If you have any experience dealing with OFAC, the United States Department of the Treasury’s Office of Foreign Assets Control, you have probably heard of an OFAC Administrative Subpoena or the dreaded “602”. The reason an OFAC administrative subpoena is called a “602” is because OFAC’s authority to issue an administrative subpoena comes from 31 C.F.R. § 501.602. That section provides that, “[e]very person is required to furnish under oath…..from time to time and at any time as may be required by the Director, Office of Foreign Assets Control, complete information relative to any transaction, regardless of whether such transaction is effected pursuant to license or otherwise, subject to the provisions of this chapter or relative to any property in which any foreign country or any national thereof has any interest of any nature whatsoever, direct or indirect.”
Since 31 C.F.R. § 501.602 states that every “person” is required to furnish such information, does this mean that OFAC has authority to compel anyone in the world to produce information related to the provisions of the sanctions programs it administers or in which foreign parties may have an interest? If you take a look at 31 C.F.R. § 501.301, which provides the definitions for Part 501 (under which the § 602 authority stems), it says that the terms used in Part 501 are defined as those that are provided for in the various sanctions programs under which the Part 501 authorities are applied. In other words, if you are trying to understand what the definition of “person” means in 31 C.F.R. § 501.602 in the OFAC Iran sanctions context, then you would look to that definition, found at 31 C.F.R. § 560.305, in the Iranian Transactions and Sanctions Regulations (“ITSR”).
Staying with the OFAC Iran sanctions program example, 31 C.F.R § 560.305 defines “person” as any individual or entity. So does this mean that OFAC would have authority to compel a foreign person, via an OFAC administrative subpoena, to provide information on OFAC sanctions violations? Would that not seem to be an extraterritorial application of law?
Well, we have been seeing an interesting trend recently with OFAC seeking to obtain information from non-U.S. persons that may provide an answer. In those scenarios OFAC does not seem to be invoking their authority under 31 C.F.R. § 501.602. Rather, the requests being made, although visually appearing to be identical to an OFAC administrative subpoena, are different both in title and in language. First, these letters are either not titled at all, or are being titled as a “Request for Information”. Indeed, we have even seen in cases involving foreign financial institutions under investigation for OFAC sanctions violations, that OFAC has merely sent emails listing their inquiries. Second, the language of these letters is far less forceful. For example, here is some sample language from a traditional OFAC administrative subpoena to a U.S. consulting company, and also sample language from a “Request for Information” to a foreign shipping company:
OFAC Administrative Subpoena: “Pursuant to the Iranian Transactions and Sanctions Regulations (the “Regulations”), 31 C.F.R. Part 560, and § 602 of the Reporting, Procedures and Penalties Regulations, 31 C.F.R. Part 501, [COMPANY X] is directed to provide the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury with the following detailed information…..”
OFAC Request for Information: “The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) requests that [COMPANY X] answer the following questions as part of OFAC’s investigation and review of the OFAC Enforcement case number ENF XXXXX.”
It seems to me that OFAC’s change in language and tone is due to their understanding that, regardless of how the regulations could be interpreted, they do not actually have the authority to compel a response from a non-U.S. person. That said, if the non-U.S. person does respond to OFAC, and that response is false or misleading in anyway, that non-U.S. person is opening themselves up to a violation of 18 U.S.C. § 1001, for which prosecution may be pursued. Now, of course, OFAC has other recourse available to it, and sometimes it may be best not to let them draw their own conclusions. However, unlike U.S. persons, non-U.S. persons can be more strategic in deciding if, and how, to respond to OFAC, so long as any response they are making is truthful.