Registered Agents typically function simply as the designated recipient of notices for business entities, whether from the state (e.g., tax notices) or private entities or individuals (e.g., service of process, subpoenas), and have no management or fiduciary responsibility for their principals. But, as Delaware’s Secretary of State has recently reiterated, registered agents must be mindful of related requirements under federal law – generally, the obligation to not represent anyone who appears on the economic sanctions lists generated by the U.S. Treasury Office of Foreign Assets Control (“OFAC”).
Q: I am a DE registered agent. Why did I receive a notice from the DE secretary of state regarding U.S. Treasury Office of Foreign Assets Control (“OFAC”) compliance?
A: The Delaware Secretary of State’s office recently sent notices to every Registered Agent that represents Delaware businesses announcing that it was reminding registered agents to maintain compliance with OFAC regulations.
Q: What is OFAC?
A: “OFAC administers and enforces economic sanctions programs primarily against countries and groups of individuals, such as terrorists and narcotics traffickers.” As part of that work, OFAC maintains lists of individuals, entities, property, organizations, and countries that are subject to economic sanctions. For more information about OFAC, follow this link: www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_general.aspx
Q: Who must comply with OFAC regulations?
A: The OFAC regulations apply not just to registered agents, but to all U.S. persons, “including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, all U.S. incorporated entities and their foreign branches.” In some cases, foreign subsidiaries owned or controlled by U.S. companies also must comply.
Q: Generally, what is prohibited?
A: In plain English, you cannot start to do business, or continue to do business with entities, individuals, or countries that are subject to economic sanctions. That prohibition includes not engaging in prohibited transactions (i.e. trade or financial transactions or other dealings) with embargoed countries, entities owned by individuals or entities whose property and interests in property are blocked under Executive orders and regulations administered by OFAC. Specifically, you cannot do business with any entity if (a) the entity or certain key individuals associated with that entity reside in a country on an OFAC sanctions list, or are individually listed on OFAC’s Specially Designated Nationals (“SDN”) list, or (b) the property or interests in property of the entities are directly or indirectly owned 50 percent or more in the aggregate by one or more blocked individuals or entities.
Q: So what does this mean for registered agents?
A: You cannot begin to act as registered agent or continue to act as registered agent for any entity formed in Delaware if you are on notice that the entity, property held by the entity, or certain individuals associated with the entity are on an OFAC economic sanctions list.
Fortunately, the Delaware guidelines do not impose an obligation to obtain information that is not provided to registered agents by the client. The registered agent is only obligated to run searches against OFAC sanctions lists using the information they already have. That includes names of “client contacts, members, managers [and] owners,” as well as business addresses provided by the client.
Q: How do registered agents comply with OFAC?
A: Generally, before agreeing to accept a client, the registered agent must run the required searches, and decline the representation if any “hits” appear on the OFAC lists. For companies that the registered agent already represents, OFAC regulations require you to periodically, check (e.g. quarterly) all pertinent names and addresses on the OFAC lists. Registered Agents should develop a compliance program to show that they conducted the required searches under OFAC regulations, in case they are later asked to demonstrate compliance.
Q: What should I do if I get a “hit” associated with my client on the OFAC list?
A: If you get a “hit” when running a search on the OFAC list, don’t panic! Registered Agents are not required to report names that appear on the OFAC lists to the State of Delaware, but they must resign by filing a withdrawal as registered agent. If you withdraw as Registered Agent, that entity must designate a replacement Registered Agent. Although reporting to the State of Delaware is not required, the Registered Agent may be required to report a “hit” to OFAC. For more information, follow this link: https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/directions.aspx.
ABOUT FRANK NOYES
Mr. Noyes works with the Business Litigation group, as well as in the Business Law and Transactions group. His litigation practice focuses on representing companies in business litigation, disputes between owners, employment litigation, restrictive covenant and business tort litigation. He appears regularly in Delaware Chancery Court, and has represented clients in numerous state and federal courts in Delaware and Pennsylvania. On the transaction side, he represents companies in finance transactions, sales transactions, and general business matters, and represents employers in preparing employment agreements, handbooks, and separation agreements.
ABOUT DANIEL HOFHERR
Daniel Hofherr is an attorney in the business law and transaction practice group. His practice focuses on contractual, transactional, and general corporate law. He also has extensive experience in advising companies that are in the startup phase of operations.
Daniel received his Juris Doctor, magna cum laude, from the Syracuse University College of Law. During law school, he was elected to the Order of the Coif as well as the Justinian Honorary Law Society and served as a research assistant to an associate dean where he focused on regulatory trends impacting the financial services industry. Daniel earned his Bachelor of Science in Political Science from the University of Wisconsin-Oshkosh. He is admitted to practice law in New York and the District of Columbia.
ABOUT OFFIT KURMAN
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