Biden Should Dedicate More Resources to Declining OFAC Investigation Efforts, Researchers Say

The Office of Foreign Assets Control imposed sanctions at a record pace during the Trump administration but saw a significant decline in enforcement actions and relied more heavily on voluntary disclosures as opposed to its own investigative resources, researchers said. Under President Donald Trump, OFAC also shifted its focus away from large financial institutions and instead targeted businesses in trade, manufacturing, travel and technology sectors, a trend that could promote more sanctions compliance across various industries.

The new Biden administration should focus on “equipping” OFAC with more resources to address future sanctions enforcement issues, according to a Feb. 23 commentary in War on the Rocks, a foreign policy blog. The commentary, written by the Center for Policy Research’s Project on International Security, Commerce, and Economic Statecraft Director Bryan Early and graduate research fellow Keith Preble, said 67% of all OFAC enforcement cases under Trump involved voluntary disclosures, more than twice the amount under the Obama administration. While this trend toward more voluntary disclosures may have stemmed from industry's increased willingness to disclose violations to mitigate penalties, it also may have been caused by OFAC staffing shortages, the researchers said.

“Given that the overall number of sanctions enforcement actions were down during the Trump administration, the trend toward a greater reliance on self-reported cases suggests that the Office of Foreign Assets Control’s ability to conduct independently launched investigations has suffered from a deficit of personnel and expertise,” they said. OFAC lost a record number of employees in 2019, leading to longer processing times and an influx of new officials (see 2010290028).

As Treasury Secretary Janet Yellen orders a review of sanctions programs and procedures (see 2102230047), the agency should prioritize resources for OFAC, the researchers said. OFAC should also “reassert its commitment to pursuing independent investigations into sanctions violations instead of relying so heavily on cases involving voluntary self-disclosures,” they said. “The calculus of potential sanctions violators will change if they do not think U.S. regulators have the resources to catch them.” OFAC didn’t comment.

Other significant OFAC trends arose during the Trump administration, including a focus on businesses outside of large commercial banks, the researchers said. Of the 61 “entity-based enforcement actions” issued by OFAC under Trump, 26% involved the financial services sector compared with 30% during the George W. Bush administration and 37% under Barack Obama, they said. One “optimistic” explanation for the trend, they said, is that OFAC efforts “have been effective at promoting sanctions compliance in the financial services industry. If most banks are taking sanctions compliance and related anti-money laundering obligations seriously, there are fewer major violators to hunt down.” They added that it “makes sense” for OFAC to focus on sectors “in which compliance has lagged.”

Early and Preble said OFAC should continue penalizing sanctions violators outside the financial services sector but said the penalty amounts should be adjusted depending on the sector. Treasury should work with the State and Commerce departments to lobby Congress to pass legislation for a new penalty structure “based on the industry type of the violator.” OFAC should also place a renewed emphasis on “blockbuster sanctions enforcement actions,” they added, which lagged under the Trump administration but serve as “deterrents” to potential violators. “They raise awareness about sanctions obligations, discourage deliberate violations, and encourage well-intentioned entities to invest in sanctions compliance programs.”