees and stakeholders with a scope and frequency appropriate to a company’s risk profile. The Framework also emphasizes that a company, upon learning of a deficiency or a negative testing or audit finding, must take immediate and effective action to provide training to relevant personnel.
ROOT CAUSES OF SCP BREAKDOWNS
The Appendix to the Framework provides a non-exhaustive list of 10 “root causes” of OFAC sanctions compliance program breakdowns that result in enforcement actions. These root causes will factor into OFAC’s enforcement actions, including the determination of the amount of civil monetary penalties.
The 10 root causes are:
- Lack of a formal OFAC sanctions compliance program
- Misinterpreting or failing to understand the applicability of sanctions
- Non-U.S. entities facilitating transactions with sanctioned parties
- Exporting or re-exporting U.S.-origin goods, technology, or services to sanctioned persons or countries
- Utilizing the U.S. financial system, or processing payments to or through U.S. financial institutions, for transactions involving sanctioned persons
- Conducting screening with faulty or outdated sanctions screening software
- Conducting improper due diligence on customers/clients or transactions
- Decentralized and inconsistent application of a compliance program
- Utilizing non-standard payment or commercial practices, and
- Individual employees, particularly those in managerial positions, causing or facilitating apparent violations by a company.
Among the 10 root causes, some deserve closer attention.
The first root cause identified by OFAC is a lack of a formal SCP. While the Framework recognizes that OFAC’s regulations do not technically require a formal SCP, as a practical matter organizations subject to U.S. sanctions jurisdiction should adopt a formal SCP. In so doing there are at least two benefits: (a) the existence of a formal SCP will be considered favorably when considering the appropriate resolution of an enforcement investigation by OFAC under the Guidelines; and (b) the existence of a formal SCP will be considered in OFAC’s analysis as an element as to whether an alleged violation is egregious.
美国海外资产控制办公室确定的第一大根本原因是没有正式的制裁合规计划。虽然框架承认，美国海外资产控制办公室的规则严格来说不要求有正式的制裁合规计划，但从实践看来，受美国制裁管辖的组织应制定正式的制裁合规计划。这样做至少有两个好处：(a) 存在正式的制裁合规计划，将在美国海外资产控制办公室根据指南对执法调查进行适当决议时，被视为有利证据；及(b) 存在正式的制裁合规计划，将在美国海外资产控制办公室的分析中，被视为涉嫌违规行为是否极其严重的一项因素。
OFAC is focused on non-U.S. companies. With respect to a formal SCP, for example, OFAC stated that it “particularly” encourages companies involved in international transactions with clients or counter-parties located outside of the U.S. to adopt a formal SCP. OFAC identified another root cause of enforcement actions as companies violate OFAC’s regulations “by referring business opportunities to, approving or signing off on transactions conducted by, or otherwise facilitating dealings between their organization’s non-U.S. locations and OFAC-sanctioned countries, regions, or persons.” OFAC’s position is amplified by several recent, high-profile sanctions-related enforcement cases against foreign financial institutions.
OFAC advises companies with integrated operations, particularly those involving or requiring participation by their U.S. locations or personnel, that they should “ensure any activities they engage in … are compliant with OFAC’s regulations.” (Among other things, this means understanding and avoiding so-called “facilitation” transactions which employ U.S.-based persons, entities, payment systems or other structures to effect a sanctioned transaction.) The fourth and fifth root causes identified by OFAC also refer to the role and activities of non-U.S. persons, signaling that foreign companies with operations or activities in the U.S. should focus on, and if necessary develop and strengthen, their SCPs.
Finally, OFAC is focused on large and sophisticated organizations, and it is arguable—and probably likely—that OFAC’s expectations are higher for those types of organizations. For example, with respect to OFAC’s enforcement actions in the context of improper exports or re-exports, OFAC focused on companies that were “large or sophisticated,” which either ignored or failed to respond to numerous warning signs. Similarly, with respect to enforcement actions for improper wire transfers, OFAC focused on “willful or reckless conduct” for an extended period, with actual knowledge or involvement by the organization’s management, and where the organizations were “large or sophisticated.”
OBSERVATIONS AND RECOMMENDATIONS
Entities subject to U.S. jurisdiction—regardless of location—should evaluate the effectiveness of their SCPs based on the roadmap and standards provided by OFAC in the Framework. If necessary, they should enhance their SCPs to meet OFAC’s expectations and to avoid preventable enforcement penalties.
When reviewing its SCP, a company should ensure that the SCP adopts all of the five essential components identified in the Framework. At a minimum, this means identifying categories of transactions that potentially impact OFAC sanctions prohibitions.
Finally (and possibly most importantly), fostering a culture of compliance is essential. OFAC makes it clear in the Framework that it expects management “to foster a culture of compliance throughout the organization.” That echoes the expectations of other regulators. In November 2017, for example, the Federal Reserve Bank of New York issued a white paper on Misconduct Risk, Culture and Supervision. Regulators increasingly recognize that regulations cannot cover all situations, so they expect financial institutions to create a culture of compliance that can fill any necessary gaps between regulations and guidance, on the one hand, and employee behavior, on the other hand. All organizations, especially large, sophisticated operations with multiple locations should expect the degree of their compliance culture to be an increasing focus in 2019 and beyond.
Stated another way, being able to demonstrate a commitment to compliance may be the most effective mitigation factor should OFAC initiate an investigation targeted against a U.S. or non-U.S. company for alleged sanctions violations.