OFAC to Apply Increased IEEPA Penalties Retroactively

December 7, 2007

On October 16, 2007, the President signed into law the International Emergency Economic Powers Enhancement Act ("IEEPA"), Pub. L. No. 110-96, which, inter alia, increased the maximum civil penalties applicable to violations of orders or regulations issued under IEEPA.  As previously reported, the changes in the bill increased maximum penalties for violations of certain export licenses, orders, regulations or prohibitions issued under the IEEPA from $50,000 to $250,000, or twice the amount of the transaction that is the basis of the violation, whichever is greater.  The Act also increased maximum criminal penalties from $50,000 and 10 years imprisonment to $1,000,000 and 20 years imprisonment.

The Department of Treasury's Office of Foreign Assets Control ("OFAC") recently published a statement clarifying how the agency plans to proceed under the increased penalties.  Pursuant to this interim policy, OFAC states that any enforcement actions pending or commenced by OFAC on or after October 16, 2007 are subject to the increased penalties regardless of when the activity that resulted in the penalty action may have occurred.  It should be noted that as OFAC has not yet published revised enforcement guidelines and procedures, it will continue to apply its Economic Sanctions Enforcement Guidelines and Economic Sanctions Enforcement Procedures for Banking Institutions to the new statutory penalty provisions until new guidance is released.

In this notice, OFAC has not stated whether it will retroactively seek the new higher penalties in cases where companies have voluntarily disclosed violations, as BIS did in its penalty guidance issued on November 1, 2007.  Until new guidance is issued, OFAC will continue to calculate fines based on the same aggravating and mitigating factors that it has used to do since January 2003.  Under the January 2003 penalty guidelines, OFAC generally discounts penalties by 50 percent if a voluntary disclosure has been made by a company and by another 25 percent for first-time violations.