Files

Abstract

Tasked with enforcing U.S. economic sanctions promulgated by the White House, the U.S. Department of the Treasury’s Office of Foreign Asset Control (OFAC) administers dozens of active sanctions programs. In implementing those programs, it has designated thousands of individuals and entities as threats to the national security, foreign policy, or economy of the United States. The agency simply does not have the capacity, however, to review the billions of global financial transactions that flow through the banking industry for potential sanctions violations. This article seeks to illustrate how the U.S. economic sanctions framework operates and how OFAC enlists large financial institutions (LFIs) to the cause. In fact, in the last decade OFAC issued its ten largest penalties for alleged violations of U.S. sanctions against LFIs, vastly increasing the risk of non-compliance for global financial entities. In fear of, and in response to, these hefty financial penalties, LFIs have come to occupy an important role in complying with, and privately enforcing, U.S. economic sanctions. In light of OFAC�s approach of incentivizing the establishment of private policing capabilities at LFIs, this article analyzes the current U.S. economic sanctions framework, the significant leverage LFIs have in the global enforcement of these sanctions, and, in turn, the impact the U.S. economic sanctions framework has had on constructing and transforming LFIs� internal compliance programs. Ultimately, the regulatory threat OFAC has at its disposal allows it to enforce an evolving compliance requirement�incentivizing LFIs to develop and adopt increasingly complex compliance practices, voluntarily or otherwise.

Details

PDF