Last week, among the flurry of new sanctions announcements marking the one-year anniversary of Russia’s large-scale invasion of Ukraine, the G7 announced the creation of a new Enforcement Coordination Mechanism “to bolster compliance and enforcement of our measures and deny Russia the benefits of G7 economies.”
The International Group of Seven (“G7”) is an intergovernmental forum whose members include the US, UK, Germany, France, Italy, Canada, and Japan, with the European Union as a “non-enumerated” member. The United States will be the chair of the new mechanism for the first year. This sends clear signals on the direction that the G7 Enforcement Coordination Mechanism will take, as the United States has historically been the most aggressive jurisdiction on enforcement of sanctions.
We have sanctions experts in our offices in each of the G7 member jurisdictions. Over eight weeks, we will be publishing a weekly blog from the perspective of one of our G7 offices in which our sanctions experts will answer a series of questions about enforcement trends in their jurisdiction, what they think the G7 Enforcement Coordination Mechanism means for their jurisdiction, and what companies should be doing now. This week, we are starting with the United States. Next week, we will hear from our UK sanctions experts.
And now, on to the view from the United States:
- What are the recent sanctions enforcement trends in the United States?
As indicated above, the United States has the longest and deepest history of aggressively enforcing its sanctions laws against companies and other parties that violate sanctions.
The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) actively enforces the sanctions against companies across all sectors. We expect to see OFAC continue to take enforcement action against companies in the financial services sector, having concluded a number of enforcement actions against financial services companies over the past year, including several involving virtual currency services providers following the issuance of compliance guidance for that industry. OFAC also continues to bring enforcement actions against non-US companies and banks that involve US financial institutions in payment activities that relate to sanctioned activities. While historically the most eye-popping penalties have been against financial institutions (in part due to the large number of transactions those cases involved), OFAC continues to actively enforce the sanctions against companies across sectors, including manufacturers and exporters of goods and services.
The US Department of Commerce Bureau of Industry and Security (“BIS”) also has a central role to play in sanctions enforcement, as export controls are increasingly used as a sanctions tool. BIS recently updated its enforcement policies, and it is clear that BIS intends to increase its already active enforcement of its regulations.
We expect enforcement of US sanctions targeting Russia to increase significantly in the near future and become a primary focus of US sanctions enforcement efforts. We are already seeing signs of this in our (and our clients’) engagement with OFAC and BIS on these issues. Public statements by US Department of the Treasury officials reflect the US “commitment to take additional actions against those evading or facilitating the evasion of sanctions.”
The US Department of Justice is likely to assume a prominent role in the enforcement of US Russia sanctions. US Deputy Attorney General Lisa Monaco has made this clear in remarks during the past year where she described sanctions as the “new FCPA” and “recogniz[ed] the critical need to enforce these sanctions with unprecedented intensity.” To this end, the Department of Justice has already had a critical role in high-profile forfeiture actions involving assets of Russian oligarchs and has announced a criminal indictment charging a US citizen and three Russian citizens with criminal violations of US sanctions. We expect US Department of Justice momentum in this space to continue.
- What are the maximum penalties for violations?
Penalties for violations of the US sanctions (and related export controls) can be quite severe.
Criminal (willful) violations can trigger penalties up to USD 1 million per violation and/or (for individuals) up to 20 years’ imprisonment.
Civil penalties can reach up to the higher of either twice the value of the underlying transaction or just over USD 350,000, per violation. Civil monetary penalties are adjusted/increased annually for inflation. The specific penalty maximum for violations of the sanctions enforced by OFAC is USD 356,579, while violations of the export controls administered by the Bureau of Industry and Security (“BIS”) can currently reach up to USD 353,534. Civil penalties can be assessed on a strict liability basis, meaning that there is no need to establish willfulness or intent.
Beyond monetary penalties, sanctions violations can bring on a host of other consequences for companies. For instance, the enforcing agency could require the company to complete an independent audit, make specific compliance program improvements, or submit periodic reports on the company’s compliance program. Cases may be publicized by the US government, which can cause problems with banks and other third parties that see this as increasing the risks in dealing with the company. Public enforcement cases can also cause reputational damage.
- Is there a mechanism by which countries can submit a voluntary self-disclosure of possible violations to mitigate penalties?
Yes, both OFAC and BIS have processes by which companies can submit voluntary self-disclosures of potential violations. Voluntary self-disclosures are quite common in the United States. A principal benefit of submitting a disclosure is that it provides for mitigated (lower) penalties.
On the criminal side, the US Department of Justice has recently reiterated its own voluntary disclosure policies, offering reductions in fines and incentives in the structure of criminal enforcement (e.g. not requiring a criminal plea from companies), where companies make truly voluntary disclosures and fully cooperate with prosecutors.
While disclosures brought by companies are usually voluntary, there are some specific circumstances where disclosing can become more or less mandatory, such as certain situations where the company is already before the agency. The decision of whether to submit a voluntary disclosure in a particular instance requires weighing a number of factors.
- What do you think the G7 Enforcement Coordination Mechanism means for sanctions enforcement in the United States?
The United States has, for quite some time, been at the forefront of sanctions-related enforcement, both in the civil and criminal contexts. This is likely to remain the case in the near future, including with respect to Russia-related enforcement efforts, as evidenced by the US role as chair of the new G7 mechanism for the first year. More recently, the United States has recognized that its own sanctions can only reach their full potential and intended objectives if those sanctions and their enforcement is coordinated with US allies, including those in the G7. For their part, the other G7 nations have increased their own sanctions enforcement efforts, with coordination in these efforts become ever more important.
Through the creation of the G7 Enforcement Coordination Mechanism and other multi-national enforcement efforts, the US is doubling-down on its approach to targeting Russia, strengthening economic sanctions and ramping up its enforcement against those companies and countries that don’t comply with, or that seek to evade, those restrictions. We are entering a new phase of Russia-related sanctions and export controls enforcement that will be more aggressive on the part of the US authorities and increasingly coordinated with its international counterparts.
While the current focus is Russia, this new mechanism also lays the foundations for increased coordination on other sanctions programs in the future.
- What is one thing that you would recommend companies do now to get ready for increased enforcement in the United States and increased coordination with the other G7 members?
Since we know that the G7 will be coordinating, companies should make sure they are also coordinating internally, especially between the companies’ legal, compliance, and investigations functions. Companies should make sure their compliance program is global in nature and takes into account the fact that different G7 members (not to mention other jurisdictions) have their own sanctions with varying restrictions and requirements. In the unfortunate event of a potential violation or compliance concern, companies should make sure they have identified any touchpoints to these different jurisdictions, with any investigation considering each jurisdictions’ rules with the assistance of a local expert.
