Regulatory Convergence: 9 Key Elements of an Effective Sanctions and Export Controls Compliance Program

Regulatory agencies in the U.S. like the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”), the U.S. Department of State’s Directorate of Defense Trade Controls (“DDTC”) and the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) prioritize the effectiveness of export and sanctions compliance programs in their regulatory guidance, and continuously promote strategies to achieve organizational integrity and legal risk mitigation. While each of these regulatory agencies are responsible for overseeing varying jurisdictions and industries, many common threads thematically come together through their published guidance and recent enforcement cases.

The most common compliance factors included in almost all export and sanctions related regulatory guidance can be distilled into nine key elements. By understanding and implementing these key elements, organizations can equip themselves to navigate complex regulatory landscapes, insulate themselves from enforcement risks and associated legal and financial penalties, and build a reputation for a commitment to compliance within their industry -  and in the eyes of the regulators overseeing them as well as other stakeholders, such as customers and prospects. 

Nine Key Elements of an Effective Compliance Program

The most common compliance factors included in almost all export- and sanctions-related regulatory guidance can be distilled into nine key elements:

  1. Management Commitment: Establishing the right “tone from the top” from management, in the form of written corporate mission statements, trainings, awareness campaigns, case studies, and announcements, thus sending the message that regulatory compliance is an overarching priority and essential value-add for the organization.
  2. Record Keeping: Each regulatory agency has record retention requirements; OFAC, BIS and DDTC require 5 years.1
  3. Detecting, Reporting, and Disclosing Violations: Regulators consistently recognize organizations that proactively detect and voluntarily disclose potential compliance violations, and cite them as mitigating factors when determining possible penalties and remedial action.
  4. Export Authorization: Knowing what products, services, and technology are controlled under U.S. export law is key to determining the export authorization required. Similarly, certain embargoed countries and regions, sanctioned entities, persons, and prohibited transactions under U.S. sanctions laws may or may not be permitted under a general license.
  5. Training: Education of employees, third party contractors, management and executives is key to keeping a company in compliance. Training should be specific to job responsibilities and tailored to positions and include periodic knowledge checks and “real-life” examples of compliance issues the company has experienced in the past. 
  6. Risk Assessment: To remain compliant, organizations need to evaluate their existing export and sanctions compliance programs and determine if they adequately address the compliance risks inherent to their products, services, customers, and geographic locations.
  7. Audit & Compliance Monitoring: Conducting periodic independent assessments of the effectiveness and sustainability of an organization’s internal control environment is key to preventing and detecting instances of noncompliance. 
  8. Compliance Manuals: Centralizing documentation of policies, procedures, compliance hierarchies, roles and responsibilities enable organizations to effectively communicate internal compliance requirements and provide a framework against which compliance efforts can be measured.
  9. Transaction Screening & Monitoring: Each transaction organizations engage in or facilitate should be screened for sanctions and export compliance, and any that present a compliance risk should be blocked and reviewed. Leveraging systems data, innovative technology, and AI will be critical to the prevention and detection of suspicious transactions as advanced technology progresses.

Top 5 Recent Enforcement Action Insights

Regulatory agencies including OFAC, BIS, and the New York State Department of Financial Services (“NYDFS”) publish public press releases and enforcement actions that outline the specific export and sanctions related compliance deficiencies that led to violations. In addition to studying and implementing the nine key compliance program elements listed above, organizations can supplement the key compliance program elements outlined in published guidance with nuanced compliance program considerations that are described in these enforcement actions. 

Please see this companion piece for an in-depth examination of thematic observations of compliance deficiencies and lessons learned from a holistic review of enforcement actions published in 2023 and 2024.

On March 21, 2024, compliance professionals from BDO USA, P.C. and Barnes & Thornburg LLP discussed these key compliance program elements, the compliance lessons learned from recent enforcement cases related to the key compliance elements, and how they should be implemented to satisfy the recommendations of several regulatory agencies concurrently. See a link to a recording of this webcast here.

Update: U.S. HR 815 (signed into law on April 24, 2024) doubles the statute of limitations for sanctions violations from five to 10 years, and OFAC is anticipated to revise its regulations (31 C.F.R. § 501.601) to reflect the extended record keeping obligation.