[Federal Register Volume 74, Number 215 (Monday, November 9, 2009)]
[Rules and Regulations]
[Pages 57593-57608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-26754]


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DEPARTMENT OF THE TREASURY

Office of Foreign Assets Control

31 CFR Part 501


Economic Sanctions Enforcement Guidelines

AGENCY: Office of Foreign Assets Control, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Foreign Assets Control (OFAC) of the U.S. 
Department of the Treasury is issuing this final rule, ``Economic 
Sanctions Enforcement Guidelines,'' as enforcement guidance for persons 
subject to the requirements of U.S. sanctions statutes, Executive 
orders, and regulations. This rule was published as an interim final 
rule with request for comments on September 8, 2008. This final rule 
sets forth the Enforcement Guidelines that OFAC will follow in 
determining an appropriate enforcement response to apparent violations 
of U.S. economic sanctions programs that OFAC enforces. These 
Enforcement Guidelines are published as an Appendix to the Reporting, 
Procedures and Penalties Regulations.

DATES: This final rule is effective November 9, 2009.

FOR FURTHER INFORMATION CONTACT: Elton Ellison, Assistant Director, 
Civil Penalties, (202) 622-6140 (not a toll-free call).

SUPPLEMENTARY INFORMATION: 

Electronic Availability

    This document and additional information concerning OFAC are 
available from OFAC's Web site (http://www.treas.gov/ofac) or via 
facsimile through a 24-hour fax-on-demand service, tel.: (202) 622-
0077.

Procedural Requirements

    Because this final rule imposes no obligations on any person, but 
only explains OFAC's enforcement policy and procedures based on 
existing substantive rules, prior notice and public comment are not 
required pursuant to 5 U.S.C. 553(b)(A). Because no notice of proposed 
rulemaking is required, the provisions of the Regulatory Flexibility 
Act (5 U.S.C. chapter 6) do not apply. This final rule is not a 
significant regulatory action for purposes of Executive Order 12866.
    Although a prior notice of proposed rulemaking was not required, 
OFAC solicited comments on this final rule in order to consider how it 
might make improvements to these Guidelines. OFAC received a total of 
11 comments.
    The collections of information related to the Reporting, Procedures 
and Penalties Regulations have been previously approved by the Office 
of Management and Budget (OMB) under control number 1505-0164. A small 
adjustment to that collection was submitted to OMB in order to take 
into account the voluntary self-disclosure process set forth in the 
Guidelines. An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a valid control number assigned by OMB. This collection of information 
is referenced in subpart I of Part I, subpart G of part III and subpart 
B of part V of these Guidelines, which will constitute the new Appendix 
to part 501. The referenced subparts explain that the voluntary self-
disclosure of an apparent violation to OFAC will be considered in 
determining the appropriate agency response to the apparent violation 
and, in cases where a civil monetary penalty is deemed appropriate, the 
penalty amount. As set forth in subpart B of part V of the Guidelines, 
an apparent violation involving a voluntary self-disclosure will result 
in a base penalty amount at least 50 percent less than the base penalty 
amount in similar cases that do not involve a voluntary self-
disclosure. This provides an incentive for persons who have or may have 
violated economic sanctions laws to voluntarily provide OFAC 
information that it can use to better implement its economic sanctions 
programs. The submitters who will likely seek to avail themselves of 
the benefits of voluntary self-disclosure are businesses, other 
entities, and individuals who find that they have or may have violated 
a sanctions prohibition and wish to disclose their actual or potential 
violation.
    The estimated total annual reporting and/or recordkeeping burden: 
1,250 hours. The estimated annual burden per respondent/record keeper: 
10 hours. Estimated number of respondents and/or record keepers: 125. 
Estimated annual frequency of responses: Once or less, given that OFAC 
expects that persons who voluntarily self disclose their violations 
will take better care to avoid future violations.

[[Page 57594]]

Background

    The primary mission of OFAC is to administer and enforce economic 
sanctions against targeted foreign countries and regimes, terrorists 
and terrorist organizations, weapons of mass destruction proliferators, 
narcotic traffickers, and others, in furtherance of U.S. national 
security, foreign policy, and economic objectives. OFAC acts under 
Presidential national emergency powers, as well as specific 
legislation, to prohibit transactions and block (or ``freeze'') assets 
subject to U.S. jurisdiction. Economic sanctions are designed to 
deprive the target of the use of its assets and to deny it access to 
the U.S. financial system and the benefits of trade, transactions, and 
services involving U.S. markets, businesses, and individuals. These 
same authorities have also been used to protect certain assets subject 
to U.S. jurisdiction and to further important U.S. nonproliferation 
goals.
    OFAC administers and enforces economic sanctions programs pursuant 
to Presidential and statutory authorities. OFAC is responsible for 
civil investigation and enforcement of economic sanctions violations 
committed by Subject Persons, as defined in the Guidelines. Where 
appropriate, OFAC may coordinate its investigative and enforcement 
activities with federal, state, local and/or foreign regulators and/or 
law enforcement agencies. Active enforcement of these programs is a 
crucial element in preserving and advancing the national security, 
foreign policy, and economic objectives that underlie these 
initiatives. Among other things, penalties, both civil and criminal, 
are intended to serve as a deterrent to conduct that undermines the 
goals of sanctions programs.
    On January 29, 2003, OFAC published, as a proposed rule, generally 
applicable Economic Sanctions Enforcement Guidelines, as well as a 
proposed Appendix to the Cuban Assets Control Regulations (CACR) 
providing a schedule of proposed civil monetary penalties for certain 
violations of the CACR (Cuba Penalty Schedule). Though this proposed 
rule was not finalized, OFAC used the generally applicable guidelines 
set forth therein as a general framework for its enforcement actions 
and the Cuban Penalty Schedule as a framework for the imposition of 
civil monetary penalties for the violations of the CACR described 
therein. On January 12, 2006, OFAC published, as an interim final rule, 
Economic Sanctions Enforcement Procedures for Banking Institutions, 
which withdrew the January 29, 2003, proposed rule to the extent that 
it applied to banking institutions, as defined in the interim final 
rule.
    On October 16, 2007, the President signed into law the 
International Emergency Economic Powers Enhancement Act (Enhancement 
Act),\1\ substantially increasing the maximum penalties for violations 
of the International Emergency Economic Powers Act (IEEPA),\2\ a 
principal statutory authority for most OFAC sanctions programs. The 
increased maximum penalty amounts set forth in the Enhancement Act, as 
well as its application to pending cases involving apparent violations 
of IEEPA, prompted the development of new Guidelines for determining an 
appropriate enforcement response to apparent violations of sanctions 
programs enforced by OFAC, and, in cases involving civil monetary 
penalties, for determining the amount of any civil monetary penalty.
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    \1\ Public Law 110-96, 121 Stat. 1011 (October 16, 2007) 
(amending 50 U.S.C. 1705).
    \2\ 50 U.S.C. 1701-06.
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    On September 8, 2008, OFAC published an interim final rule (73 FR 
51933) setting forth Economic Sanctions Enforcement Guidelines as 
enforcement guidance for persons subject to the requirements of U.S. 
sanctions statutes, Executive orders, and regulations. The Guidelines 
set forth in the interim final rule superseded the enforcement 
procedures for banking institutions set forth in the interim final rule 
of January 12, 2006, which was withdrawn, as well as the proposed 
guidelines set forth in the proposed rule of January 29, 2003, which 
was also withdrawn, with the exception of the Cuba Penalty Schedule. 
(Those withdrawn enforcement procedures and guidelines continue to 
apply to the categories of cases identified in, and as provided in, 
OFAC's November 27, 2007 Civil Penalties--Interim Policy and OFAC's 
October 28, 2008 Civil Penalties--Revised Interim Policy, both of which 
are available on OFAC's Web site, http://www.treas.gov/ofac. Those 
Interim Policies provide that the withdrawn enforcement procedures 
generally apply to cases (a) in which a Pre-Penalty Notice was mailed 
before October 16, 2007, when the Enhancement Act became law; (b) where 
a tentative settlement amount had been communicated and memorialized; 
(c) where a party agreed to a tolling or waiver of the statute of 
limitations, which otherwise would have expired before October 16, 
2007; and (d) in which a Pre-Penalty Notice was mailed, or a settlement 
tentatively reached, prior to the September 8, 2008, publication of the 
interim final rule.) In all cases in which a Pre-Penalty Notice has 
been issued prior to the publication of this final rule, the case will 
continue to be processed in accordance with the enforcement guidelines 
pursuant to which such Pre-Penalty Notice was issued. The interim final 
rule also solicited comments on the Guidelines set forth therein.
    OFAC hereby publishes an amended version of the Enforcement 
Guidelines as a final rule. These Enforcement Guidelines are published 
as an Appendix to the Reporting, Procedures and Penalties Regulations, 
31 CFR part 501. Except as noted above, the Guidelines set forth herein 
are applicable to all persons subject to any of the sanctions programs 
administered by OFAC. The Guidelines set forth in this final rule are 
not applicable to penalty or enforcement actions by other agencies 
based on the same underlying course of conduct, the disposition of 
goods seized by Customs and Border Protection, or the release of 
blocked property by OFAC.
    The Guidelines set forth in this final rule are applicable to all 
enforcement matters currently pending before OFAC or that will come 
before OFAC in the future, whether such matters fall under IEEPA or any 
of the other statutes pursuant to which OFAC is authorized to enforce 
sanctions (including, but not limited to, the Trading With the Enemy 
Act), with the exception of those categories of cases set forth in 
OFAC's November 27, 2007 Civil Penalties--Interim Policy and OFAC's 
October 28, 2008 Civil Penalties--Revised Interim Policy. The 
Guidelines reflect the factors that OFAC will consider in determining 
the appropriate enforcement response to an apparent violation of an 
OFAC sanctions program, and those factors are consistent across 
programs. The civil penalty provisions of the Guidelines take into 
account the maximum penalties available under the various statutes 
pursuant to which OFAC is authorized to enforce its sanctions programs.

Summary of Comments

    OFAC received eleven sets of comments on the interim final rule, 
from the following organizations: The American Bar Association, the 
Association of Corporate Credit Unions, the American Insurance 
Association, the British Bankers' Association, the Clearing House 
Association, the Credit Union National Association, the Industry 
Coalition on Technology Transfer, the Institute of International

[[Page 57595]]

Bankers, the National Foreign Trade Council, the Securities Industry 
and Financial Markets Association, and a joint submission from the 
American Bankers Association and the Bankers Association for Finance 
and Trade.\3\
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    \3\ Several of the comments were received after the November 7, 
2008, deadline for submission of comments. Those comments are 
nevertheless addressed herein.
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    Eight comments addressed the definition of voluntary self-
disclosure. Although the final rule slightly amends this definition, it 
does not do so in the ways suggested by the comments. Six comments 
questioned a perceived move away from risk-based compliance, based on 
OFAC's withdrawal of the 2006 interim final rule setting forth Economic 
Sanctions Enforcement Procedures for Banking Institutions, and the risk 
matrices that were issued as an annex to that interim final rule. In 
response, OFAC is reissuing a slightly edited and consolidated risk 
matrix as an annex to the Enforcement Guidelines and clarifying that 
the adequacy of a Subject Person's risk-based compliance program will 
be considered among the General Factors considered by OFAC. Five 
comments noted that OFAC should not consider a Subject Person's 
entering into or refusing to enter into an agreement tolling the 
statute of limitations in an assessment of the Subject Person's 
cooperation with OFAC. In response, OFAC is amending the Guidelines to 
make clear that while entering into a tolling agreement may be a basis 
for mitigating the enforcement response or lowering the penalty amount, 
a Subject Person's refusal to enter into such an agreement will not be 
considered against the Subject Person. Two comments simply commended 
OFAC on the Guidelines. Other comments addressed other aspects of the 
Guidelines.

Specific Responses to Comments

    The comments received, OFAC's response to those comments, and 
OFAC's revisions to the Guidelines in response to the comments are 
summarized below.

1. Voluntary Self-disclosure

    a. Third-Party Notifications. Many of the comments that addressed 
the definition of voluntary self-disclosure expressed concern about the 
interim final rule definition's exclusion of apparent violations where 
``a third party is required to notify OFAC of the apparent violation or 
a substantially similar apparent violation because a transaction was 
blocked or rejected by that third party (regardless of whether or when 
OFAC actually receives such notice from the third party and regardless 
of whether the Subject Person was aware of the third party's 
disclosure).'' The comments argued that the definition should not 
exclude such self-initiated notifications to OFAC, and that OFAC should 
focus instead on the good faith of the party making the disclosure, 
regardless of whether another party was obligated to report the 
apparent violation. The comments argued that broadening the definition 
of voluntary self-disclosure will benefit OFAC by encouraging such 
disclosures and providing OFAC with additional information regarding 
apparent violations.
    OFAC has considered these comments but believes that the 
recommended alternative approach would be difficult to administer in a 
meaningful manner. Accordingly, OFAC has determined to maintain the 
exclusion for apparent violations that a third party is required to and 
does report to OFAC as a result of the third party having blocked or 
rejected a transaction in accordance with OFAC's regulations. The 
purpose of mitigating the enforcement response in voluntary self-
disclosure cases is to encourage the notification to OFAC of apparent 
violations of which OFAC would not otherwise have learned. In those 
cases where a third party is required to, and does, report an apparent 
violation to OFAC, OFAC is aware of the violation and there is no need 
to provide incentives for such notification. In addition, OFAC's 
administrative subpoena authority, 31 CFR 501.602, generally provides 
the basis for OFAC to require the production of whatever additional 
information it may require to assess its enforcement response to the 
apparent violation. In those cases, therefore, there is no need to 
further incentivize disclosure to OFAC. Moreover, OFAC believes that 
the ``good faith'' standard suggested in the comments would be 
administratively unworkable, as OFAC would be unable to ascertain the 
good or bad faith of Subject Persons making disclosures of apparent 
violations. A bright line rule generally defining a voluntary self-
disclosure based on whether OFAC would otherwise have learned of the 
apparent violation is more readily administrable.
    Consistent with the premise that in those cases where OFAC would 
otherwise not have learned of the apparent violation a notification to 
OFAC should be deemed a voluntary self-disclosure, and in response to 
the suggestion made in one comment, OFAC is amending this aspect of the 
definition of ``voluntary self-disclosure'' by deleting the words 
``whether or'' from that part of the definition in the interim final 
rule that provided that notification to OFAC of an apparent violation 
would not be considered a voluntary self-disclosure ``regardless of 
whether or when OFAC actually receives such notice from the third party 
* * *.'' Thus, the final rule provides that such notifications shall 
not be considered voluntary self-disclosures ``regardless of when OFAC 
receives such notice from the third party * * *.'' The change is 
intended to make clear that in the event that a third party that is 
required to report an apparent violation to OFAC fails to do so, and 
the Subject Person notifies OFAC of the apparent violation in a manner 
otherwise consistent with a voluntary self-disclosure, the notification 
will be considered a voluntary self-disclosure. In those cases where 
the third party does notify OFAC before a final enforcement response to 
the apparent violation, the Subject Person's notification will not be 
considered a voluntary self-disclosure even if the Subject Person's 
notification precedes the third party's notification. This is 
consistent with the notion that voluntary self-disclosure does not 
apply where OFAC would have learned of the apparent violation in any 
event--in this case, from the subsequent required disclosure by the 
third party.
    Interestingly, different industry sectors all commented that this 
provision of the definition would unfairly target their industry. Thus, 
the banking industry commented that financial institutions are 
disproportionately affected by this exclusion, a trade group commented 
that this exclusion ``define[s] the entire import-export sector out 
of'' the definition, and the securities industry commented that as a 
result of this exclusion most filings by securities firms would not be 
considered voluntary self-disclosures. The fact that these different 
industries believe that the definition unfairly targets them weakens 
the force of the argument as to each. In any event, the argument does 
not address the underlying basis for the rule: The purpose of treating 
certain notifications as voluntary self-disclosures is to bring to 
OFAC's attention apparent violations of which it otherwise would not 
have learned.
    OFAC stresses that the final rule provides (as did the interim 
final rule), that ``[i]n cases involving substantial cooperation with 
OFAC but no voluntary self-disclosure as defined herein, including 
cases in which an apparent violation is reported to OFAC by a third 
party but the Subject Person provides substantial additional

[[Page 57596]]

information regarding the apparent violation and/or other related 
violations, the base penalty amount generally will be reduced between 
25 and 40 percent.'' In addition, a Subject Person's cooperation with 
OFAC--including whether the Subject Person provided OFAC with all 
relevant information regarding an apparent violation (whether or not 
voluntarily self-disclosed), and whether the Subject Person researched 
and disclosed to OFAC relevant information regarding any other apparent 
violations caused by the same course of conduct--is a General Factor to 
be considered in assessing OFAC's enforcement response to the apparent 
violation. These provisions are intended to reward voluntary 
disclosures of all relevant information and address the concerns raised 
by the comments. The provisions make clear that a Subject Person's 
cooperation with OFAC can have a substantial impact on the nature of 
OFAC's enforcement response to an apparent violation, even in cases 
that do not meet the definition of ``voluntary self-disclosure'' set 
forth in the final rule.
    Several comments noted that failure to treat self-initiated 
notifications to OFAC in the circumstances discussed above as voluntary 
self-disclosures causes unwarranted reputational harm to the 
institutions involved. OFAC does not believe that this concern provides 
a sufficient basis to alter the definition of voluntary self-disclosure 
discussed above. In response to this comment, OFAC has amended the 
final rule to expressly provide that, where appropriate, substantial 
cooperation by a Subject Person in OFAC's investigation will be 
publicly noted.
    b. Material Completeness. Several comments also suggested that the 
definition's exclusion of disclosures that are materially incomplete is 
unfair because a party may not have had time to complete its 
investigation or access supplementary material before OFAC learns of an 
apparent violation from another source. The definition of voluntary 
self-disclosure set forth in the interim final rule, and retained in 
this final rule, excludes only those notifications where ``the 
disclosure (when considered along with supplemental information 
provided by the Subject Person) is materially incomplete'' (emphasis 
added). Similarly, the definition provides that ``[i]n addition to 
notification, a voluntary self-disclosure must include, or be followed 
within a reasonable period of time by, a report of sufficient detail to 
afford a complete understanding of an apparent violation's 
circumstances, and should also be followed by responsiveness to any 
follow-up inquiries by OFAC.'' (emphasis added). The definition thus 
expressly contemplates that a Subject Person may notify OFAC of an 
apparent violation before it has completed its investigation or 
accessed all of the supplementary material necessary for a complete 
disclosure. So long as that information is provided to OFAC within a 
reasonable period of time after the initial notification of the 
apparent violation, and assuming the other aspects of the definition 
are met, the disclosure would still constitute a voluntary self-
disclosure. OFAC therefore concludes that this aspect of the definition 
already accommodates these comments and does not need to be changed.
    c. Good Faith. OFAC likewise has considered and rejected the 
suggestion that the definition of voluntary self-disclosure not exclude 
disclosures that include false or misleading information or that are 
made without management authorization, when the disclosure is made in 
good faith. As noted above, the good faith standard is not readily 
administrable. OFAC believes that disclosures that contain false or 
misleading information should not receive the substantial benefit 
accorded to voluntary self-disclosures. In such cases, OFAC will 
consider the totality of the circumstances in determining whether the 
false or misleading information warrants negation of a finding of 
voluntary self-disclosure. When the Subject Person is an entity, 
disclosures made without the authorization of the entity's senior 
management do not reflect disclosure by the entity but rather by a 
third party. A finding of voluntary self-disclosure by the Subject 
Person is not warranted in whistleblower cases. Nor does OFAC believe 
that a whistleblower should be required to first notify the entity's 
senior management, as one comment suggested.
    d. Regulatory Suggestion. One comment suggested that OFAC delete 
the word ``suggestion'' from that part of the definition of voluntary 
self-disclosure that excludes a disclosure that ``is not self-initiated 
(including when the disclosure results from a suggestion or order of a 
federal or state agency or official),'' on the ground that the term 
``suggestion'' produces a subjective standard. While OFAC recognizes 
the concern expressed in the comment, in many instances federal or 
state regulators do not formally order institutions to report an 
apparent violation to OFAC. The use of the phrase ``suggestion'' in 
this context is intended to capture those instances in which a Subject 
Person's regulator, or another government agency or official, directs, 
instructs, tells, or otherwise suggests to the Subject Person that it 
notify OFAC of the apparent violation. In such cases, the notification 
to OFAC by the Subject Person is not properly considered self-initiated 
and OFAC likely would have learned of the apparent violation from the 
other government agency or official in the event that the Subject 
Person did not itself notify OFAC.
    e. Timing of Notification. OFAC has also considered the comment 
that offered an alternative definition of voluntary self-disclosure 
that would have treated as a voluntary self-disclosure any notification 
to OFAC of an apparent violation prior to the time that OFAC issued a 
Pre-Penalty Notice, and suggested other changes to the definition. OFAC 
does not believe that the suggested changes are warranted. A Pre-
Penalty Notice is typically issued once OFAC has completed an 
investigation into an apparent violation, and such investigation often 
involves the issuance of administrative subpoenas to the Subject 
Person. Affording voluntary self-disclosure credit to disclosures made 
after the issuance of such a subpoena would reward Subject Persons who 
did not disclose the apparent violation to OFAC until after OFAC had 
learned of it from other sources, and it would not accord with the 
purpose of mitigating the enforcement response in voluntary self-
disclosure cases, which is to encourage the notification to OFAC of 
apparent violations of which OFAC would not otherwise have learned.
    f. Suspicious Activity Report Filing. One comment asked that OFAC 
clarify that the filing of a Suspicious Activity Report (SAR) by a 
Subject Person pursuant to the Bank Secrecy Act has no impact on 
whether a subsequent notification to OFAC of an apparent violation, 
presumably based on the same transaction that is the subject of the 
SAR, constitutes a voluntary self-disclosure. The filing of a SAR does 
not itself preclude a determination of voluntary self-disclosure for a 
subsequent self-disclosure to OFAC of the same transaction, except to 
the extent that OFAC has learned of the apparent violation prior to the 
filing of the self-disclosure.
    g. What to Report. One comment requested clarification regarding 
the circumstances in which the mere possibility that a violation exists 
should cause an institution to make a voluntary self-disclosure. The 
comment noted that the alleged uncertainty surrounding this

[[Page 57597]]

issue creates a strong incentive for an institution to err on the side 
of reporting transactions that likely do not constitute a violation. 
OFAC does not believe that additional guidance is necessary or 
warranted. The Guidelines define an ``apparent violation'' as an actual 
or possible violation of U.S. economic sanctions laws, and they define 
a voluntary self-disclosure as a self-initiated notification to OFAC of 
an apparent violation (subject to the other provisions of the 
definition). The Subject Person determines whether to report an 
apparent violation to OFAC. Such a notification to OFAC need not 
constitute an admission that the conduct at issue actually constitutes 
a violation in order to be considered a voluntary self-disclosure. To 
the extent that the Guidelines as written provide an incentive for 
``over-reporting'' to OFAC of possible violations, OFAC does not view 
that as a problem that needs to be addressed. To the contrary, OFAC 
would prefer that Subject Persons report a transaction or conduct that 
is ultimately determined to not be a violation, rather than that they 
elect not to report conduct that does constitute a violation.
    h. Other OFAC Modifications. Finally, OFAC has made two additional 
changes to the definition of voluntary self-disclosure. The first 
change is to make clear that a self-initiated notification to OFAC that 
is made at the same time as another government agency learns of the 
apparent violation (through the Subject Person's disclosure to that 
other agency or otherwise) does qualify as a voluntary self-disclosure 
if the other aspects of the definition are met. This change is intended 
to cover voluntary self-disclosures made simultaneously to OFAC and 
another government agency. OFAC has thus substituted the phrase ``prior 
to or at the same time'' for the phrase ``prior to'' in the operative 
sentence of the definition, which now reads:

    ``Voluntary self-disclosure means self-initiated notification to 
OFAC of an apparent violation by a Subject Person that has 
committed, or otherwise participated in, an apparent violation of a 
statute, Executive order, or regulation administered or enforced by 
OFAC, prior to or at the same time that OFAC, or any other federal, 
state, or local government agency or official, discovers the 
apparent violation or another substantially similar apparent 
violation.''

    OFAC has also added the following sentence to the definition of 
voluntary self-disclosure:

    ``Notification of an apparent violation to another government 
agency (but not to OFAC) by a Subject Person, which is considered a 
voluntary self-disclosure by that agency, may be considered a 
voluntary self-disclosure by OFAC, based on a case-by-case 
assessment of the facts and circumstances.''

    This is intended to clarify that OFAC may treat a voluntary self-
disclosure to another government agency as a voluntary self-disclosure 
to OFAC when the circumstances so warrant.

2. Risk-Based Compliance

    Six comments questioned whether OFAC intended to move away from the 
risk-based compliance approach reflected in the 2006 Economic Sanctions 
Enforcement Procedures for Banking Institutions, which, along with 
their appended risk matrices, were withdrawn by the interim final rule. 
In no way has OFAC moved away from considering an institution's risk-
based compliance program in assessing the appropriate enforcement 
response to an apparent violation. The final rule clarifies this by 
making explicit reference to risk-based compliance in its discussion of 
General Factor E, which focuses on a Subject Person's compliance 
program, and by re-promulgating with minor edits and in consolidated 
form, as an annex to the final rule, the risk matrices that had 
originally been promulgated as an annex to the 2006 Enforcement 
Procedures. By these changes, OFAC intends to reflect that it will 
continue to apply the same risk-based principles it has been applying 
in assessing the overall adequacy of a Subject Person's compliance 
program.
    Two comments argued that in the case of banks, OFAC's focus should 
be more narrowly focused on the bank's fault or the nature of its 
compliance program. OFAC has considered these comments, but believes 
that all of the General Factors are as applicable to banks as they are 
to other Subject Persons. Those Factors account for both fault and the 
nature and existence of a compliance program, but they also account for 
other criteria that are relevant to a determination of an appropriate 
enforcement response to an apparent violation. For example, the degree 
of harm caused by an apparent violation is as relevant and important a 
factor to consider in cases involving banks as it is in other cases. 
OFAC thus disagrees with the comment that asserted that less weight 
should be afforded to the harm to sanctions programs objectives and a 
greater emphasis placed on risk-based compliance. The harm to sanctions 
program objectives is as valid and relevant a consideration as an 
institution's risk-based compliance program, and the Final Guidelines 
appropriately account for consideration of both factors.
    One comment expressed concern about the absence of a process to 
periodically evaluate an institution's violations in the context of its 
overall OFAC compliance program and OFAC compliance record. The 
Guidelines, however, expressly provide for consideration of both an 
institution's OFAC compliance program and its overall compliance record 
over time in a number of places. For example, the Guidelines provide 
for consideration of a Subject Person's compliance program in General 
Factor E, which, as noted above, has been clarified to make explicit 
reference to risk-based compliance. The Guidelines also provide that in 
considering the individual characteristics of a Subject Person (General 
Factor D), OFAC will consider ``[t]he total volume of transactions 
undertaken by the Subject Person on an annual basis, with attention 
given to the apparent violations as compared with the total volume.'' 
This provision of the Guidelines is intended to allow for the 
consideration of any apparent violation in the context of a Subject 
Person's overall compliance record.
    Another comment addressing risk-based compliance asserted that the 
Guidelines reflect ``OFAC's stated intention to apply penalties on 
every erroneous transaction.'' The Guidelines do not so state; to the 
contrary, they expressly note that ``OFAC will give careful 
consideration to the appropriateness of issuing a cautionary letter or 
Finding of Violation in lieu of the imposition of a civil monetary 
penalty.'' Another comment suggested that OFAC should state that it 
will not assess penalties based on minor or isolated compliance 
deficiencies. OFAC believes that the process set forth in the 
Guidelines for determining its enforcement response to an apparent 
violation is appropriate and that it would not be appropriate to make 
broader, categorical statements of its enforcement policy based on the 
minor or isolated nature of an apparent violation. The General Factors 
already account for the consideration of the minor or isolated nature 
of an apparent violation in determining whether a civil monetary 
penalty is warranted.

3. Cooperation and Tolling Agreements

    Five comments argued that OFAC should not consider whether a 
Subject Person agreed to waive the statute of limitations or enter into 
a tolling agreement in assessing the Subject Person's cooperation with 
OFAC. The comments argued that it was unfair and contrary to public 
policy to consider this as a factor. One comment suggested

[[Page 57598]]

that the provision should either be dropped or its consideration 
limited to cases where late discovery by or notification to OFAC 
threatens resolution within the five year statute of limitations period 
and that tolling agreements should be limited to extending the period 
for no more than five years from discovery of the apparent violation by 
OFAC.
    OFAC has carefully considered these comments. The interim final 
rule addressed both waivers of the statute of limitations and tolling 
agreements. It is not OFAC's general practice to seek outright waivers 
of the statute of limitations, and the final rule eliminates any 
reference to statute of limitations waivers.
    OFAC agrees that a Subject Person's refusal to enter into a tolling 
agreement should not be considered an aggravating factor in assessing a 
Subject Person's cooperation or otherwise. At the same time, a tolling 
agreement can be of significant value to OFAC, especially in cases 
where OFAC does not learn of an apparent violation at or near the time 
it occurs, in particularly complex cases, or in cases in which a 
Subject Person has requested and received additional time to respond to 
a request for information from OFAC. Accordingly, OFAC believes it 
appropriate to consider a Subject Person's entering into a tolling 
agreement in a positive light and as a basis for mitigating the 
enforcement response or lowering the penalty amount. The final rule 
thus clarifies that while a Subject Person's willingness to enter into 
a tolling agreement may be considered a mitigating factor, a Subject 
Person's unwillingness to enter into such an agreement will not be 
considered against the Subject Person.

4. Penalty Calculation

    Two comments addressed the calculation of the base penalty amount 
under the Guidelines.
    a. Disparity in Base Penalty Amounts. One comment suggested that 
the applicable schedule amounts, which are applicable to cases 
involving non-egregious apparent violations that are not voluntarily 
self-disclosed to OFAC, be changed to lessen the disparity in the base 
penalty amount between such cases and non-egregious cases that are 
voluntarily self-disclosed.\4\ OFAC has considered this suggestion but 
believes that the applicable schedule amounts, which provide for a 
gradated series of penalties based on the underlying transaction value, 
reflect an appropriate starting point for the penalty calculation in 
non-egregious cases not involving a voluntary self-disclosure. As 
currently structured, the base penalty calculation ensures that the 
base penalty for a voluntarily self-disclosed case will always be one-
half or less than one-half of the base penalty for a similar case that 
is not voluntarily self-disclosed. This is intended to serve as an 
additional incentive for voluntary self-disclosure.
---------------------------------------------------------------------------

    \4\ The base penalty amount for a non-egregious case involving a 
voluntary self-disclosure equals one-half of the transaction value, 
capped at $125,000 for an apparent violation of IEEPA and $32,500 
for an apparent violation of TWEA.
---------------------------------------------------------------------------

    b. Other Penalty Issues. A second comment made a number of 
suggestions regarding the penalty calculation. OFAC has considered each 
of these suggestions, which are discussed below.
    i. Egregious Cases. First, this comment suggested that OFAC reduce 
the base penalty amount for egregious cases by 50 percent and clarify 
the extent to which that amount may be increased by aggravating 
factors. Reducing the base penalty amount for egregious cases would not 
adequately reflect the seriousness with which OFAC views such cases. As 
set forth in the preamble to the interim final rule, OFAC anticipates 
that the majority of enforcement cases will fall in the non-egregious 
category.
    ii. Specified Reduction for Remediation. Second, this comment 
suggested that OFAC provide for remedial measures as a mitigating 
factor and state the extent to which such actions generally will reduce 
the base penalty amount (e.g., 10-25%). The Guidelines expressly 
recognize a Subject Person's remedial response as one of the General 
Factors OFAC will consider in determining its enforcement response to 
an apparent violation. OFAC does not believe it appropriate to identify 
a specific range of mitigation for remedial measures, which can vary 
widely in their nature and scope. The Guidelines envision a holistic 
examination of the facts and circumstances surrounding an apparent 
violation in determining a proposed penalty amount. With the exception 
of first offenses and substantial cooperation, OFAC does not believe it 
appropriate to provide a specified mitigation percentage for the 
existence of potentially mitigating factors.
    iii. Specified Reduction for Cooperation. Third, the comment 
suggested that OFAC specify that substantial cooperation in voluntary 
self-disclosure cases would reduce the base penalty amount by 25% to 
40% (as would occur in cases that do not involve a voluntary self-
disclosure). This suggestion appears to misapprehend the purpose of the 
provision of the Guidelines that provides for such a reduction in non-
voluntarily self-disclosed cases. The reduction in the base penalty 
amount for cases involving substantial cooperation but no voluntary 
self-disclosure is intended to approximate the significant mitigation 
provided for voluntary self-disclosure cases in the base penalty amount 
itself. This reduction is intended to afford parties whose conduct was 
reported to OFAC by others (for example, through a blocking or reject 
report) the opportunity to obtain, by providing substantial 
cooperation, much (but not all) of the benefit they would have obtained 
had they voluntarily self-disclosed the apparent violation. Subject 
Persons who have voluntarily self-disclosed their apparent violations 
to OFAC are already benefiting from a significantly reduced base 
penalty amount. Moreover, a voluntary self-disclosure must include, or 
be followed within a reasonable period of time by, a report of 
sufficient detail to afford a complete understanding of an apparent 
violation's circumstances, and should also be followed by 
responsiveness to any follow-up inquiries by OFAC. OFAC recognizes that 
in some instances an additional reduction in the base penalty amount 
based on substantial cooperation may be warranted in cases involving 
voluntary self-disclosure, but that additional reduction may be less 
than 25 to 40 percent.
    iv. Specified Additional Adjustments. Fourth, the comment suggested 
that OFAC specify that further adjustments to the base penalty amount 
may be made depending on the relevance of the other General Factors, 
including in particular the existence and nature of a compliance 
program and permissibility of the conduct under applicable foreign law. 
The Guidelines already expressly provide that the base penalty amount 
may be adjusted to reflect applicable General Factors, including the 
existence and nature of a compliance program. The suggestion that the 
penalty be adjusted in light of the permissibility of the conduct under 
applicable foreign law is addressed below under the heading 
``Compliance With Foreign Law.''
    v. Emphasize Number vs. Value of Transactions. Fifth, the comment 
suggested that OFAC clarify that when considering ``apparent violations 
as compared with the total volume'' of transactions undertaken by a 
Subject Person, the focus will be on the number rather than the value 
of transactions. OFAC does not believe that such a clarification is 
warranted. While in many cases the overall number of transactions, as 
compared to the number of apparent violations, will be the

[[Page 57599]]

appropriate measure of a Subject Person's overall compliance program, 
there may be cases where the relative value of the transactions is the 
more appropriate metric. OFAC will address this issue on a case-by-case 
basis, as appropriate.
    vi. First Violations. Finally, the comment suggested that OFAC 
clarify that, for purposes of the reduction of the penalty amount by up 
to 25% for cases involving a Subject Person's first violation, OFAC 
will consider the entire set of ``substantially similar violations'' at 
issue in a case as a single ``first violation,'' and thus provide the 
penalty reduction for all transactions at issue, and not just for the 
first of the substantially similar violations. OFAC intends that in 
enforcement cases addressing a set of ``substantially similar 
violations,'' the penalty reduction for a Subject Person's first 
violation will generally apply to the entire set of ``substantially 
similar violations'' and not solely to the first of those violations. 
OFAC has added the following sentence to the final rule to clarify 
this: ``A group of substantially similar apparent violations addressed 
in a single Pre-Penalty Notice shall be considered as a single 
violation for purposes of this subsection.'' In addition, OFAC has 
clarified that an apparent violation generally will be considered a 
``first violation'' if the Subject Person has not received a penalty 
notice or Finding of Violation from OFAC in the five years preceding 
the date of the transaction giving rise to the apparent violation, and 
that in those cases where a prior penalty notice or Finding of 
Violation within the preceding five years involved conduct of a 
substantially different nature from the apparent violation at issue, 
OFAC may still consider the apparent violation at issue a ``first 
violation.''

5. General Factors

    A number of comments either identified additional proposed General 
Factors that OFAC should consider or suggested the deletion of General 
Factors as inappropriate for OFAC's consideration.
    a. Compliance With Foreign Law. Two comments suggested that, in 
cases concerning conduct occurring outside the United States, OFAC 
should consider whether the conduct in question is permissible under 
the applicable law of another jurisdiction. OFAC does not agree that 
the permissibility of conduct under the applicable laws of another 
jurisdiction should be a factor in assessing an apparent violation of 
U.S. laws. In cases where the applicable laws of another jurisdiction 
require conduct prohibited by OFAC sanctions (or vice versa), OFAC will 
consider the conflict under General Factor K, which provides for the 
consideration of relevant factors on a case-by-case basis. OFAC notes 
that Subject Persons can seek a license from OFAC to engage in 
otherwise prohibited transactions and that the absence of such a 
license request will be considered in assessing an apparent violation 
where conflict of laws is raised by the Subject Person.
    b. Reliance on Advice from OFAC. Three comments suggested that OFAC 
should explicitly state that good faith reliance on advice from the 
OFAC hotline (two comments) or on a reasoned analysis of OFAC 
regulations with the assistance of private counsel (one comment) should 
be considered in assessing an appropriate enforcement response. Subject 
Persons are encouraged to seek written guidance from OFAC on complex 
matters for the sake of clarity. Good faith reliance on substantiated 
advice received from the OFAC hotline or from counsel is subsumed 
within OFAC's consideration of whether a Subject Person willfully or 
recklessly violated the law.
    c. Relevance of Future Compliance/Deterrence. One comment suggested 
that OFAC should eliminate General Factor J, which focuses on the 
impact that administrative action may have on promoting future 
compliance with U.S. economic sanctions by the Subject Person and 
similar Subject Persons, arguing that OFAC's enforcement response 
should focus solely on the Subject Person's culpability. OFAC rejects 
this argument, as the purpose of enforcement action includes raising 
awareness, increasing compliance, and deterring future violations, and 
not merely punishment of prior conduct.
    d. Reason to Know. One comment suggested that OFAC should eliminate 
the ``reason to know'' provision of General Factor B, which focuses on 
the Subject Person's awareness of the conduct giving rise to the 
apparent violation. OFAC rejects this suggestion as it would invite 
Subject Persons to act with willful blindness. OFAC believes the 
``reason to know'' formulation is consistent with general legal 
principles and appropriate for consideration.
    e. Responsibility for Employees. One comment suggested that OFAC 
should make clear that actions of ``rogue employees,'' including 
supervisors or managers, will not be attributed to organizations so 
long as a reasonable compliance program was in place. OFAC rejects this 
suggestion. The actions of employees may be properly attributable to 
their organizations, depending on the facts and circumstances of the 
particular case. Among the factors OFAC will consider in determining 
whether such actions are attributable to an organization are the 
position of the employee in question, the nature of the conduct 
(including how long it lasted), who else was or should have been aware 
of the conduct, and the existence and nature of a compliance program 
intended to identify and stop such conduct.
    f. Sanctions History. One comment suggested that cautionary 
letters, warning letters, and evaluative letters should not be 
considered when assessing a Subject Person's sanctions violations 
history. OFAC believes that such prior letters are appropriate to 
consider in determining an appropriate enforcement response. In 
addition, such letters evidence the Subject Person's awareness of OFAC 
sanctions generally. OFAC has amended the final rule to refer to 
``sanctions history'' instead of ``sanctions violations history'' to 
make clear that consideration is not limited to prior formal 
determinations of sanctions violations.
    OFAC has also amended the final rule to note that, as a general 
matter, consideration of a Subject Person's sanctions history will be 
limited to the five years preceding the transaction giving rise to the 
apparent violation. As explained above, a five-year limitation has also 
been incorporated into the provision providing that in cases involving 
a Subject Person's first violation, the base penalty amount generally 
will be reduced up to 25 percent, so that ``first violation'' is 
understood as the first violation in the five years preceding the 
transaction giving rise to the apparent violation. In certain cases, 
however, such as those involving enforcement responses to substantially 
similar apparent violations, it may be appropriate to consider 
sanctions history outside the five-year period.
    g. Transition Period for Foreign Acquisitions. One comment 
suggested that the Guidelines should provide a transition period for 
cases in which a Subject Person acquires an entity outside the United 
States not previously subject to OFAC requirements. OFAC does not 
believe that such a provision is warranted. U.S. persons acquiring 
entities outside the United States should consider OFAC compliance as 
part of their due diligence review of the acquisition.

6. Provision of Information to OFAC

    Four comments focused on possible impediments to fully complying 
with an OFAC request for information. Three of

[[Page 57600]]

these comments raised concerns about foreign laws that may prohibit the 
provision of requested information to OFAC. OFAC does not believe that 
these comments warrant a change to the text of the interim final rule. 
As discussed above with respect to conflict-of-laws situations, OFAC 
will give due consideration to applicable restrictions of foreign law 
regarding the provision of information to OFAC on a case-by-case basis. 
OFAC expects that Subject Persons will provide to OFAC a detailed 
explanation of any allegedly applicable foreign law and the steps 
undertaken by the Subject Person to avail themselves of all legal means 
to provide the requested information.
    One comment raised concerns about information protected by the 
attorney-client privilege or the attorney work product doctrine. OFAC 
generally does not expect Subject Persons to provide privileged or 
protected information in response to a request for information or 
otherwise. OFAC does, however, expect Subject Persons who withhold 
responsive information on the grounds of the attorney-client or other 
privilege or the work product doctrine to properly invoke such 
privilege or protection and to identify such withheld information on a 
privilege log, in accordance with any instructions accompanying 
requests for information and ordinary legal practice. OFAC has 
clarified the provision of the Guidelines providing for penalties for 
failure to respond to a request for information by eliminating the 
reference to ``failure to furnish the requested information'' and 
instead referring to a ``failure to comply'' with a request for 
information. The revised language is intended to make clear that OFAC 
will not seek penalties in those cases where responsive information is 
withheld on the basis of an apparently applicable and properly invoked 
privilege.

7. Penalty/Finding of Violation Process

    Several comments made suggestions regarding OFAC's penalty process. 
One comment suggested that OFAC should offer Subject Persons a meeting 
before issuing a Pre-Penalty Notice, and another comment suggested that 
OFAC provide a process by which to appeal a final enforcement decision. 
OFAC does not believe that the adoption of either suggestion is 
warranted. In most cases, OFAC will have communicated with the Subject 
Person (by means of issuing a request for information or receiving a 
disclosure) prior to issuance of the Pre-Penalty Notice. Moreover, the 
Pre-Penalty Notice does not constitute final agency action and 
specifically affords a Subject Person the opportunity to respond to the 
allegations and proposed penalty set forth therein with additional 
information or argument.
    OFAC also does not believe that an administrative appeal process is 
warranted. In cases involving civil monetary penalties, the Pre-Penalty 
Process just described affords a Subject Person sufficient opportunity 
to present its case to OFAC before a Penalty Notice is issued. In cases 
involving a Finding of Violation, the Guidelines provide that a Finding 
of Violation will afford the Subject Person an opportunity to respond 
to OFAC's determination that a violation has occurred before the 
finding is made final. No other actions by OFAC constitute formal 
determinations of violation, and no administrative appeal process is 
therefore necessary in such cases.\5\
---------------------------------------------------------------------------

    \5\ The Trading With the Enemy Act and its implementing 
regulations, 31 CFR part 501, subpart D, provide for Administrative 
Law Judge hearings on penalty determinations. Nothing in the 
Guidelines affects the applicability of those provisions.
---------------------------------------------------------------------------

8. Other Comments

    One comment suggested that OFAC should be sensitive to the views of 
non-U.S. regulators. The Guidelines explain that OFAC may seek 
information from a regulated institution's foreign regulator, and may 
take into account the views of a foreign regulator with respect to a 
Subject Person's compliance program where relevant. Nor do the 
Guidelines preclude other consideration of foreign regulators' views. 
Accordingly, OFAC believes that no additional changes are necessary in 
this regard.
    One comment suggested that the definition of ``transaction value'' 
needs clarification because it does not allocate responsibility in 
multiparty transactions, and this comment suggested certain edits to 
the definition with the goal of clarifying that transaction value will 
be determined based on a Subject Person's role in the transaction. OFAC 
has considered this comment but determined that no change is needed to 
the definition of transaction value. The current definition provides 
sufficient flexibility to allow for the determination of an appropriate 
transaction value in a wide variety of circumstances, including 
multiparty transactions where the differing roles of the parties may 
result in differing transaction values.
    One comment suggested that there should be two sets of guidelines, 
one for financial institutions and one for entities focused on trade in 
goods, arguing that these types of entities maintain different business 
models. OFAC considered such an approach when developing the 
Guidelines, but determined that a single set of Guidelines, providing 
general factors and sufficient flexibility, was a better approach. The 
Guidelines as crafted do not dictate a particular outcome in any 
particular case, but rather are intended to identify those factors most 
relevant to OFAC's enforcement decision and to guide the agency's 
exercise of its discretion. Because the General Factors are equally 
applicable to all sectors, and because the Guidelines provide 
sufficient flexibility to allow for the consideration of the factors 
most relevant to a particular Subject Person, OFAC does not believe 
that particularized sets of Guidelines for particular business models 
are warranted or necessary.

OFAC Edits

    In addition to the changes made in response to public comments and 
the additional changes to the definition of voluntary self-disclosure 
described above, OFAC has made several other changes to the Guidelines. 
First, OFAC has clarified the base penalty amounts for transactions 
subject to the Trading With the Enemy Act (TWEA), which presently has a 
$65,000 statutory maximum penalty. In non-egregious cases involving 
apparent violations of TWEA, where the apparent violation is disclosed 
through a voluntary self-disclosure by the Subject Person (i.e., Box 
``1'' on the penalty matrix), the base amount of the proposed civil 
penalty shall be capped at a maximum of $32,500 per violation. This 
correction is necessary to ensure that in such cases the base amount of 
the proposed civil penalty is no more than one-half the base penalty 
amount for a similar transaction that is not voluntarily self-
disclosed.
    OFAC is also clarifying that for non-egregious transactions under 
TWEA that are not voluntarily self-disclosed, the base amount of the 
civil penalty shall be capped at $65,000. The Guidelines already 
provide for this by capping base penalty amounts at the applicable 
statutory maximum; this change is intended simply to clarify this 
point. Similarly, OFAC is clarifying that, in egregious cases, the base 
penalty calculation will be based on the ``applicable'' statutory 
maximum, in an effort to signal that the base penalty in such cases 
will differ for transactions under IEEPA (where the statutory maximum 
equals the greater of $250,000 or an amount that is twice the value of 
the transaction), TWEA (where the statutory maximum equals $65,000), or 
other applicable statutes.

[[Page 57601]]

    OFAC has also amended the Guidelines to provide for a penalty of up 
to $50,000 for a failure to maintain records in conformance with the 
requirements of OFAC regulations. This change is intended to ensure 
that penalties for a failure to maintain records are commensurate with 
penalties for a failure to comply with a requirement to furnish 
information.
    The Guidelines are also amended to make clear that for apparent 
violations identified in the Cuba Penalty Schedule, 68 FR 4422, 4429 
(Jan. 29, 2003), for which a civil monetary penalty has been deemed 
appropriate, the base penalty amount shall equal the amount set forth 
in the Schedule for such a violation, except that the base penalty 
amount shall be reduced by 50% in cases of voluntary self-disclosure. 
This is intended to clarify the interplay between the penalty amounts 
set forth in the Cuba Penalty Schedule and the base penalty calculation 
process set forth in the Guidelines.
    OFAC has eliminated the reference to the Cuba Travel Service 
Provider Circular in Part IV of the Guidelines, as that Circular has 
been amended to include a reference to the Guidelines, which now govern 
apparent violations by licensed Travel Service Providers.
    OFAC has also changed references to ``conduct, activity, or 
transaction'' to ``conduct'' throughout the Guidelines. This change is 
not intended to have substantive effect, but rather to provide greater 
consistency in terminology within the Guidelines. OFAC understands the 
term ``conduct'' to encompass ``activities'' and ``transactions,'' and 
notes the definition of an ``apparent violation'' is based on the term 
``conduct.''
    Finally, in General Factor H, concerning the timing of the apparent 
violation in relation to the imposition of sanctions, OFAC has changed 
the word ``soon'' to ``immediately'' so that the relevant provision 
reads: ``the timing of the apparent violation in relation to the 
adoption of the applicable prohibitions, particularly if the apparent 
violation took place immediately after relevant changes to the 
sanctions program regulations or the addition of a new name to OFAC's 
List of Specially Designated Nationals and Blocked Persons (SDN 
List).'' This change is intended to more accurately reflect the purpose 
of General Factor H and to convey that mitigation as a result of 
changes to sanctions program regulations or additions to the SDN List 
is unlikely to be applicable other than in the time period immediately 
following such changes or additions.

List of Subjects in 31 CFR Part 501

    Administrative practice and procedure, Banks, Banking, Insurance, 
Money service business, Penalties, Reporting and recordkeeping 
requirements, Securities.

0
For the reasons set forth in the preamble, 31 CFR part 501 is amended 
as follows:

PART 501--REPORTING, PROCEDURES AND PENALTIES REGULATIONS

0
1. The authority citation for part 501 continues to read as follows:

    Authority:  8 U.S.C. 1189; 18 U.S.C. 2332d, 2339B; 19 U.S.C. 
3901-3913; 21 U.S.C. 1901-1908; 22 U.S.C. 287c; 22 U.S.C. 2370(a), 
6009, 6032, 7205; 28 U.S.C. 2461 note; 31 U.S.C. 321(b); 50 U.S.C. 
1701-1706; 50 U.S.C. App. 1-44.


0
2. Part 501 is amended by revising Appendix A to Part 501 to read as 
follows:

Appendix A to Part 501--Economic Sanctions Enforcement Guidelines.

    Note:  This appendix provides a general framework for the 
enforcement of all economic sanctions programs administered by the 
Office of Foreign Assets Control (OFAC).

I. Definitions

    A. Apparent violation means conduct that constitutes an actual 
or possible violation of U.S. economic sanctions laws, including the 
International Emergency Economic Powers Act (IEEPA), the Trading 
With the Enemy Act (TWEA), the Foreign Narcotics Kingpin Designation 
Act, and other statutes administered or enforced by OFAC, as well as 
Executive orders, regulations, orders, directives, or licenses 
issued pursuant thereto.
    B. Applicable schedule amount means:
    1. $1,000 with respect to a transaction valued at less than 
$1,000;
    2. $10,000 with respect to a transaction valued at $1,000 or 
more but less than $10,000;
    3. $25,000 with respect to a transaction valued at $10,000 or 
more but less than $25,000;
    4. $50,000 with respect to a transaction valued at $25,000 or 
more but less than $50,000;
    5. $100,000 with respect to a transaction valued at $50,000 or 
more but less than $100,000;
    6. $170,000 with respect to a transaction valued at $100,000 or 
more but less than $170,000;
    7. $250,000 with respect to a transaction valued at $170,000 or 
more, except that where the applicable schedule amount as defined 
above exceeds the statutory maximum civil penalty amount applicable 
to an apparent violation, the applicable schedule amount shall equal 
such applicable statutory maximum civil penalty amount.
    C. OFAC means the Department of the Treasury's Office of Foreign 
Assets Control.
    D. Penalty is the final civil penalty amount imposed in a 
Penalty Notice.
    E. Proposed penalty is the civil penalty amount set forth in a 
Pre-Penalty Notice.
    F. Regulator means any Federal, State, local or foreign official 
or agency that has authority to license or examine an entity for 
compliance with federal, state, or foreign law.
    G. Subject Person means an individual or entity subject to any 
of the sanctions programs administered or enforced by OFAC.
    H. Transaction value means the dollar value of a subject 
transaction. In export and import cases, the transaction value 
generally will be the domestic value in the United States of the 
goods, technology, or services sought to be exported from or 
imported into the United States, as demonstrated by commercial 
invoices, bills of lading, signed Customs declarations, or similar 
documents. In cases involving seizures by U.S. Customs and Border 
Protection (CBP), the transaction value generally will be the 
domestic value as determined by CBP. If the apparent violation at 
issue is a prohibited dealing in blocked property by a Subject 
Person, the transaction value generally will be the dollar value of 
the underlying transaction involved, such as the value of the 
property dealt in or the amount of the funds transfer that a 
financial institution failed to block or reject. Where the 
transaction value is not otherwise ascertainable, OFAC may consider 
the market value of the goods or services that were the subject of 
the transaction, the economic benefit conferred on the sanctioned 
party, and/or the economic benefit derived by the Subject Person 
from the transaction, in determining transaction value. For purposes 
of these Guidelines, ``transaction value'' will not necessarily have 
the same meaning, nor be applied in the same manner, as that term is 
used for import valuation purposes at 19 CFR 152.103.
    I. Voluntary self-disclosure means self-initiated notification 
to OFAC of an apparent violation by a Subject Person that has 
committed, or otherwise participated in, an apparent violation of a 
statute, Executive order, or regulation administered or enforced by 
OFAC, prior to or at the same time that OFAC, or any other federal, 
state, or local government agency or official, discovers the 
apparent violation or another substantially similar apparent 
violation. For these purposes, ``substantially similar apparent 
violation'' means an apparent violation that is part of a series of 
similar apparent violations or is related to the same pattern or 
practice of conduct. Notification of an apparent violation to 
another government agency (but not to OFAC) by a Subject Person, 
which is considered a voluntary self-disclosure by that agency, may 
be considered a voluntary self-disclosure by OFAC, based on a case-
by-case assessment. Notification to OFAC of an apparent violation is 
not a voluntary self-disclosure if: a third party is required to and 
does notify OFAC of the apparent violation or a substantially 
similar apparent violation because a transaction was blocked or 
rejected by that third party (regardless of when OFAC receives such

[[Page 57602]]

notice from the third party and regardless of whether the Subject 
Person was aware of the third party's disclosure); the disclosure 
includes false or misleading information; the disclosure (when 
considered along with supplemental information provided by the 
Subject Person) is materially incomplete; the disclosure is not 
self-initiated (including when the disclosure results from a 
suggestion or order of a federal or state agency or official); or, 
when the Subject Person is an entity, the disclosure is made by an 
individual in a Subject Person entity without the authorization of 
the entity's senior management. Responding to an administrative 
subpoena or other inquiry from, or filing a license application 
with, OFAC is not a voluntary self-disclosure. In addition to 
notification, a voluntary self-disclosure must include, or be 
followed within a reasonable period of time by, a report of 
sufficient detail to afford a complete understanding of an apparent 
violation's circumstances, and should also be followed by 
responsiveness to any follow-up inquiries by OFAC. (As discussed 
further below, a Subject Person's level of cooperation with OFAC is 
an important factor in determining the appropriate enforcement 
response to an apparent violation even in the absence of a voluntary 
self-disclosure as defined herein; disclosure by a Subject Person 
generally will result in mitigation insofar as it represents 
cooperation with OFAC's investigation.)

II. Types of Responses to Apparent Violations

    Depending on the facts and circumstances of a particular case, 
an OFAC investigation may lead to one or more of the following 
actions:
    A. No Action. If OFAC determines that there is insufficient 
evidence to conclude that a violation has occurred and/or, based on 
an analysis of the General Factors outlined in Section III of these 
Guidelines, concludes that the conduct does not rise to a level 
warranting an administrative response, then no action will be taken. 
In those cases in which OFAC is aware that the Subject Person has 
knowledge of OFAC's investigation, OFAC generally will issue a 
letter to the Subject Person indicating that the investigation is 
being closed with no administrative action being taken. A no-action 
determination represents a final determination as to the apparent 
violation, unless OFAC later learns of additional related violations 
or other relevant facts.
    B. Request Additional Information. If OFAC determines that 
additional information regarding the apparent violation is needed, 
it may request further information from the Subject Person or third 
parties, including through an administrative subpoena issued 
pursuant to 31 CFR 501.602. In the case of an institution subject to 
regulation where OFAC has entered into a Memorandum of Understanding 
(MOU) with the Subject Person's regulator, OFAC will follow the 
procedures set forth in such MOU regarding consultation with the 
regulator. Even in the absence of an MOU, OFAC may seek relevant 
information about a regulated institution and/or the conduct 
constituting the apparent violation from the institution's federal, 
state, or foreign regulator. Upon receipt of information determined 
to be sufficient to assess the apparent violation, OFAC will decide, 
based on an analysis of the General Factors outlined in Section III 
of these Guidelines, whether to pursue further enforcement action or 
whether some other response to the apparent violation is 
appropriate.
    C. Cautionary Letter: If OFAC determines that there is 
insufficient evidence to conclude that a violation has occurred or 
that a Finding of Violation or a civil monetary penalty is not 
warranted under the circumstances, but believes that the underlying 
conduct could lead to a violation in other circumstances and/or that 
a Subject Person does not appear to be exercising due diligence in 
assuring compliance with the statutes, Executive orders, and 
regulations that OFAC enforces, OFAC may issue a cautionary letter, 
which may convey OFAC's concerns about the underlying conduct and/or 
the Subject Person's OFAC compliance policies, practices and/or 
procedures. A cautionary letter represents a final enforcement 
response to the apparent violation, unless OFAC later learns of 
additional related violations or other relevant facts, but does not 
constitute a final agency determination as to whether a violation 
has occurred.
    D. Finding of Violation: If OFAC determines that a violation has 
occurred and considers it important to document the occurrence of a 
violation and, based on an analysis of the General Factors outlined 
in Section III of these Guidelines, concludes that the Subject 
Person's conduct warrants an administrative response but that a 
civil monetary penalty is not the most appropriate response, OFAC 
may issue a Finding of Violation that identifies the violation. A 
Finding of Violation may also convey OFAC's concerns about the 
violation and/or the Subject Person's OFAC compliance policies, 
practices and/or procedures, and/or identify the need for further 
compliance steps to be taken. A Finding of Violation represents a 
final enforcement response to the violation, unless OFAC later 
learns of additional related violations or other relevant facts, and 
constitutes a final agency determination that a violation has 
occurred. A Finding of Violation will afford the Subject Person an 
opportunity to respond to OFAC's determination that a violation has 
occurred before that determination becomes final. In the event a 
Subject Person so responds, the initial Finding of Violation will 
not constitute a final agency determination that a violation has 
occurred. In such cases, after considering the response received, 
OFAC will inform the Subject Person of its final enforcement 
response to the apparent violation.
    E. Civil Monetary Penalty. If OFAC determines that a violation 
has occurred and, based on an analysis of the General Factors 
outlined in Section III of these Guidelines, concludes that the 
Subject Person's conduct warrants the imposition of a monetary 
penalty, OFAC may impose a civil monetary penalty. Civil monetary 
penalty amounts will be determined as discussed in Section V of 
these Guidelines. The imposition of a civil monetary penalty 
constitutes a final agency determination that a violation has 
occurred and represents a final civil enforcement response to the 
violation. OFAC will afford the Subject Person an opportunity to 
respond to OFAC's determination that a violation has occurred before 
a final penalty is imposed.
    F. Criminal Referral. In appropriate circumstances, OFAC may 
refer the matter to appropriate law enforcement agencies for 
criminal investigation and/or prosecution. Apparent sanctions 
violations that OFAC has referred for criminal investigation and/or 
prosecution also may be subject to OFAC civil penalty or other 
administrative action.
    G. Other Administrative Actions. In addition to or in lieu of 
other administrative actions, OFAC may also take the following 
administrative actions in response to an apparent violation:
    1. License Denial, Suspension, Modification, or Revocation. OFAC 
authorizations to engage in a transaction (including the release of 
blocked funds) pursuant to a general or specific license may be 
withheld, denied, suspended, modified, or revoked in response to an 
apparent violation.
    2. Cease and Desist Order. OFAC may order the Subject Person to 
cease and desist from conduct that is prohibited by any of the 
sanctions programs enforced by OFAC when OFAC has reason to believe 
that a Subject Person has engaged in such conduct and/or that such 
conduct is ongoing or may recur.

III. General Factors Affecting Administrative Action

    As a general matter, OFAC will consider some or all of the 
following General Factors in determining the appropriate 
administrative action in response to an apparent violation of U.S. 
sanctions by a Subject Person, and, where a civil monetary penalty 
is imposed, in determining the appropriate amount of any such 
penalty:
    A. Willful or Reckless Violation of Law: a Subject Person's 
willfulness or recklessness in violating, attempting to violate, 
conspiring to violate, or causing a violation of the law. Generally, 
to the extent the conduct at issue is the result of willful conduct 
or a deliberate intent to violate, attempt to violate, conspire to 
violate, or cause a violation of the law, the OFAC enforcement 
response will be stronger. Among the factors OFAC may consider in 
evaluating willfulness or recklessness are:
    1. Willfulness. Was the conduct at issue the result of a 
decision to take action with the knowledge that such action would 
constitute a violation of U.S. law? Did the Subject Person know that 
the underlying conduct constituted, or likely constituted, a 
violation of U.S. law at the time of the conduct?
    2. Recklessness. Did the Subject Person demonstrate reckless 
disregard for U.S. sanctions requirements or otherwise fail to 
exercise a minimal degree of caution or care in avoiding conduct 
that led to the apparent violation? Were there warning signs that 
should have alerted the Subject Person that an action or failure to 
act would lead to an apparent violation?
    3. Concealment. Was there an effort by the Subject Person to 
hide or purposely obfuscate its conduct in order to mislead OFAC, 
Federal, State, or foreign regulators, or other

[[Page 57603]]

parties involved in the conduct about an apparent violation?
    4. Pattern of Conduct. Did the apparent violation constitute or 
result from a pattern or practice of conduct or was it relatively 
isolated and atypical in nature?
    5. Prior Notice. Was the Subject Person on notice, or should it 
reasonably have been on notice, that the conduct at issue, or 
similar conduct, constituted a violation of U.S. law?
    6. Management Involvement. In cases of entities, at what level 
within the organization did the willful or reckless conduct occur? 
Were supervisory or managerial level staff aware, or should they 
reasonably have been aware, of the willful or reckless conduct?
    B. Awareness of Conduct at Issue: the Subject Person's awareness 
of the conduct giving rise to the apparent violation. Generally, the 
greater a Subject Person's actual knowledge of, or reason to know 
about, the conduct constituting an apparent violation, the stronger 
the OFAC enforcement response will be. In the case of a corporation, 
awareness will focus on supervisory or managerial level staff in the 
business unit at issue, as well as other senior officers and 
managers. Among the factors OFAC may consider in evaluating the 
Subject Person's awareness of the conduct at issue are:
    1. Actual Knowledge. Did the Subject Person have actual 
knowledge that the conduct giving rise to an apparent violation took 
place? Was the conduct part of a business process, structure or 
arrangement that was designed or implemented with the intent to 
prevent or shield the Subject Person from having such actual 
knowledge, or was the conduct part of a business process, structure 
or arrangement implemented for other legitimate reasons that made it 
difficult or impossible for the Subject Person to have actual 
knowledge?
    2. Reason to Know. If the Subject Person did not have actual 
knowledge that the conduct took place, did the Subject Person have 
reason to know, or should the Subject Person reasonably have known, 
based on all readily available information and with the exercise of 
reasonable due diligence, that the conduct would or might take 
place?
    3. Management Involvement. In the case of an entity, was the 
conduct undertaken with the explicit or implicit knowledge of senior 
management, or was the conduct undertaken by personnel outside the 
knowledge of senior management? If the apparent violation was 
undertaken without the knowledge of senior management, was there 
oversight intended to detect and prevent violations, or did the lack 
of knowledge by senior management result from disregard for its 
responsibility to comply with applicable sanctions laws?
    C. Harm to Sanctions Program Objectives: the actual or potential 
harm to sanctions program objectives caused by the conduct giving 
rise to the apparent violation. Among the factors OFAC may consider 
in evaluating the harm to sanctions program objectives are:
    1. Economic or Other Benefit to the Sanctioned Individual, 
Entity, or Country: the economic or other benefit conferred or 
attempted to be conferred to sanctioned individuals, entities, or 
countries as a result of an apparent violation, including the 
number, size, and impact of the transactions constituting an 
apparent violation(s), the length of time over which they occurred, 
and the nature of the economic or other benefit conferred. OFAC may 
also consider the causal link between the Subject Person's conduct 
and the economic benefit conferred or attempted to be conferred.
    2. Implications for U.S. Policy: the effect that the 
circumstances of the apparent violation had on the integrity of the 
U.S. sanctions program and the related policy objectives involved.
    3. License Eligibility: whether the conduct constituting the 
apparent violation likely would have been licensed by OFAC under 
existing licensing policy.
    4. Humanitarian activity: whether the conduct at issue was in 
support of a humanitarian activity.
    D. Individual Characteristics: the particular circumstances and 
characteristics of a Subject Person. Among the factors OFAC may 
consider in evaluating individual characteristics are:
    1. Commercial Sophistication: the commercial sophistication and 
experience of the Subject Person. Is the Subject Person an 
individual or an entity? If an individual, was the conduct 
constituting the apparent violation for personal or business 
reasons?
    2. Size of Operations and Financial Condition: the size of a 
Subject Person's business operations and overall financial 
condition, where such information is available and relevant. 
Qualification of the Subject Person as a small business or 
organization for the purposes of the Small Business Regulatory 
Enforcement Fairness Act, as determined by reference to the 
applicable regulations of the Small Business Administration, may 
also be considered.
    3. Volume of Transactions: the total volume of transactions 
undertaken by the Subject Person on an annual basis, with attention 
given to the apparent violations as compared with the total volume.
    4. Sanctions History: the Subject Person's sanctions history, 
including OFAC's issuance of prior penalties, findings of violations 
or cautionary, warning or evaluative letters, or other 
administrative actions (including settlements). As a general matter, 
OFAC will only consider a Subject Person's sanctions history for the 
five years preceding the date of the transaction giving rise to the 
apparent violation.
    E. Compliance Program: the existence, nature and adequacy of a 
Subject Person's risk-based OFAC compliance program at the time of 
the apparent violation, where relevant. In the case of an 
institution subject to regulation where OFAC has entered into a 
Memorandum of Understanding (MOU) with the Subject Person's 
regulator, OFAC will follow the procedures set forth in such MOU 
regarding consultation with the regulator with regard to the quality 
and effectiveness of the Subject Person's compliance program. Even 
in the absence of an MOU, OFAC may take into consideration the views 
of federal, state, or foreign regulators, where relevant. Further 
information about risk-based compliance programs for financial 
institutions is set forth in the annex hereto.
    F. Remedial Response: the Subject Person's corrective action 
taken in response to the apparent violation. Among the factors OFAC 
may consider in evaluating the remedial response are:
    1. The steps taken by the Subject Person upon learning of the 
apparent violation. Did the Subject Person immediately stop the 
conduct at issue?
    2. In the case of an entity, the processes followed to resolve 
issues related to the apparent violation. Did the Subject Person 
discover necessary information to ascertain the causes and extent of 
the apparent violation, fully and expeditiously? Was senior 
management fully informed? If so, when?
    3. In the case of an entity, whether the Subject Person adopted 
new and more effective internal controls and procedures to prevent a 
recurrence of the apparent violation. If the Subject Person did not 
have an OFAC compliance program in place at the time of the apparent 
violation, did it implement one upon discovery of the apparent 
violations? If it did have an OFAC compliance program, did it take 
appropriate steps to enhance the program to prevent the recurrence 
of similar violations? Did the entity provide the individual(s) 
responsible for the apparent violation with additional training, 
and/or take other appropriate action, to ensure that similar 
violations do not occur in the future?
    4. Where applicable, whether the Subject Person undertook a 
thorough review to identify other possible violations.
    G. Cooperation with OFAC: the nature and extent of the Subject 
Person's cooperation with OFAC. Among the factors OFAC may consider 
in evaluating cooperation with OFAC are:
    1. Did the Subject Person voluntarily self-disclose the apparent 
violation to OFAC?
    2. Did the Subject Person provide OFAC with all relevant 
information regarding an apparent violation (whether or not 
voluntarily self-disclosed)?
    3. Did the Subject Person research and disclose to OFAC relevant 
information regarding any other apparent violations caused by the 
same course of conduct?
    4. Was information provided voluntarily or in response to an 
administrative subpoena?
    5. Did the Subject Person cooperate with, and promptly respond 
to, all requests for information?
    6. Did the Subject Person enter into a statute of limitations 
tolling agreement, if requested by OFAC (particularly in situations 
where the apparent violations were not immediately notified to or 
discovered by OFAC, in particularly complex cases, and in cases in 
which the Subject Person has requested and received additional time 
to respond to a request for information from OFAC)? If so, the 
Subject Person's entering into a tolling agreement will be deemed a 
mitigating factor. Note: a Subject Person's refusal to enter into a 
tolling agreement will not be considered by OFAC as an aggravating 
factor in assessing a Subject Person's cooperation or otherwise 
under the Guidelines.
    Where appropriate, OFAC will publicly note substantial 
cooperation provided by a Subject Person.
    H. Timing of apparent violation in relation to imposition of 
sanctions: the timing of the

[[Page 57604]]

apparent violation in relation to the adoption of the applicable 
prohibitions, particularly if the apparent violation took place 
immediately after relevant changes in the sanctions program 
regulations or the addition of a new name to OFAC's List of 
Specially Designated Nationals and Blocked Persons (SDN List).
    I. Other enforcement action: other enforcement actions taken by 
federal, state, or local agencies against the Subject Person for the 
apparent violation or similar apparent violations, including whether 
the settlement of alleged violations of OFAC regulations is part of 
a comprehensive settlement with other federal, state, or local 
agencies.
    J. Future Compliance/Deterrence Effect: the impact 
administrative action may have on promoting future compliance with 
U.S. economic sanctions by the Subject Person and similar Subject 
Persons, particularly those in the same industry sector.
    K. Other relevant factors on a case-by-case basis: such other 
factors that OFAC deems relevant on a case-by-case basis in 
determining the appropriate enforcement response and/or the amount 
of any civil monetary penalty. OFAC will consider the totality of 
the circumstances to ensure that its enforcement response is 
proportionate to the nature of the violation.

IV. Civil Penalties for Failure To Comply With a Requirement To Furnish 
Information or Keep Records

    As a general matter, the following civil penalty amounts shall 
apply to a Subject Person's failure to comply with a requirement to 
furnish information or maintain records:
    A. The failure to comply with a requirement to furnish 
information pursuant to 31 CFR 501.602 may result in a penalty in an 
amount up to $20,000, irrespective of whether any other violation is 
alleged. Where OFAC has reason to believe that the apparent 
violation(s) that is the subject of the requirement to furnish 
information involves a transaction(s) valued at greater than 
$500,000, a failure to comply with a requirement to furnish 
information may result in a penalty in an amount up to $50,000, 
irrespective of whether any other violation is alleged. A failure to 
comply with a requirement to furnish information may be considered a 
continuing violation, and the penalties described above may be 
imposed each month that a party has continued to fail to comply with 
the requirement to furnish information. OFAC may also seek to have a 
requirement to furnish information judicially enforced. Imposition 
of a civil monetary penalty for failure to comply with a requirement 
to furnish information does not preclude OFAC from seeking such 
judicial enforcement of the requirement to furnish information.
    B. The late filing of a required report, whether set forth in 
regulations or in a specific license, may result in a civil monetary 
penalty in an amount up to $2,500, if filed within the first 30 days 
after the report is due, and a penalty in an amount up to $5,000 if 
filed more than 30 days after the report is due. If the report 
relates to blocked assets, the penalty may include an additional 
$1,000 for every 30 days that the report is overdue, up to five 
years.
    C. The failure to maintain records in conformance with the 
requirements of OFAC's regulations or of a specific license may 
result in a penalty in an amount up to $50,000.

V. Civil Penalties

    OFAC will review the facts and circumstances surrounding an 
apparent violation and apply the General Factors for Taking 
Administrative Action in Section III above in determining whether to 
initiate a civil penalty proceeding and in determining the amount of 
any civil monetary penalty. OFAC will give careful consideration to 
the appropriateness of issuing a cautionary letter or Finding of 
Violation in lieu of the imposition of a civil monetary penalty.

A. Civil Penalty Process

    1. Pre-Penalty Notice. If OFAC has reason to believe that a 
sanctions violation has occurred and believes that a civil monetary 
penalty is appropriate, it will issue a Pre-Penalty Notice in 
accordance with the procedures set forth in the particular 
regulations governing the conduct giving rise to the apparent 
violation. The amount of the proposed penalty set forth in the Pre-
Penalty Notice will reflect OFAC's preliminary assessment of the 
appropriate penalty amount, based on information then in OFAC's 
possession. The amount of the final penalty may change as OFAC 
learns additional relevant information. If, after issuance of a Pre-
Penalty Notice, OFAC determines that a penalty in an amount that 
represents an increase of more than 10 percent from the proposed 
penalty set forth in the Pre-Penalty Notice is appropriate, or if 
OFAC intends to allege additional violations, it will issue a 
revised Pre-Penalty Notice setting forth the new proposed penalty 
amount and/or alleged violations.
    a. In general, the Pre-Penalty Notice will set forth the 
following with respect to the specific violations alleged and the 
proposed penalties:
    i. Description of the alleged violations, including the number 
of violations and their value, for which a penalty is being 
proposed;
    ii. Identification of the regulatory or other provisions alleged 
to have been violated;
    iii. Identification of the base category (defined below) 
according to which the proposed penalty amount was calculated and 
the General Factors that were most relevant to the determination of 
the proposed penalty amount;
    iv. The maximum amount of the penalty to which the Subject 
Person could be subject under applicable law; and
    v. The proposed penalty amount, determined in accordance with 
the provisions set forth in these Guidelines.
    b. The Pre-Penalty Notice will also include information 
regarding how to respond to the Pre-Penalty Notice including:
    i. A statement that the Subject Person may submit a written 
response to the Pre-Penalty Notice by a date certain addressing the 
alleged violation(s), the General Factors Affecting Administrative 
Action set forth in Section III of these Guidelines, and any other 
information or evidence that the Subject Person deems relevant to 
OFAC's consideration.
    ii. A statement that a failure to respond to the Pre-Penalty 
Notice may result in the imposition of a civil monetary penalty.
    2. Response to Pre-Penalty Notice. A Subject Person may submit a 
written response to the Pre-Penalty Notice in accordance with the 
procedures set forth in the particular regulations governing the 
conduct giving rise to the apparent violation. Generally, the 
response should either agree to the proposed penalty set forth in 
the Pre-Penalty Notice or set forth reasons why a penalty should not 
be imposed or, if imposed, why it should be a lesser amount than 
proposed, with particular attention paid to the General Factors 
Affecting Administrative Action set forth in Section III of these 
Guidelines. The response should include all documentary or other 
evidence available to the Subject Person that supports the arguments 
set forth in the response. OFAC will consider all relevant materials 
submitted.
    3. Penalty Notice. If OFAC receives no response to a Pre-Penalty 
Notice within the time prescribed in the Pre-Penalty Notice, or if 
following the receipt of a response to a Pre-Penalty Notice and a 
review of the information and evidence contained therein OFAC 
concludes that a civil monetary penalty is warranted, a Penalty 
Notice generally will be issued in accordance with the procedures 
set forth in the particular regulations governing the conduct giving 
rise to the violation. A Penalty Notice constitutes a final agency 
determination that a violation has occurred. The penalty amount set 
forth in the Penalty Notice will take into account relevant 
additional information provided in response to a Pre-Penalty Notice. 
In the absence of a response to a Pre-Penalty Notice, the penalty 
amount set forth in the Penalty Notice will generally be the same as 
the proposed penalty set forth in the Pre-Penalty Notice.
    4. Referral to Financial Management Division. The imposition of 
a civil monetary penalty pursuant to a Penalty Notice creates a debt 
due the U.S. Government. OFAC will advise Treasury's Financial 
Management Division upon the imposition of a penalty. The Financial 
Management Division may take follow-up action to collect the penalty 
assessed if it is not paid within the prescribed time period set 
forth in the Penalty Notice. In addition or instead, the matter may 
be referred to the U.S. Department of Justice for appropriate action 
to recover the penalty.
    5. Final Agency Action. The issuance of a Penalty Notice 
constitutes final agency action with respect to the violation(s) for 
which the penalty is assessed.

B. Amount of Civil Penalty

    1. Egregious case. In those cases in which a civil monetary 
penalty is deemed appropriate, OFAC will make a determination as to 
whether a case is deemed ``egregious'' for purposes of the base 
penalty calculation. This determination will be based on an analysis 
of the applicable General Factors. In making the egregiousness

[[Page 57605]]

determination, OFAC generally will give substantial weight to 
General Factors A (``willful or reckless violation of law''), B 
(``awareness of conduct at issue''), C (``harm to sanctions program 
objectives'') and D (``individual characteristics''), with 
particular emphasis on General Factors A and B. A case will be 
considered an ``egregious case'' where the analysis of the 
applicable General Factors, with a focus on those General Factors 
identified above, indicates that the case represents a particularly 
serious violation of the law calling for a strong enforcement 
response. A determination that a case is ``egregious'' will be made 
by the Director or Deputy Director.
    2. Pre-Penalty Notice. The penalty amount proposed in a Pre-
Penalty Notice shall generally be calculated as follows, except that 
neither the base amount nor the proposed penalty will exceed the 
applicable statutory maximum amount: \6\
---------------------------------------------------------------------------

    \6\ For apparent violations identified in the Cuba Penalty 
Schedule, 68 Fed. Reg. 4429 (Jan. 29, 2003), for which a civil 
monetary penalty has been deemed appropriate, the base penalty 
amount shall equal the amount set forth in the Schedule for such 
violation, except that the base penalty amount shall be reduced by 
50% in cases of voluntary self-disclosure.
---------------------------------------------------------------------------

a. Base Category Calculation

    i. In a non-egregious case, if the apparent violation is 
disclosed through a voluntary self-disclosure by the Subject Person, 
the base amount of the proposed civil penalty in the Pre-Penalty 
Notice shall be one-half of the transaction value, capped at a 
maximum base amount of $125,000 per violation (except in the case of 
transactions subject to the Trading With the Enemy Act, in which 
case the base amount of the proposed civil penalty will be capped at 
the lesser of $125,000 or one-half of the maximum statutory penalty 
under TWEA, which at the time of publication of these Guidelines 
equaled $32,500 per violation).
    ii. In a non-egregious case, if the apparent violation comes to 
OFAC's attention by means other than a voluntary self-disclosure, 
the base amount of the proposed civil penalty in the Pre-Penalty 
Notice shall be the ``applicable schedule amount,'' as defined above 
(capped at a maximum base amount of $250,000 per violation, or, in 
the case of transactions subject to the Trading With the Enemy Act, 
capped at the lesser of $250,000 or the maximum statutory penalty 
under TWEA, which at the time of publication of these Guidelines 
equaled a maximum of $65,000 per violation).
    iii. In an egregious case, if the apparent violation is 
disclosed through a voluntary self-disclosure by a Subject Person, 
the base amount of the proposed civil penalty in the Pre-Penalty 
Notice shall be one-half of the applicable statutory maximum penalty 
applicable to the violation.
    iv. In an egregious case, if the apparent violation comes to 
OFAC's attention by means other than a voluntary self-disclosure, 
the base amount of the proposed civil penalty in the Pre-Penalty 
Notice shall be the applicable statutory maximum penalty amount 
applicable to the violation.
    The following matrix represents the base amount of the proposed 
civil penalty for each category of violation:

[[Page 57606]]

[GRAPHIC] [TIFF OMITTED] TR09NO09.016

b. Adjustment for Applicable Relevant General Factors

    The base amount of the proposed civil penalty may be adjusted to 
reflect applicable General Factors for Administrative Action set 
forth in Section III of these Guidelines. Each factor may be 
considered mitigating or aggravating, resulting in a lower or higher 
proposed penalty amount. As a general matter, in those cases where 
the following General Factors are present, OFAC will adjust the base 
proposed penalty amount in the following manner:
    i. In cases involving substantial cooperation with OFAC but no 
voluntary self-disclosure as defined herein, including cases in 
which an apparent violation is reported to OFAC by a third party but 
the Subject Person provides substantial additional information 
regarding the apparent violation and/or other related violations, 
the base penalty amount generally will be reduced between 25 and 40 
percent. Substantial cooperation in cases involving voluntary self-
disclosure may also be considered as a further mitigating factor.
    ii. In cases involving a Subject Person's first violation, the 
base penalty amount generally will be reduced up to 25 percent. An 
apparent violation generally will be considered a ``first 
violation'' if the Subject Person has not received a penalty notice 
or Finding of Violation from OFAC in the five years preceding the 
date of the transaction giving rise to the apparent violation. A 
group of substantially similar apparent violations addressed in a 
single Pre-Penalty Notice shall be considered as a single violation 
for purposes of this subsection. In those cases where a prior 
penalty notice or Finding of Violation within the preceding five 
years involved conduct of a substantially different nature from the 
apparent violation at issue, OFAC may consider the apparent 
violation at issue a ``first violation.'' In determining the extent 
of any mitigation for a first violation, OFAC may consider any prior 
OFAC enforcement action taken with respect to the Subject Person, 
including any cautionary, warning or evaluative letters issued, or 
any civil monetary settlements entered into with OFAC.
    In all cases, the proposed penalty amount will not exceed the 
applicable statutory maximum.
    In cases involving a large number of apparent violations, where 
the transaction value of all apparent violations is either unknown 
or would require a disproportionate allocation of resources to 
determine, OFAC may estimate or extrapolate the transaction value of 
the total universe of apparent violations in determining the amount 
of any proposed civil monetary penalty.
    3. Penalty Notice. The amount of the proposed civil penalty in 
the Pre-Penalty Notice will be the presumptive starting point for 
calculation of the civil penalty amount in the Penalty Notice. OFAC 
may adjust the penalty amount in the Penalty Notice based on:
    a. Evidence presented by the Subject Person in response to the 
Pre-Penalty Notice,

[[Page 57607]]

or otherwise received by OFAC with respect to the underlying 
violation(s); and/or
    b. Any modification resulting from further review and 
reconsideration by OFAC of the proposed civil monetary penalty in 
light of the General Factors for Administrative Action set forth in 
Section III above.
    In no event will the amount of the civil monetary penalty in the 
Penalty Notice exceed the proposed penalty set forth in the Pre-
Penalty Notice by more than 10 percent, or include additional 
alleged violations, unless a revised Pre-Penalty Notice has first 
been sent to the Subject Person as set forth above. In the event 
that OFAC determines upon further review that no penalty is 
appropriate, it will so inform the Subject Person in a no-action 
letter, a cautionary letter, or a Finding of Violation.

C. Settlements

    A settlement does not constitute a final agency determination 
that a violation has occurred.
    1. Settlement Process. Settlement discussions may be initiated 
by OFAC, the Subject Person or the Subject Person's authorized 
representative. Settlements generally will be negotiated in 
accordance with the principles set forth in these Guidelines with 
respect to appropriate penalty amounts. OFAC may condition the entry 
into or continuation of settlement negotiations on the execution of 
a tolling agreement with respect to the statute of limitations.
    2. Settlement Prior to Issuance of Pre-Penalty Notice. Where 
settlement discussions occur prior to the issuance of a Pre-Penalty 
Notice, the Subject Person may request in writing that OFAC withhold 
issuance of a Pre-Penalty Notice pending the conclusion of 
settlement discussions. OFAC will generally agree to such a request 
as long as settlement discussions are continuing in good faith and 
the statute of limitations is not at risk of expiring.
    3. Settlement Following Issuance of Pre-Penalty Notice. If a 
matter is settled after a Pre-Penalty Notice has been issued, but 
before a final Penalty Notice is issued, OFAC will not make a final 
determination as to whether a sanctions violation has occurred. In 
the event no settlement is reached, the period specified for written 
response to the Pre-Penalty Notice remains in effect unless 
additional time is granted by OFAC.
    4. Settlements of Multiple Apparent Violations. A settlement 
initiated for one apparent violation may also involve a 
comprehensive or global settlement of multiple apparent violations 
covered by other Pre-Penalty Notices, apparent violations for which 
a Pre-Penalty Notice has not yet been issued by OFAC, or previously 
unknown apparent violations reported to OFAC during the pendency of 
an investigation of an apparent violation.

Annex

    The following matrix can be used by financial institutions to 
evaluate their compliance programs:

                                                OFAC Risk Matrix
----------------------------------------------------------------------------------------------------------------
                 Low                                Moderate                                High
----------------------------------------------------------------------------------------------------------------
Stable, well-known customer base in   Customer base changing due to         A large, fluctuating client base in
 a localized environment.              branching, merger, or acquisition     an international environment.
                                       in the domestic market.
Few high-risk customers; these may    A moderate number of high-risk        A large number of high-risk
 include nonresident aliens, foreign   customers.                            customers.
 customers (including accounts with
 U.S. powers of attorney), and
 foreign commercial customers.
No overseas branches and no           Overseas branches or correspondent    Overseas branches or multiple
 correspondent accounts with foreign   accounts with foreign banks.          correspondent accounts with foreign
 banks.                                                                      banks.
No electronic services (e.g., e-      The institution offers limited        The institution offers a wide array
 banking) offered, or products         electronic (e.g., e-banking)          of electronic (e.g., e-banking)
 available are purely informational    products and services.                products and services (i.e.,
 or non-transactional.                                                       account transfers, e-bill payment,
                                                                             or accounts opened via the
                                                                             Internet).
Limited number of funds transfers     A moderate number of funds            A high number of customer and non-
 for customers and non-customers,      transfers, mostly for customers.      customer funds transfers, including
 limited third-party transactions,     Possibly, a few international funds   international funds transfers.
 and no international funds            transfers from personal or business
 transfers.                            accounts.
No other types of international       Limited other types of international  A high number of other types of
 transactions, such as trade           transactions.                         international transactions.
 finance, cross-border ACH, and
 management of sovereign debt.
No history of OFAC actions. No        A small number of recent actions      Multiple recent actions by OFAC,
 evidence of apparent violation or     (i.e., actions within the last five   where the institution has not
 circumstances that might lead to a    years) by OFAC, including notice      addressed the issues, thus leading
 violation.                            letters, or civil money penalties,    to an increased risk of the
                                       with evidence that the institution    institution undertaking similar
                                       addressed the issues and is not at    violations in the future.
                                       risk of similar violations in the
                                       future.
Management has fully assessed the     Management exhibits a reasonable      Management does not understand, or
 institution's level of risk based     understanding of the key aspects of   has chosen to ignore, key aspects
 on its customer base and product      OFAC compliance and its commitment    of OFAC compliance risk. The
 lines. This understanding of risk     is generally clear and                importance of compliance is not
 and strong commitment to OFAC         satisfactorily communicated           emphasized or communicated
 compliance is satisfactorily          throughout the organization, but it   throughout the organization.
 communicated throughout the           may lack a program appropriately
 organization.                         tailored to risk.
The board of directors, or board      The board has approved an OFAC        The board has not approved an OFAC
 committee, has approved an OFAC       compliance program that includes      compliance program, or policies,
 compliance program that includes      most of the appropriate policies,     procedures, controls, and
 policies, procedures, controls, and   procedures, controls, and             information systems are
 information systems that are          information systems necessary to      significantly deficient.
 adequate, and consistent with the     ensure compliance, but some
 institution's OFAC risk profile.      weaknesses are noted.
Staffing levels appear adequate to    Staffing levels appear generally      Management has failed to provide
 properly execute the OFAC             adequate, but some deficiencies are   appropriate staffing levels to
 compliance program.                   noted.                                handle workload.
Authority and accountability for      Authority and accountability are      Authority and accountability for
 OFAC compliance are clearly defined   defined, but some refinements are     compliance have not been clearly
 and enforced, including the           needed. A qualified OFAC officer      established. No OFAC compliance
 designation of a qualified OFAC       has been designated.                  officer, or an unqualified one, has
 officer.                                                                    been appointed. The role of the
                                                                             OFAC officer is unclear.

[[Page 57608]]

 
Training is appropriate and           Training is conducted and management  Training is sporadic and does not
 effective based on the                provides adequate resources given     cover important regulatory and risk
 institution's risk profile, covers    the risk profile of the               areas or is nonexistent.
 applicable personnel, and provides    organization; however, some areas
 necessary up-to-date information      are not covered within the training
 and resources to ensure compliance.   program.
The institution employs strong        The institution employs limited       The institution does not employ
 quality control methods.              quality control methods.              quality control methods.
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    Dated: November 2, 2009.
Adam J. Szubin,
Director, Office of Foreign Assets Control.
[FR Doc. E9-26754 Filed 11-6-09; 8:45 am]
BILLING CODE 4811-45-P