Increased Enforcement of Evolving Russia Sanctions Poses Compliance Challenges for U.S. Businesses – Export Controls and Trade and Investment Sanctions

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The renewed emphasis on the vigorous use of sanctions by the US government has increased the risks for US and international businesses and individuals. After the unfathomable Russian invasion of Ukraine, a deluge of new sanctions has caused companies around the world to rethink their business strategy. And that’s a good thing – the US Department of Justice (DOJ) has made it clear that its white-collar enforcement program will focus on sanctions evasion and export violations (the “new FCPA”).

In remarks at a New York Bar Association event, Deputy Attorney General Lisa Monaco said the new “direction is expected to have a profound effect on businesses and their efforts to comply with U.S. laws. “. While it’s no surprise that Russia’s sanctions program is receiving particular attention, the practical effect is clear: businesses large and small must act now to ensure they comply in a way they might have previously considered unnecessary.

US reports increased enforcement

Sanctions have long been used as a national security tool. Administered by the Treasury Department’s Office of Foreign Assets Control (OFAC), US economic sanctions use financial tools to curb and penalize bad behavior. In the weeks following Russia’s invasion of Ukraine, the United States and its allies imposed a series of coordinated sanctions against Russia, Belarus and individuals linked to those governments, making Russia the most sanctioned country in the world.

Earlier this month, National Security Advisor Jake Sullivan spoke at the Economic Club in Washington, D.C. and stressed that the Biden administration was focused on “evading” the already “unprecedented” financial sanctions. imposed against Russia, Russian entities, Kremlin government officials and other prominent Russian personalities. Coupled with comments from DAG Monaco, Sullivan’s statement makes it clear that if companies want to avoid scrutiny from US government agencies, they need to reassess and strengthen compliance functions, including KYC supply chain and due diligence. .

Based on Attorney General Merrick Garland’s statements, we understand that the government has already established an interagency task force focused on the enforcement of U.S. sanctions, export restrictions and economic countermeasures imposed on the Russia. The so-called Task Force KleptoCapture also targets efforts to use cryptocurrency to circumvent sanctions or launder the proceeds of foreign corruption.

Additionally, KleptoCapture focuses on “undermining” sanctions by seizing assets “belonging to sanctioned individuals or assets identified as the proceeds of unlawful behavior.” Attorney General Garland noted that the DOJ “will use all of its authorities to seize the assets of individuals and entities who violate these sanctions.”

KleptoCapture and the DOJ are already taking action that backs up public statements by US officials. On April 6, the DOJ indicted a Russian oligarch for violating sanctions, and interagency efforts resulted in the seizure of assets around the world. Additionally, recent enforcement actions from OFAC and the DOJ demonstrate that the government is more willing than ever to take action against small businesses and individuals.

Comply with the evolving sanctions regime

The best course of action in any circumstance is to make every effort to conform to the changing landscape of the US sanctions regime. This may include revamping or updating your current compliance program, implementing a compliance program if you do not already have one and, in cases where an alleged breach has occurred, conducting a thorough investigation and determining the best course of action.

In some circumstances, it is prudent to voluntarily disclose potential violations, as failure to report may result in greater penalties. OFAC and the DOJ have issued guidelines for compliance programs that aim to significantly reduce penalties for companies that violate penalty regulations. These benefits often range from no action to significantly reduced fines and minimized penalties.

If errors and violations are mishandled, companies face an increased likelihood of enforcement action and an increased risk of serious reputational and financial damage. When evaluating violations, OFAC and the DOJ will determine whether a violation involving Russia is “gross” by considering a company’s existing compliance programs and policies, as well as other factors that may be put in place. work before the company comes under scrutiny.

OFAC and the DOJ will consider mitigating and aggravating factors in their assessment. The actions companies take now to minimize risk will ultimately lead to a more favorable view of their conduct and result in less severe outcomes.

An effective and comprehensive compliance program will be considered a mitigating factor. Aggravating factors may include, for example, deliberate evasion or avoidance of sanctions, the value of the transactions involved, the lack of a compliance program commensurate with the size and sophistication of the business, negligence or lack of due diligence, failure to apply for a license, or refusal to cooperate.

In addition to monitoring the ever-increasing sanctions against Russia, we recommend that companies review existing compliance programs, policies and procedures to ensure they are appropriate for the new sanctions environment. We also recommend companies review all existing customers and their supply chain (including third-party contractors) to ensure that no sanctioned or high-risk entities remain.

Conclusion

If you are concerned that your company has violated or is at risk of violating recently imposed sanctions, and if your company determines that an investigation is warranted, your company should consider hiring outside counsel. It is prudent to hire an outside attorney even if your company has a strong legal or compliance department, both to emphasize the independence of any investigation and to maintain confidentiality and legal privilege.

In short, in addition to doing their best to comply with current and future sanctions, we strongly recommend that companies review their existing compliance programs and seek legal advice when dealing with alleged violations to mitigate risk. potentials.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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