Delaware and U.S. Treasury to Collaborate on Sanctions Enforcement

Nonfinancial companies incorporated in Delaware may be in line for enhanced sanctions enforcement in the wake of an agreement recently entered between state officials and the U.S. Treasury Department.

Earlier this month, the Delaware Department of Justice and the U.S. Department of Treasury’s Office of Foreign Assets Control —which is tasked with enforcing U.S. sanctions—executed a memorandum of understanding that allows officials from Delaware and OFAC to join forces to shut down or otherwise disrupt illicit activities, including those of parties seeking to hide transactions behind anonymous entities.

Historically, the corporate formation requirements in Delaware facilitate a degree of anonymity that can foster financial wrongdoing and provide the means to evade sanctions. As such, there is good reason why expectations are high for more robust sanctions enforcement as a result of the memorandum of understanding. It is no secret that Delaware is a recognized haven for incorporation. That being said, the state’s partnership with OFAC is intended to ensure that the advantages of doing business in Delaware are not abused to break the law.

Of course, this is nothing new. Delaware has a long history of rooting out illegal corporate activity and regularly cooperates with federal law enforcement, including OFAC, toward that end. In fact, Delaware laws and regulations have been changed in recent years with an eye toward closing down nefarious corporations and limited liability companies.

The memorandum of understanding between the state and OFAC builds on that progress. In essence, it encourages cross-training, information sharing and coordination on investigations; improves transparency in corporate structures that may be used to obscure illicit business; promotes compliance with U.S. trade and economic sanctions laws; and prevents the use of U.S. companies by blacklisted individuals or entities. According to Andrea Gacki, OFAC’s Director, “Enhanced collaboration with the Delaware Department of Justice will help OFAC to enforce its sanctions programs by more quickly identifying parties with an interest in blocked property”—this because authorities in Delaware have access to information about companies formed in the state that has, until now, been challenging for OFAC to get its hands on.

It is hoped that the memorandum of understanding will not only advance cooperation between Delaware and OFAC to heighten awareness of U.S. economic sanctions within the state’s business community and among the general public, but also protect national security by promoting compliance with U.S. trade and economic sanctions laws. Likewise, the agreement should serve to prevent abuse of U.S. companies by criminal and terrorist organizations, corrupt individuals, and other blocked persons through cancellation of entities or imposition of OFAC penalties; and support litigation against entities placed on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List).

If the memorandum of understanding proves to be effective in enabling successful investigations of sanctions violations, perhaps it could serve as a model of collaboration between state and federal authorities going forward. Certainly, officials in Delaware and at OFAC hope that will be the case.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.