Abstract:
Can government agencies in sanctioning countries deter their companies from violating laws that limit business transactions with sanctioned countries? To understand this issue, we study the Office of Foreign Assets Control (OFAC), which is the primary enforcer of sanctions in the United States. OFAC announces a company's violations and penalty only after it has successfully completed its investigation. We document that OFAC's announcements were unanticipated and imposed reputational losses that could deter non-compliance throughout the industry when the penalties were large enough and when announcements were made at times when OFAC was being searched intensely on the internet. This suggests that a broader market sentiment sympathetic to OFAC's mission of stopping financial crimes was necessary.
