Companies Adjusting to OFAC’s New Recordkeeping Rule, Lawyers Say

Companies have not encountered any major hurdles as they seek to comply with the Office of Foreign Assets Control’s new interim final rule extending sanctions-related record-keeping requirements from five years to 10 years, according to two trade lawyers interviewed.

Cristina Brayton-Lewis, who co-leads the Economic Sanctions & Export Controls practice at White & Case, said companies are making modest adjustments, such as preparing to update their record-keeping systems to store data for longer periods of time. They also are reevaluating their cybersecurity risks because having more data in their systems means a breach could affect a larger volume of sensitive information.

The rule, which is designed to match a similar expansion of the U.S. statute of limitations for sanctions violations (see 2407220022), also is prompting revisions of acquisition and lending agreements to allow buyers and lenders to look further back at sanctions-related data, Brayton-Lewis said.

“Some parties in the market have caught on and they’re familiar with this,” she said. “Others are learning about this as they’re entering into acquisition and lending agreements and finding out that there’s this new lookback period and having to adjust their diligence and agreement drafting accordingly.”

Luciano Racco, co-chair of Foley Hoag’s International Trade & National Security Practice, said OFAC has given companies plenty of time to adjust to the new rule. Unveiled in September (see 2409110017), the rule isn't set to take effect until mid-March. “OFAC has provided a fairly long runway to address this,” he said.

Racco said many of the companies he works with already meet the new requirement. “We were mostly concerned about the financial services clients and companies that we engage with,” he said. “But what we’ve seen is that many of these financial institutions are already retaining records for 10 years to comply with other regulatory regimes, so we’re not really seeing much panic from them.”

Despite the new requirement, a long-waited increase in economic sanctions enforcement has yet to materialize, Racco said. While Russia’s 2022 invasion of Ukraine and subsequent statements by OFAC and DOJ indicated that a surge of enforcement actions was on the way, his firm’s recent review of OFAC’s enforcement activity over the past several years found that enforcement actions are down significantly this year.

It’s “unclear what’s going on there -- whether OFAC has investigations that are just ongoing and not at a point where they’re ready to publicly announce an enforcement action, or if they have so many priorities right now in terms of additional sanctions and outreach to affected industries, etc., that they don’t have sufficient bandwidth to start the increase in enforcement,” Racco said.