While FCPA enforcement actions undertaken by the SEC tend to be attention-grabbing, and for good reason, another federal office is perhaps less well-known but no less important: the Office of Foreign Assets Control within the Treasury Department. Business veteran Frank Orlowski explores what the data surrounding both types of enforcement actions says about U.S. government priorities.
OFAC’s primary mission is to administer and enforce economic and trade sanctions based on U.S. foreign policy and national security goals. The division plays a crucial role in implementing and enforcing various U.S. sanctions programs targeting countries, individuals, organizations and entities that threaten national security, engage in terrorism, proliferate weapons of mass destruction or violate human rights.
Sadly, most companies fined by OFAC did not willingly know whom they were involved with due to a lack of due diligence, which got them in trouble in the first place. However, the sanctions are typically imposed to pressure targeted entities to promote change in their internal compliance and control behavior.
OFAC also maintains and publishes a list of specially designated nationals (SDNs), blocked persons and various sanction programs U.S. individuals, businesses, and organizations are prohibited from engaging in to comply with OFAC regulations. Those working at OFAC employ various tools to enforce sanctions, including issuing penalties and fines for violations, seizing assets and prohibiting transactions with sanctioned entities. It works closely with other U.S. government agencies and international partners to ensure the effectiveness of sanctions and prevent circumvention.
Like the SEC, OFAC publishes a running log of its sanction enforcement activity against corporations. The DOJ and SEC do the same with the FCPA. This gives the United States a less-than-perfect way to compare sanctions and FCPA enforcement.
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To eliminate double counting, for both sanctions and FCPA enforcement, parallel DOJ criminal prosecutions against corporate defendants simultaneously with civil actions by OFAC or the SEC, respectively, count as a single action, not two separate actions.
Some interesting conclusions can be drawn when reviewing the corporate enforcements from 2018 through July 11, 2023. During this period, OFAC brought 94 corporate enforcement actions for sanctions violations, while the DOJ and SEC brought 61 corporate FCPA enforcement actions.
The annual volume of OFAC cases has been high and held steady since 2019, while yearly FCPA cases have declined since 2018. Separately, the number of pending FCPA-related investigations disclosed by companies or enforcement agencies has held steady since 2018.
While FCPA enforcement actions are less common, they tend to be costlier, though this trend may be moving the other direction. My comparison reveals that the average amount of financial penalties imposed in OFAC corporate enforcement actions fell far below average penalties in corporate FCPA cases in all years surveyed except 2023 (so far). So far this year, average penalties in FCPA corporate cases have fallen well below their five-year average, while average penalties for OFAC corporate enforcement actions are far above their five-year average.
|OFAC and FCPA enforcement actions and average penalty (in millions) by year, 2018-2023*|
|* Current through July 2023|
What to make of the significant decline in the number of cases and average penalties of FCPA corporate enforcement actions beginning in 2021 and continuing through today? Initially, some commentators attributed the declines to Covid-19 and the government’s overall slowdown. But with more than 18 months of additional enforcement data, it looks like something more is at work.
The direction of FCPA corporate enforcement since 2021 and the partial 2023 OFAC corporate enforcement numbers show contrasting trends. The key question is whether the trends represent permanent shifts or temporary external factors influence the figures.
Perhaps U.S. government focus has changed to Russia due to its war in Ukraine? In addition, given the significant time it takes to build and prosecute an FCPA case vs. an OFAC, one would expect data to lag due to the pandemic.