On 20 April 2020, OFAC issued a notice encouraging “persons, including financial institutions and other businesses affected by the COVID-19 global pandemic to contact OFAC as soon as practicable if the person believes it may experience delays in its ability to meet deadlines associated with regulatory requirements administered by OFAC.” This guidance follows the risk-based guidance and communicated “understanding” for deviations in AML compliance promulgated by related supervisory agencies. While AML compliance regulators, and OFAC in particular are no non-sense about non-compliance or complacency, it is encouraging that these regulators acknowledge things may be missed or delayed due to the unprecedented circumstances of this time.
Even though OFAC will consider pandemic challenges when evaluating deviations to sanctions compliance, one should not assume all deviations will be forgiven or forgotten. As a Gibson, Dunn, & Crutcher partner said in the WSJ last week, “OFAC is not saying they are excusing the violation, or finding things violative not violative.” OFAC is arguably the most strict of all regulators because the efficacy of their mandate relies heavily on the power of deterrence as measured by the cost of non-compliance. If OFAC becomes too permissive or forgiving it could jeopardize its potency. But in this time of unprecedented change, OFAC has an opportunity to not only issue humanitarian exceptions to programs as explained in the 16 April fact sheet or communicate consideration for pandemic challenges as outlined in the 20 April notice, but to support the exploration into alternative tools that could address concerns surrounding compliance challenges with a long-term solution rather than a temporary reprieve.
A viable alternative is blockchain technology. The use of blockchain for AML compliance is not a new concept and while there are plenty of risks and unknowns to the use of this technology, the theme of the global pandemic is just that – attempting to navigate through a myriad of risks and unknowns. Blockchain technology could be the platform for creating a repository of due diligence information that could facilitate disbursements under the PPP or even the sanctions vetting process for M&A and financing deals vital to the survival of some businesses.
Additionally, the encrypted nature of the blockchain platform could alleviate some of the concerns around data security and the digitalization of businesses or even present an alternative conduit for financial disclosures (i.e. SARs or OFAC blocked/rejected reports). While the risks and concerns over confidentiality, and adherence to other applicable laws across jurisdictions are just some of the many “con” topics and hurdles that would need to be addressed, this unusual time in compliance may need a revolutionary response.
OFAC encouraged individuals and companies to tell the agency about pandemic-related compliance concerns such as possible delays in meeting deadlines associated with regulatory requirements. If a sanctions violation occurs during the pandemic, the Treasury said it would take the coronavirus into consideration when it assesses possible fines or other actions. It would evaluate resource issues on a case-by-case basis, according to the notice. The pandemic has upended compliance departments across industries as companies have moved to remote working and sought to navigate the economic fallout from the virus.