In this new aggressive era of sanctions and export controls enforcement, companies need to understand the potential risks that DOJ and/or OFAC may identify a company for sanctions investigation.
In a global economy, investigators from various countries have built coordination procedures by which they share intelligence and possible leads among each other. This phenomena has created a complex web of investigators who can identify relevant evidence in faraway markets, transmit the evidence to a relevant authority and then coordinate in sharing information and intelligence.
With respect to sanctions violations, financial institutions remain a significant backstop when processing transactions related to a potential violation. Financial institutions have to report to OFAC the blocking of a potential transaction because of a sanctions violation. Financial institutions have become even more sensitive to these potential transactions given the new, aggressive enforcement approach by DOJ and OFAC.
Aside from financial institutions, there are a number of other ways in which a potential sanctions violation can be identified.
Customs authorities around the world may identify a shipment of goods either at an original loading point or a transshipment location. Once identified, customs authorities can detain the shipment and initiate an investigation.
Customs authorities in the United States have been increasing detentions of suspected shipments that have failed to comply with the Uyghur Forced Labor Prevention Act. Also, the U.S., European Union and United Kingdom customs authorities have been increasing review, detection and verification of shipments, particularly with respect to goods that may be destined to Russia.
Whistleblower reports to the new FinCEN whistleblower system or in other regions around the globe can trigger a government investigation. Once begun, other enforcement agencies be notified and initiate their own sanctions investigation.
In some cases, media reports on trade shipments, or a company’s compliance efforts or diversion of goods and services to a prohibited end user may trigger a regulatory or DOJ investigation.
Regulatory audits or inspections of records can occur and result in the initiation of an investigation. The Department of Commerce’s Bureau of Industry and Security regularly conducts inspections or audits. BIS Audits are thorough and usually identify weaknesses in a company’s overall export control compliance program, and possibly finding evidence of a potential sanctions violation.
Competitors can file a complaint with regulators or the Department of Justice seeking to spur an investigation. BIS has encouraged such reports and stated that those companies that report on other companies can earn “capital” to be used or cashed in when the company itself may experience a potential violation.
In light of these various sources for regulatory triggers, and given the heightened enforcement environment, companies should redouble their compliance efforts, build in internal controls and monitoring of their sanctions and export control programs. The new global enforcement network has resulted in an exponential increase in risks of detection, investigation and ultimately, enforcement.
