Welcome to this special podcast series “In Conversation with K2 Intelligence FIN: Navigating an Increasingly Complex Sanctions Landscape”. This series is sponsored by K2 Intelligence, LLC. This week I visit with Adam Frey, Managing Director, and Eric Lorber, Vice President at K2 Intelligence Financial Integrity Network (FIN).

Frey is a key member of the firm’s independent consultant team, at the direction of federal, state, and/or international regulators, he works to monitor and assess global financial institutions’ compliance with Anti-Money Laundering (AML) and Office of Foreign Assets Control (OFAC) enforcement actions and related consent orders. Frey helps lead K2 Intelligence FIN’s reviews of the institutions’ Bank Secrecy Act (BSA)/AML and sanctions compliance programs, policies, and procedures. Lorber advises global financial institutions on issues related to sanctions and AML /combating the financing of terrorism compliance. Prior to re-joining FIN, he was a senior advisor to the Under Secretary for Terrorism and Financial Intelligence at the United States Department of the Treasury, where he provided strategic guidance on US sanctions and AML/ Combating the Financing of Terrorism (CFT) policies. Earlier in his career, he was an attorney at Gibson, Dunn & Crutcher LLP, where he advised clients in the areas of international trade regulation, compliance, and anti-corruption. He is also the senior director of the Center of Economic and Financial Power at the Foundation for Defense of Democracies.

Over this week, we are reviewing the current sanctions landscape, discussing how to build a sanctions compliance program, walking listeners through what happens when you discover a sanctions breach or potential breach, considering new sanctions exposure and concluding with a look in that veiled land of the future by considering issues on the horizon. In this Episode 3, I am joined by Eric Lorber on what to do if you have a sanctions violation or think you may have violated a sanctions program.

This is always a difficult proposition; you find out about a sanctions violation or even a potential violation. What steps should you take. Lorber began with what he termed “Core Lesson No. 1 – Do Not Ignore It”. You have to make a determination as to whether or not there has been a breach or whether or not you assess there has been a breach and then take appropriate steps accordingly. Lorber has seen situations where individuals have isolated sanctions and try to potentially cover it up, or management has not paid sufficient attention to it. He cautioned this type of response almost always leads to additional interest and potential enforcement activity, by OFAC, the relevant regulator or enforcement agencies. After you make an initial assessment, be prepared to escalate it up your internal chain and also potentially to notify the regulators.  You may want to get your internal counsel involved to protect privilege and potentially outside counsel as well.

Lorber noted that one of the things which is so tricky about the sanction space is just how confusing some of the sanctions laws and regulations are coupled with what is, and is not, permissible. Oftentimes one might look at an OFAC sanctions regulation and then you look at a general license. It can be very difficult to decipher exactly what is and is not permissible. Moreover, the regulations themselves are often written in a fairly broad manner.

The next lesson is to figure out exactly what happened and it is critical to conduct a robust internal investigation for this exercise. The purpose of the investigation should be multi-fold. First is getting a sense of exactly what has and has not happened. This means getting the facts straight because these facts are going to be incredibly important in determining internally whether or not you think a violation has occurred. It will also be critical for an eventual determination by OFAC or other sanctions enforcement agency, as to whether or not a violation has occurred. A second key reason is actually to get a sense of if this is a systemic violation as opposed to a one off.

We then turned to the always difficult conversation around self-disclosure. This is one of the trickiest areas as there are multiple competing considerations for thinking about self-reporting. It is important point to note on this point, the OFAC process for self-disclosure, which is called a Voluntary Self-Disclosure (VSD), creates an incentive structure for companies to self-report. The big incentive is that you get 50% off the base penalty. Additionally, if a company self-reports OFAC has flexibility in its final decision. This includes making the enforcement action public or not. OFAC will take into account the fact that you filed a VSD in making a determination as to whether or not to engage in public enforcement activity at all.

Two additional considerations by OFAC will be in the areas of remediation and cooperation. Remediation means correcting the problem after an investigation and root cause analysis (RCA). For cooperation, Lorber noted this can include actions such as tolling the statute of limitations to providing an open flow of all the information requested by those agencies. Establishing to the extent you can establish a cooperative relationship is smart. OFAC will take these various different factors into consideration when establishing the civil monetary penalty and whether or not to engage in enforcement activity, up to and including the requirement for a monitor.

Lorber concluded by stating, “these are the types of proactive steps that I think OFAC and the regulatory authorities would really like to see. It is signaling we are taking this seriously. It’s very much a sort of a signal that we are on your side enforcement agencies and regulatory authorities.”

Join us tomorrow where I am joined again by Eric Lorber to consider new sanction risk exposures for commercial corporations and the shipping space.


For more information on K2 Intelligence FIN’s Sanctions Risk Advisory Services, click here.

For more information on Navigating the Sanctions Minefield: What Every Global Business Should Know, click here.