What types of OFAC licenses exist and how do they differ?

If your business is related to supply, money transfers, and services to countries under U.S. sanctions, knowing OFAC rules is a matter of financial and legal security. The Office of Foreign Assets Control issues two main types of licenses: General License and Specific License. Many entrepreneurs mistakenly believe that a general license provides a “pass” for any transaction, or conversely, spend months coordinating what is allowed by default.
The difference between them is critical: choosing the wrong type of license or ignoring OFAC requirements can lead to fines of millions of dollars, account freezes, and criminal liability. Our lawyers will help determine which license is needed in your situation, prepare the application, ensure OFAC compliance, and handle interaction with the regulator.

What is an OFAC license and why is it needed?

 An OFAC license is an official permission to carry out a specific transaction or type of activity that would otherwise be prohibited under U.S. sanctions law. Such licenses are needed to legally interact with sanctioned entities and countries, and to avoid violations that may lead to significant fines and even criminal liability.

OFAC-administered sanctions can target entire countries or individual persons and entities included in the SDN List. Restrictions can relate to financial operations, export of goods and technology, provision of services, investments, and other forms of economic activity.

An OFAC license allows participants in international trade, banks, financial institutions, and private individuals to conduct operations that would otherwise be prohibited. This may be either a general license, allowing a certain type of transaction for everyone, or a specific license, issued to a particular applicant after review of the request.

Compliance with OFAC requirements is not a formality but a key element of international compliance. Violating the sanctions regime risks fines that can reach millions of dollars, asset freezes, and reputational losses. Therefore, obtaining an OFAC license when working with sanctioned counterparties is a mandatory condition for lawful and safe business operations.

What types of OFAC licenses exist?

 Since many operations with sanctioned entities are directly prohibited, conducting them legally requires a special permission – an OFAC license. There are two main types of such licenses: General Licenses and Specific Licenses. Understanding the differences between them allows proper business process organization, avoids violations, and minimizes risks.

General Licenses

A General License is an official permission that automatically applies to all persons and organizations under U.S. jurisdiction and allows certain types of operations that would otherwise be prohibited by sanctions.

• Does not require an individual application to OFAC.
  
• The list of active general licenses is published on the official OFAC website and updated regularly.
  
• Applies to predefined categories of transactions that do not conflict with U.S. foreign policy interests.
  

General Licenses simplify law enforcement, allowing humanitarian operations, food and medicine supplies to sanctioned countries, and certain types of financial transactions if directly permitted by the license.

Specific Licenses

A Specific License is an individual permission issued to a particular applicant for a specific transaction or operation that would otherwise be prohibited by sanctions.

• Requires submitting an official request to OFAC with a detailed description of the planned transaction, participants, amounts, and conditions.
  
• Reviewed on a case-by-case basis; processing time depends on the complexity of the request (typically from several weeks to several months).
  
• May contain special conditions or restrictions that must be strictly followed.
  

Specific Licenses apply when the operation is not covered by a general license. This may include selling equipment to a sanctioned country for an approved humanitarian project or transferring funds to a person on the sanctions list.

Key differences between General and Specific Licenses

 General Licenses provide a general authorization for all persons and entities under U.S. jurisdiction and cover predefined categories of transactions. They do not require a separate application: if the transaction falls within the license’s conditions, it can be conducted without prior approval.

Specific Licenses, on the other hand, are issued only upon an individual request. The applicant must submit a detailed request to OFAC, justify the necessity of the transaction, and wait for official approval. These licenses are strictly limited in scope and apply exclusively to the specified conditions of the transaction.

When is it necessary to obtain an OFAC license?

If a transaction falls under restrictions, conducting it without a special permit may result in severe fines and criminal liability. In such cases, obtaining an OFAC license is required.

1. Financial transfers in sanctioned jurisdictions: Sending or receiving funds to/from a sanctioned country without an OFAC license is prohibited. Even if the transfer is personal or charitable, in most cases permission is required.
   
2. Transactions with SDN List persons or companies: If a counterparty is a person or entity on the Specially Designated Nationals list, any interaction without a license is a violation.
   
3. Export and import of goods and technology: Supplying equipment, technology, or software to a sanctioned country requires permission, especially if products have military or dual-use potential. Similarly, importing goods from such countries without a license is prohibited.
   
4. Investments and business projects in sanctioned countries: Any investments, opening branches, joint ventures, or consulting services in sanctioned countries require a separate OFAC license.
   
5. Legal and consulting assistance: Even providing legal services in certain sanctioned jurisdictions may be restricted and require a license. This includes consulting, court representation, and other forms of legal support.
   

Approval can take several weeks to months, so companies and individuals should plan actions in advance. Submitting a request after the transaction does not exempt from responsibility; a violation will already be recorded.

How to apply for a Specific License?

Before applying, it is important to ensure that the transaction indeed falls under sanctions restrictions and is not covered by existing General Licenses. This can be checked on the official OFAC website in the Sanctions Programs and Country Information section.

To apply for a Specific License, gather as complete and accurate information as possible:

• Full details of the applicant (individual or entity), including contact information;
  
• Description of the transaction to be conducted;
  
• Participants in the transaction (all parties, including intermediaries and end recipients);
  
• Country, persons, or companies involved;
  
• Justification for the transaction, including economic, humanitarian, or other significance;
  
• Copies of contracts, invoices, correspondence, and other documents confirming the transaction;
  
• Explanation of compliance with exemptions or criteria under which OFAC may grant permission.
  

OFAC accepts applications via the electronic system on the OFAC License Application Page. Documents can also be mailed to the U.S. Department of the Treasury. It is important to provide a clear and complete description of the requested transaction, all known facts including potential sanctions risks, and justification for the legality and necessity of granting the license.

Once a license is issued, carefully review its conditions and limitations, keep a copy of the license and all transaction documentation. Strictly follow permitted volumes, timelines, and participants.

If the license is denied, reapplication may be possible if circumstances change or new evidence is provided.

Consequences of operating without an OFAC license

OFAC can impose substantial fines for each violation. The amount depends on the nature of the transaction, the parties involved, the level of intent, and the quality of compliance. Additionally, orders to stop the violation, audits, and reporting to the regulator may be required.

For intentional violations, criminal cases may be brought against company officers and individuals: heavy fines, and for individuals, possible imprisonment. Criminal proceedings often involve seizure of electronic devices, employee questioning, and asset freezing.

Banks must block funds and property related to prohibited transactions and report the block to the regulator. For companies, this means frozen money for an indefinite period, contract failures, and cash flow disruptions. Payment systems and banks reject transactions with perceived sanctions risk, causing delivery delays, commercial contract penalties, and customer loss.

Systematic and severe violations may result in the company/beneficiaries being added to sanctions lists, effectively cutting off access to the dollar system, international banks, insurance, and key suppliers. Counterparties may demand compensation for missed deliveries and payments. Public announcements of investigations lead to bank and partner refusals, increased borrowing costs, and personnel losses.

Sanctions often intersect with export compliance and encryption/dual-use controls. Violation in one area triggers comprehensive claims from multiple regulators. OFAC may require internal investigations, reports, implementation of enhanced KYC/sanctions screening policies, appointment of external consultants/monitors, and long-term compliance monitoring.

Examples of OFAC license use

 The French bank BNP Paribas, before settling its sanctions violations, had experience working with OFAC licenses to conduct individual transactions for Sudan, which was under U.S. sanctions. Despite the general ban, OFAC allowed humanitarian transfers to ensure delivery of food, medicines, and essential goods. Licenses enabled legal USD payments, avoided funds blocking, and ensured timely delivery.

After Chinese company Huawei was added to the Entity List with sanctions restrictions, OFAC and the U.S. Department of Commerce issued temporary General Licenses to support existing telecom networks and equipment operations in the U.S. Companies working with Huawei could legally supply spare parts, software updates, and provide technical support within the specified period.

After the government change in Afghanistan in 2021, the central bank came under U.S. sanctions. Humanitarian organizations faced the need to transfer funds for food, fuel, and medicines. OFAC issued a series of General and Specific Licenses permitting such transactions as long as the funds did not go to sanctioned persons. Banks could legally process USD transfers to Afghanistan, and organizations continued humanitarian programs without violating sanctions.

Conclusion: how not to violate U.S. sanctions law

Compliance with sanctions law is an ongoing process requiring attention to detail and strict control of all operations. Even accidental violations can result in hefty fines, asset freezes, and criminal consequences. To minimize risks, businesses must plan OFAC license renewals, carefully monitor expiration dates and conditions, and promptly respond to updates in sanctions lists. Automation of compliance control processes, implementation of internal regulations, and regular audits help prevent violations.

Our lawyers are ready to help you build an effective sanctions compliance strategy, audit current operations, prepare or renew an OFAC license, and ensure legal protection of your business. Contact us now to operate confidently and legally under any sanctions conditions.