1. Overview of U.S. sanctions regime
The United States enforces economic and trade sanctions based on U.S. foreign policy and national security goals against a wide array of targets – certain foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction.
Since 1977, sanctions have largely been issued under the statutory authority of the International Emergency Economic Powers Act (“IEEPA”). The IEEPA grants the President of the United States the authority “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.” Presidents typically launch the process by issuing an executive order (“EO”) that declares a national emergency in response to an “unusual and extraordinary” foreign threat, such as “the proliferation of nuclear, biological, and chemical weapons” (e.g., EO 12938) or “the actions and policies of the Government of the Russian Federation with respect to Ukraine” (e.g., EO 13661).
In addition, Congress may pass legislation imposing new sanctions or modifying existing ones, which it has done in many cases. In instances where there are multiple legal authorities, as with the sanctions targeting Cuba and Iran, both congressional and executive action may be required to alter or lift the various restrictions.
For the most part, U.S. sanctions programs are administered by the Treasury Department’s Office of Foreign Assets Control (“OFAC”), while other departments, including State, Commerce, Homeland Security, and Justice, may also play an integral role. For instance, the Department of Justice (“DOJ”) enforces criminal violations of U.S economic sanctions programs. The Federal Reserve Bank of New York and the New York State Department of Financial Services are the primary banking regulators.
The first six months of 2019 have seen increased activity in terms of aggregate number of settlements as well as total penalties/settlements from OFAC. This is a clear indication that enforcement of economic sanctions has become a top priority of the Trump administration.
1.1 OFAC Enforcement
The following two tables show the aggregate number of settlements and total amount of fines paid to OFAC over the past 5 years.
2. Recent developments:
2.1 Newly-published “A Framework for Compliance Commitments”
On 2 May 2019, OFAC published “A Framework for OFAC Compliance Commitments” (“Framework”).  This long-awaited publication lists five essential components of a risk-based sanctions compliance program (“SCP”).
- Management commitment. Organizations need a from-the-top approach to sanctions compliance so that a “culture of compliance” can be created and fostered. In judging an organization’s commitment to this element of compliance, OFAC indicates that it will measure criteria such as the appointment of a dedicated sanctions compliance officer and the quality and experience of the personnel dedicated to implementing the SCP.
- 2. Risk assessment. Companies should conduct a risk assessment to identify potential issues in the company and then adjust the SCP to deal specifically with these weaknesses.
- Internal controls. Policies and procedures should be put into place so that the company can effectively identify, interdict, escalate, report, and keep records related to OFAC sanctions.
- Testing and auditing. It is critical to assess the effectiveness of current processes and identify any weaknesses in order to improve an SCP.
- Training. On a periodic basis, a company should provide adequate information and instruction to employees and, as appropriate, stakeholders such as clients, suppliers, business partners, and counterparties.
The Framework identifies ten root causes of breakdowns in SCPs based on a survey of OFAC public enforcement actions. The causes include (1) lack of a formal SCP; (2) misinterpreting or failing to understand the applicability of OFAC’s regulations; (3) facilitating transactions by non-US persons (including through or by overseas subsidiaries or affiliates); (4) exporting or re-exporting US-origin goods, technology or services to OFAC-sanctioned persons or countries; (5) utilizing the U.S. financial system, or processing payments to or through U.S. financial institutions, for commercial transactions involving OFAC-sanctioned persons or countries; (6) sanctions screening software or filter faults; (7) improper due diligence on customers or clients; (8) decentralized compliance functions and inconsistent application of an SCP; (9) utilizing non-standard payment or commercial practices; (10) individual liability – i.e., situations in which individual employees—particularly in supervisory, managerial, or executive-level positions—have played integral roles in causing or facilitating violations of OFAC regulations.
In the M&A context, OFAC has indicated that not only is it important to engage in due diligence of target companies, but that parties subject to U.S. jurisdiction should pay continuing attention to sanctions compliance after the completion of a corporate acquisition.
The Framework is addressed not only to persons subject to U.S. jurisdiction, but also to foreign entities that conduct business in or with the United States, with U.S. persons, or involving U.S.-origin goods or services. All companies who fall into the aforementioned categories should adhere to the Framework when designing, implementing, and modifying their SCPs.
2.2 Legislative and Regulatory Developments
The first half of 2019 has seen several regulatory developments concerning countries subject to economic sanctions.
Economic Sanctions on Venezuela
For more than a decade, the United States has employed sanctions as a policy tool in response to activities of the Venezuelan government and certain Venezuelan individuals. These have included sanctions related to terrorism, drug trafficking, trafficking in persons, antidemocratic actions, human rights violations, and corruption. Currently, the Treasury Department has financial sanctions on 112 individuals, and the State Department has revoked the visas of hundreds of Venezuelan individuals.
On January 28, 2019, pursuant to E.O. 13850, the Treasury Department placed PdVSA, the Venezuelan state-owned oil company, on OFAC’s list of specially designated nationals and blocked persons (“SDN List”). As a result, all property and interests in property of PdVSA subject to U.S. jurisdiction are blocked, and U.S. persons generally are prohibited from engaging in transactions with the company.
At the same time, OFAC issued general licenses to allow certain transactions and activities related to PdVSA and its subsidiaries, some within specified time frames or winddown periods. Transactions with two U.S.-based PdVSA subsidiaries, PDV Holding, Inc. (“PDVH”) and CITGO Holding, Inc., originally were authorized through July 27, 2019, but in March 2019, the Treasury Department extended a general license for 18 months. PDVH, CITGO, and other U.S. companies were also authorized to import petroleum from PdVSA through April 28, 2019, although payments benefiting PdVSA were to be made to a blocked account in the United States. Several U.S. companies with operations in Venezuela involving PdVSA are authorized to continue their operations through July 27, 2019.
In March 2019, the Treasury Department expanded sanctions pursuant to E.O. 13850. On March 11, it sanctioned the Moscow-based Evrofinance Mosnarbank, jointly owned by Russia and Venezuela, for helping PdVSA with cash from oil sales. On March 19, it sanctioned Venezuela’s state-owned gold sector company, Minerven, for using illicit gold operations to help finance the Venezuelan government. On March 22, it sanctioned the state-affiliated Venezuelan Economic and Social Development Bank (“BANDES”) and five of its subsidiaries for its involvement in moving funds for the Maduro regime.
In April 2019, the Treasury Department sanctioned 44 vessels (along with six shipping companies) involved in transporting Venezuelan oil, including five companies that have transported Venezuelan oil to Cuba. On April 17, the Treasury Department sanctioned Venezuela’s Central Bank to cut off its access to U.S. currency and limit its ability to conduct international financial transactions.
Economic Sanctions on Cuba
On June 4, 2019, OFAC unveiled amendments to the Cuban Assets Control Regulations to further implement the President’s foreign policy on Cuba. Major elements of the revised regulations include (1) removing the authorization for group “people-to-people” educational travel and (2) ending license exceptions for passenger vessels, recreational vessels, and private aircraft.
Economic sanctions on DPRK
On March 21, 2019, the Department of the Treasury, along with the Department of State and the U.S. Coast Guard, issued updated guidance addressing North Korea’s illicit shipping practices. The guidance alerts individuals and entities globally to deceptive shipping practices used by North Korea to evade sanctions, and provides industry with risk mitigation measures.
On the same day, OFAC sanctioned Chinese shipping companies Dalian Haibo International Freight Co. Ltd. and Liaoning Danxing International Forwarding Co. Ltd. for helping North Korea evade U.S. and UN sanctions.
Economic sanctions on Iran
Last year, President Trump announced that the United States would no longer participate in the Joint Comprehensive Plan of Action (“JCPOA”), which had revoked most U.S. sanctions targeting non-U.S. persons doing business with Iran. When re-imposing sanctions in November 2018 pursuant to this announcement, the U.S. government granted 180-day “Significant Reduction Exceptions” (“SREs”) to eight countries, under which these countries were permitted to import Iranian oil without penalty as long as they continued to reduce purchases of Iranian oil. As part of the U.S. government’s goal to put an end to Iran’s oil exports, the U.S. government announced on April 22, 2019 that it would not renew the SREs upon their expiration on May 2, 2019.
On May 8, 2019, President Trump issued Executive Order 13871 which authorizes new sanctions against the iron, steel, aluminum and copper sectors of Iran. E.O. 13871 also imposes sanctions on non-U.S. foreign financial institutions for conducting or facilitating transactions related to Iran’s iron, steel, aluminum and copper sectors.
2.3 Sample of Civil Cases Enforced by OFAC in 2019
- e.l.f Cosmetics, Inc.
On January 31, 2019, OFAC announced a settlement of $996,080 with e.l.f. Cosmetics, Inc. (“ELF”) of Oakland, California. ELF agreed to settle its potential civil liability for 156 apparent violations of the North Korea Sanctions Regulations, 31 C.F.R. part 510 (“NKSR”). The apparent violations involved the importation of false eyelash kits from two suppliers located in the People’s Republic of China that contained materials sourced from the Democratic People’s Republic of Korea. OFAC determined that ELF voluntarily self-disclosed the apparent violations and that the apparent violations constituted a non-egregious case.
OFAC criticized the deficiencies in ELF’s OFAC compliance program. While ELF is a large and commercially sophisticated company that engages in a substantial volume of international trade, OFAC noted that ELF’s OFAC compliance program was either non-existent or inadequate throughout the time period in which the apparent violations occurred. Moreover, ELF appeared not to have exercised sufficient supply chain due diligence while sourcing products from a region that poses a high risk to the effectiveness of the NKSR.
- Kollmorgen Corporation
On February 7, 2019, OFAC announced a $13,381 settlement with Kollmorgen Corporation (“Kollmorgen”) of Radford, Virginia. Kollmorgen agreed to settle potential civil liability on behalf of its Turkish affiliate, Elsim Elektroteknik Sistemler Sanayi ve Ticaret Anonim Sirketi (“Elsim”), for six apparent violations of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (“ITSR”). The apparent violations involved Elsim dispatching employees to Iran to service machines and providing other services to Iran in violation of ITSR § 560.215. OFAC determined that Kollmorgen voluntarily self-disclosed the apparent violations on behalf of Elsim and that the apparent violations constituted a non-egregious case.
- AppliChem GmbH
On February 14, 2019, OFAC announced a $5,512,564 penalty against AppliChem GmbH (“AppliChem”) of Darmstadt, Germany for 304 violations of the Cuban Assets Control Regulations, 31 C.F.R. part 515. Between May 2012 and February 2016, AppliChem violated § 515.201 of the Cuban Assets Control Regulations when it fulfilled Cuba orders for chemical reagents on 304 invoices. OFAC determined that AppliChem’s U.S. parent voluntarily self-disclosed the apparent violations, but that the apparent violations constituted an egregious case.
- ZAG IP, LLC
On February 21, 2019, OFAC announced a $506,250 settlement with ZAG IP, LLC (formerly known as ZAG International, LLC) (“ZAG”), a U.S. company with a business address in Newtown, Connecticut, for five apparent violations of § 560.206 of the ITSR, 31 C.F.R. part 560. Specifically, between approximately July 11, 2014 and January 15, 2015, through five separate transactions, ZAG purchased a total of 263,563 metric tons of Iranian-origin cement clinker from a company located in the United Arab Emirates, with knowledge that the product was sourced from Iran, and then resold and transported it to a company in Tanzania.. OFAC determined that ZAG voluntarily self-disclosed the apparent violations to OFAC, and that the apparent violations constituted a non-egregious case. 
- Stanley Black & Decker, Inc.
On March 27, 2019, Stanley Black & Decker, Inc. (“SBD”) settled potential civil liability for apparent violations of the ITSR committed by its Chinese-based subsidiary Jiangsu Guoqiang Tools Co. Ltd. (“GQ”). The company, on behalf of itself and GQ, agreed to pay $1,869,144 to settle its potential civil liability for 23 apparent violations of the ITSR.
In May 2013, SBD acquired a 60-percent interest in GQ and created a joint venture with the firm. Subsequent to its acquisition of GQ, SBD provided a series of trainings to GQ’s employees on the company’s guidelines on sanctions compliance. However, GQ continued to export goods to Iran throughout 2013 and 2014. Various GQ board members and senior management participated in these activities with knowledge that such conduct violated its parent company’s policies and U.S. economic sanctions against Iran. 
- Acteon Group
On April 9, 2019, OFAC announced a $227,500 settlement with Acteon Group Ltd. (“Acteon”), Acteon’s subsidiary, 2H Offshore Engineering Ltd. (“2H Offshore”) and Acteon’s two Malaysian affiliates 2H Offshore Engineering Sdn Bhd and 2H Offshore Engineering (Asia Pacific) Sdn Bhd (collectively “2H KL”). Acteon, a subsea service provider in the oil and gas industry based in the United Kingdom, and 2H Offshore, an engineering contractor based in the UK that specializes in services used in offshore oil and gas drilling production, agreed to settle their potential civil liability for seven apparent violations of the Cuban Assets Control Regulations, 31 C.F.R. part 515 (“CACR”). Specifically, between approximately May 18, 2011 and October 18, 2012, 2H KL performed engineering design analyses for oil well drilling projects in Cuban territorial waters and sent its engineers to Cuba to conduct workshops on these analyses. OFAC determined that, while 2H Offshore voluntarily self-disclosed the apparent violations, these apparent violations constituted an egregious case.
Separately, OFAC announced a $213,866 settlement with KKR & Co. Inc. (“KKR”), a global investment firm based in New York City; Acteon; and Acteon’s subsidiaries, Seatronics Ltd., Seatronics, Inc., and Seatronics Ptd. Ltd. (collectively “Seatronics”), geophysical services companies based in the UK. Acteon agreed to settle: (1) potential civil liability for 13 apparent violations of the CACR by it and Seatronics; and (2) KKR’s potential civil liability for three apparent violations of the ITSR, 31 C.F.R. part 560. Specifically, between approximately August 12, 2010 and March 16, 2012, Acteon appears to have violated § 515.201 of the CACR when Seatronics rented or sold equipment for oil exploration projects in Cuban territorial waters, and sent company engineers to service equipment on vessels operating in Cuban territorial waters. In addition, between approximately September 10, 2014 and November 11, 2014, Seatronics appears to have violated §§ 560.215 and § 560.204 of the ITSR when Seatronics Ltd.’s Abu Dhabi, United Arab Emirates branch rented or sold equipment to customers who appear to have embarked the equipment on vessels that operated in Iranian territorial waters. OFAC determined that Acteon voluntarily self-disclosed the apparent violations, and that these apparent violations constituted a non-egregious case.
- Haverly Systems, Inc.
On April 25, 2019 Haverly Systems, Inc. (“Haverly”), a New Jersey corporation with offices in Texas and California, agreed to pay $75,375 to settle its potential civil liability for two apparent violations of the Ukraine Related Sanctions Regulations, 31 C.F.R. part 589 (“URSR”). Specifically, between approximately May 31, 2016 and January 11, 2017, Haverly apparently violated Directive 2 under Executive Order 13662, “Blocking Property of Additional Persons Contributing to the Situation in Ukraine” (“Directive 2”), and § 589.201 of the URSR, when it transacted or otherwise dealt in new debt of greater than 90 days maturity of JSC Rosneft (“Rosneft”), an entity identified by OFAC on the Sectoral Sanctions Identification List as subject to Directive 2. OFAC determined that Haverly did not voluntary self-disclose the apparent violations to OFAC, but the apparent violations constituted a non-egregious case.
- MID-SHIP Group LLC.
On May 2, 2019, OFAC announced a $871,837 settlement with MID-SHIP Group LLC (“MID-SHIP”). MID-SHIP, a company headquartered in Port Washington, New York, agreed to settle its potential civil liability for five apparent violations of the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. part 544 (“WMDPSR”). Specifically, between approximately February 18, 2011 and November 14, 2011, MID-SHIP processed five electronic funds transfers, totaling approximately $472,861, that pertained to payments associated with blocked vessels identified on OFAC’s List of Specially Designated Nationals and Blocked Persons. These transactions appear to have violated § 544.201 of the WMDPSR. OFAC determined that MID-SHIP did not voluntarily self-disclose the apparent violations, and the apparent violations constituted an egregious case.
- Western Union Financial Services, Inc
On June 7, 2019, OFAC announced a $401,697 settlement with Western Union Financial Services, Inc. (“Western Union”), of Denver, Colorado. Western Union has agreed to settle its potential civil liability for 4,977 apparent violations of the Global Terrorism Sanctions Regulations, 31 C.F.R. part 594 (“GTSR”). Between approximately December 9, 2010, and March 13, 2015, Western Union processed 4,977 transactions totaling approximately $1.275 million, which were paid out to third-party, non-designated beneficiaries who collected their remittances at a Western Union Sub-Agent which had been designated by OFAC pursuant to the GTSR on December 9, 2010. OFAC determined that Western Union voluntarily self-disclosed the apparent violations and that the apparent violations constituted a non-egregious case.
2.4 Sample of Criminal Sanctions Cases Enforced by DOJ in 2019
- UniCredit AG
On April 15, 2019, OFAC announced three separate agreements totaling $611 million with the following UniCredit Group banks: UniCredit Bank AG in Germany, UniCredit Bank Austria AG in Austria, and UniCredit S.p.A. in Italy. The settlements resolve OFAC’s investigations into apparent violations of a number of U.S. sanctions programs, including those related to weapons of mass destruction proliferation.
Specifically, between January 2007 and December 2011, UniCredit Bank AG processed over 2,000 payments totaling over $500 million through financial institutions in the United States in apparent violation of multiple U.S. sanctions programs.
UniCredit Bank AG agreed to enter a guilty plea to criminally conspiring to violate the International Emergency Economic Powers Act and to defraud the United States by processing hundreds of millions of dollars of transactions through the U.S. financial system on behalf of an entity designated as a weapons of mass destruction proliferator and other Iranian entities subject to U.S. economic sanctions. UniCredit Bank Austria agreed to forfeit $20 million and entered into a non-prosecution agreement to resolve an investigation into its violations of IEEPA. UniCredit SpA, the parent of both UCB AG and BA, agreed to ensure that UCB AG and BA’s obligations are fulfilled.