§501.601 Records and recordkeeping requirements.
Except as otherwise provided, every person engaging in any transaction subject to the provisions of this chapter shall keep a full and accurate record of each such transaction engaged in, regardless of whether such transaction is effected pursuant to license or otherwise, and such record shall be available for examination for at least 5 years after the date of such transaction. Except as otherwise provided, every person holding property blocked pursuant to the provisions of this chapter or funds transfers retained pursuant to §596.504(b) of this chapter shall keep a full and accurate record of such property, and such record shall be available for examination for the period of time that such property is blocked and for at least 5 years after the date such property is unblocked.
Note: See subpart F of part 597 for the relationship between this section and part 597.
[62 FR 45101, Aug. 25, 1997, as amended at 62 FR 52494, Oct. 8, 1997]
1) The recordkeeping requirement of 501.601 of the RPPR appears to have been the subject of only one enforcement action. See Civil Enforcement Information - DHL and Pre-penalty Notice - DHL.
2) SCOPE OF THE REQUIREMENT
The provision states that "every person engaging in any transaction subject to the provisions of this chapter shall keep a full and accurate record of each such transaction engaged in, regardless of whether such transaction is effected pursuant to license or otherwise". There is a lack of clarity as to the meaning of "transaction subject to the provisions of this chapter". Most significantly, it is not clear from the face of the text whether exempt transactions are transactions "subject to the provisions of" 31 CFR Chapter V. Compare the text of 501.602, which is the basis for the issuance of administrative subpoenas:
"Every person is required to furnish under oath, in the form of reports or otherwise, from time to time and at any time as may be required by the Office of Foreign Assets Control, complete information relative to any act or transaction, regardless of whether such act or transaction is effected pursuant to license or otherwise, subject to the provisions of this chapter or relative to any property in which any foreign country or any national thereof has or had any interest of any nature whatsoever, direct or indirect."
The scope of the 501.602 extends beyond transactions "subject to the provisions of" 31 CFR Chapter V, and clearly covers exempt transactions as well. There are some good reasons to believe that the recordkeeping requirement does not extend to exempt transactions. The informational materials exemption in IEEPA provides that IEEPA "does not include the authority to regulate or prohibit, directly or indirectly...the importation from any country, or the exportation to any country, whether commercial or otherwise, regardless of format or medium of transmission, of any information or informational materials..." The requirement to keep a record of a transaction is, in some sense, a "regulation" of that transaction (even if it is not a "prohibition" of the transaction). The requirement to furnish evidence concerning the transaction to the extent that one possesses it, on the other hand, is less capable of being characterized as a "regulation" of the transaction.
In Sanctions Compliance Guidance for the Virtual Currency Industry (2021 Brochure) OFAC says that recordkeeping requirements apply to “transactions processed pursuant to a license (whether a general license or a specific license),” but not exempt transactions. This could be read as confirming that exempt transactions are not “subject to the provisions of” 31 Chapter V for the purposes of 501.601. (If so, query whether the same is true of transactions subject to “discretionary” exemptions, rather than IEEPA-based exemptions, such as provisions in executive orders that state that “Nothing in this order shall prohibit transactions for the conduct of the official business of the United States Government by employees, grantees, or contractors thereof. Sec. 7 of EO 13685. In such cases, there is no removal of the President's authority to "regulate" such transactions").
In the 2008 Pre-penalty Notice - DHL, OFAC "preliminary proposed" a penalty of $322,272,000. for 32,228 alleged recordkeeping violations (in connection with shipments that may or may not have been covered by licenses and exemptions). That OFAC is unlikely to actually have the authority to extend the recordkeeping requirement to exempt transactions is most likely why OFAC considered "[that] shipments of informational materials may have made up as much as 90 percent or more of the shipments for which DHL failed to keep adequate records" to be a "unique mitigating factor". OFAC mitigated the RPPR-based penalties by 97 percent, such that it could say that it did not actually penalize DHL for the failure to keep informational materials-related records.
Note that, as of 10/2021, we are not aware of OFAC ever having made a public statement interpreting the recordkeeping requirement as applying to exempt transactions (such that the regulated public could be considered to have "fair notice" of such position). The DHL Pre-penalty Notice was not published on OFAC’s website. Note also that, at the time the pre-penalty notice was issued, the ITR appeared to assert jurisdiction over transactions incident to exempt transactions in a way that is no longer the case with the ITSR (as it exists from 2012 onward). See Payment and United States dollar clearing transactions involving Iran (2006, Iran), and comments thereto.
Finally, one other reason to doubt that OFAC considers 501.601 to extend to statutorily exempt transactions is that, in the CACR, which is issued pursuant to the TWEA (which has no travel exemption), there are notes associated with all of the travel GLs that state that "Each person relying on the general authorization in this paragraph must retain specific records related to the authorized travel transactions". There are, however, no similar notes attached to provisions involving exempt travel.
The other side of the exemption coin is that there is a wide range of transactions that people ordinarily think of as being outside OFAC's jurisdiction, but are, in fact, transactions "subject to the provisions of" 31 CFR Chapter V. For example, as of 10/2021, all transactions involving the Palestinian Authority are covered by a broad, 14-year old general license (GTSR/FTOSR/TSR - General License 7). All transactions involving the Government of Libya are, likewise, prohibited in principle and authorized by GL (Libya - General License No. 8).