On October 16, 2007, President Bush signed S. 1612, the IEEPA Enhancement Act (“Act”; Pub. L. No. 110-096). Under the Act, U.S. companies involved in international trade and finance are at risk of substantially greater civil and criminal penalties for violations of U.S. sanctions regulations, even if the violations are inadvertent. This development is of particular concern to financial institutions because higher maximum penalties intersect with the recent, aggressive stance of the Department of Justice in investigating banks for alleged criminal sanctions violations.
The Act amends the International Emergency Economic Powers Act ("IEEPA"), 50 U.S.C. sections 1701-1706, the long-standing statutory authority for most U.S. sanctions programs. Sanctions promulgated under IEEPA include programs targeting Iran, Sudan, and Burma, as well as entities linked with terrorism, drug trafficking, weapons proliferation, and other national security threats (i.e., entities known as Specially Designated Nationals or “SDNs”). The Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury administers and enforces these sanctions.
Previously, a violation of an IEEPA-based sanctions regulation could result in a civil fine of up to $50,000. In addition, U.S. persons that willfully violated such sanctions faced a criminal fine of up to $50,000, up to twenty years incarceration, or both.
Now, U.S. persons face a potential civil fine of up to $250,000 or twice the value of the transaction at issue, whichever is greater. Notably, civil penalties can accrue even if a U.S. person has no knowledge of the violation, as the Act solidifies IEEPA as a strict liability regime. The Act also expands IEEPA’s criminal provisions to cover persons who willfully commit, attempt to commit, conspire to commit, or aid or abet in the commission of an IEEPA-related violation. In addition, U.S. persons that willfully violate sanctions regulations now face potential criminal fines of up to $1 million. The Act did not change the possible incarceration period, which is a maximum of twenty years.
This hike in IEEPA penalties comes without a right to challenge such penalties before an administrative law judge (“ALJ”) — in contrast with such due process rights granted in 1996 when Congress raised maximum civil penalties to $50,000 for violation of IEEPA’s sister statute, the Trading With the Enemy Act (“TWEA”; TWEA civil penalties have since been raised to $65,000 per violation). Thus, companies faced with an IEEPA- based enforcement action must depend on their ability to negotiate a reasonable penalty with OFAC, as they will not have the ALJ option and would face the practical disincentives of appealing an OFAC penalty to federal court.
Finally, the Act applies retroactively in some respects. Heightened civil penalties potentially could attach to enforcement actions that were pending as of October 16, 2007 (in contrast, the increase in criminal penalties attaches only to actions commenced on or after October 16, 2007). Thus, any voluntary disclosure to OFAC within the past five years possibly could amount to a “pending” enforcement action. The U.S. Bureau of Industry and Security – whose authority also springs from IEEPA – has clarified circumstances under which the Act’s enhanced penalties might apply retroactively. It remains to be seen whether OFAC will likewise clarify its position.