No one size fits all
When dealing with sanctions enforcement authorities in investigations, companies should have a clear understanding of an investigating agency’s expectations. These can be tricky to navigate in the current enforcement environment where multiple agencies across several jurisdictions are often actively investigating similar conduct. To compound the situation and risks, those agencies may take different approaches to communicating with a company, obtaining information or evidence from the target and third parties, and resolving an investigation. In this post, the Global Sanctions Investigation Group explains key regulator expectations that companies should keep in mind as they pursue multinational sanctions investigations.
Clear Expectation of Cooperation from US Agencies
The US “playbook” for defending a trade investigation is well-documented in light of the US government’s long track record of investigating and prosecuting sanctions and export controls violations. These investigations typically involve the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the US Department of Justice (“DOJ”), and the US Department of Commerce’s Bureau of Industry and Security (“BIS”).
US enforcement authorities expect cooperation and proactive engagement during the course of an investigation. Successful resolution of an investigation is often dependent on the investigating authority’s assessment of a company’s cooperation and engagement. You have to meet these expectations while at the same time defending the company’s position.
In the United States, there is also likely to be a greater expectation as to the maturity and sophistication of a company’s sanctions and export controls compliance program, as compared with enforcement authority counterparts in other jurisdictions. This is in light of the historic emphasis placed on corporate compliance programs by DOJ, OFAC, and BIS, and related industry guidance published by those agencies (which we’ve blogged on here and here). The Global Sanctions Investigation Group has found that there is a lot of benefit to educating an investigating agency about a company’s compliance program to mitigate the risk that is the subject of the investigation.
Importance of Understanding Different UK Agency Expectations
Our experience has shown that understanding the UK enforcement authority that you are dealing with, and its approach to and priorities for enforcement, is often key to securing a successful outcome for a sanctions investigation.
The UK Office of Financial Sanctions Implementation (“OFSI”) is responsible for implementation and enforcement of UK financial sanctions. OFSI can impose a variety of enforcement outcomes for breaches of sanctions, including imposing significant monetary penalties, publishing notices with details of the breach, and issuing warning letters.
Following changes to the UK’s legal framework in 2022, OFSI can now take enforcement action on a “strict liability” basis. This means it is not required to show that a company knew or had reasonable cause to suspect that it was acting in breach.
When investigating matters, OFSI may ask a significant number of questions, in order to build its intelligence and understanding of a potential breach. OFSI’s questions are not limited to companies that come before it with a voluntary disclosure. They are often directed at companies named in mandatory reports made by regulated sector entities (e.g., financial institutions and auditors).
OFSI’s enforcement framework is similar in many respects to OFAC’s framework, in line with the broader value that OFSI places on its coordination with OFAC. OFSI views voluntary disclosure as an important mitigating step that can lead to a more favourable enforcement outcome.
UK trade sanctions breaches are enforced by HM Revenue & Customs (“HMRC”). Unfortunately, there is limited published guidance as to the enforcement process and the factors that HMRC takes into account in its enforcement investigations.
That said, HMRC is increasingly offering parties to accept a “compound penalty,” which is linked to the value of the goods in question. An incentive for companies to accept a “compound penalty” outcome is that these penalties are imposed on an anonymous basis. This comes at the price of meeting HMRC’s expectation that a company will provide significant cooperation.
A “Mosaic” of Enforcement Expectations Across the EU But Moving Towards Harmonization
Because of the division of powers between the EU institutions and the EU Member States, managing expectations of enforcement agencies in the EU is more complex than in many other jurisdictions. Under the decentralized system of EU sanctions, EU institutions are responsible for determining the sanctions restrictions, while EU Member States are responsible for enforcement.
Although national authorities all enforce the same EU sanctions restrictions, enforcement expectations, priorities, and procedures differ across the various 27 EU Member States. Indeed, a report prepared for the European Parliament in 2023 refers to “a mosaic of implementation and enforcement practices across the EU,” with over 160 national competent authorities in these countries.
Meanwhile, the EU is taking steps towards harmonization of sanctions enforcement. Recent EU Directive 2024/1226 on the criminalization of EU sanctions violations(see our blog post here) seeks to facilitate coordination and cooperation between various authorities at both the national and EU levels. To this end, EU Member States will be required to designate units or bodies responsible for ensuring coordination and cooperation between national competent authorities. EU Member States are also called upon to share information and cooperate with other national and EU authorities, such as Europol, Eurojust and the European Public Prosecutor’s Office, to ensure effective investigation and prosecution of EU sanctions violations.
Despite these efforts, the Global Sanctions Investigations Group expects that national practices will remain of overriding importance for EU sanctions enforcement. Effectively dealing with agency expectations in the context of EU sanctions investigations of course requires solid knowledge of EU sanctions. But it also demands expertise in local laws and procedures and as well as the preferences, sophistication, and idiosyncrasies of different national agencies. This is particularly true for cross-border investigations that involve multiple countries, not only outside but also within the EU.
With presence and experience in dealing with sanctions investigations in key jurisdictions throughout the world, our Global Sanctions Investigation Group is well placed to assist clients with navigating through these complex and multi-layered issues in successfully managing the expectation of enforcement agencies in the midst of sanctions investigations.
View all posts in the “Navigating the Impending Global Sanctions Enforcement Storm” series.
