On August 2, President Donald Trump signed the Countering America’s Adversaries Through Sanctions Act.
“Many ERISA and governmental benefit plans may view trade sanctions as something that applies to banks but that doesn’t impact our retirement system. This view is wrong,” attorneys with Groom Law Group wrote in a Benefits Brief.
Over the next few months, Groom says, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) will issue guidance implementing the changes set out in the sanctions bill. The attorneys say they have seen an increase in the number of pension plans that have faced possible OFAC violations arising from distributions and investments.
According to the Benefits Brief, OFAC maintains a list of individuals and entities that are sanctioned on three lists, the Specially Designated Nationals List (SDN List), the Foreign Sanctions Evaders List (FSE List), and the Sectoral Sanctions List (SS List). To assist with compliance, OFAC offers an online search tool that allows users to compare names against the SDN and FSE Lists, found at https://sdnsearch.ofac.treas.gov/.
Under OFAC guidance, both governmental and private employee benefit plans are required to comply with OFAC compliance programs. Groom warns that failure to comply can lead to reputational damage and/or civil and criminal penalties. An OFAC investigation generally ends with one of five concluding letters: No Action Letter; Cautionary Letter; Finding of Violation; Civil Penalty; or a Criminal Referral. Findings of Violation, Civil Penalties, and Criminal Referrals are generally issued publicly and can impact not just an organization’s reputation, but also its ability to obtain government contracts.
In terms of civil penalties, as of July 27, OFAC has imposed nine civil penalties totaling almost $117 million. Criminal penalties, while less frequently imposed, are severe and can include fines of up to $20 million and/or imprisonment of up to 30 years.
Groom attorneys suggest Employee Retirement Income Security Act (ERISA) and governmental benefit plans develop a compliance program and enter into contracts with service providers to assist with compliance. Plans should examine (and continue to monitor) existing contracts and participant and beneficiary lists to ensure that the payments the plan is making (and investments and transactions the plan is making) are permitted. This involves:
- Checking if plan assets and investments are connected with entities on the SDN, FSE, or SS lists;
- Checking if participant or beneficiary payments are going to individuals on the SDN, FSE, or SS lists; and
- Identifying payments to sanctioned countries such as Cuba, Iran, Sudan, and North Korea.