Quick Answer: What Is OFAC Clearance?
OFAC clearance is the process of verifying that parties, assets, and transactions are not subject to US sanctions before proceeding with a cross-border deal. Required by banks, financial institutions, importers, and exporters, it involves screening against the SDN List and other OFAC lists. Transactions without clearance risk civil penalties up to $1,000,000 per violation.
The Office of Foreign Assets Control (OFAC) oversees the regulation of cross-border financial transactions involving U.S. parties, enforcing sanctions that restrict or prohibit dealings with specified foreign individuals and entities. To steer clear of OFAC enforcement actions, U.S. parties and intermediaries must adopt a proactive stance on compliance, which includes obtaining OFAC clearance.
By ensuring that parties, assets, and transactions are cleared before engaging in business or facilitating transfers, entities can maintain compliance and mitigate the risk of incurring substantial civil monetary penalties. The OFAC also administers and enforces economic sanctions to ensure that entities aren’t conducting business with an embargoed country or blocked persons like narcotics traffickers.
OFAC Clearance Process: Step-by-Step Timeline
The OFAC clearance process varies depending on whether it’s a routine transaction screening or a formal license/delisting petition. Here is a complete step-by-step guide with typical timelines:
| Step | Action Required | Who Performs It | Typical Timeline |
|---|---|---|---|
| 1 | Identify all parties to the transaction (direct and indirect beneficiaries) | Compliance officer / legal team | Minutes to hours |
| 2 | Screen parties against OFAC SDN List, Sectoral Sanctions List, and other OFAC lists | Compliance software or manual check | Instant to 1–2 days |
| 3 | Check for 50% Rule exposure (indirect ownership by blocked persons) | Compliance officer / sanctions lawyer | 1–5 days (complex structures) |
| 4a (No hit): Document clearance and proceed with transaction | Record the screening result with timestamp | Compliance officer | Same day |
| 4b (Hit found): Freeze assets and block transaction | Immediately freeze any US-nexus assets; report if required | Compliance officer / legal team | Immediate |
| 5 (If license needed): Prepare and submit OFAC license application | Specific License application via OFAC’s portal with full documentation | Sanctions lawyer | 2–4 weeks preparation |
| 6 | OFAC reviews license application | OFAC (US Treasury) | 30 days to 6+ months |
| 7 (Delisting): Submit petition for SDN List removal | Detailed petition with evidence of changed circumstances, divestment, or legal error | Sanctions lawyer | Months to years |
Understanding OFAC Clearance
OFAC clearance refers to the process of confirming that a transaction, party, or asset is not subject to US economic sanctions administered by the Office of Foreign Assets Control. It is not a single document or certificate — rather, it is a compliance process that businesses must conduct before engaging in international transactions.
OFAC compliance is particularly relevant for individuals and entities that may be listed on the Specially Designated Nationals (SDN) list. This comprehensive list maintained by OFAC includes individuals and companies owned or controlled by, or acting on behalf of, targeted countries. Those on the OFAC sanctions list have their assets blocked and are generally prohibited from engaging in transactions with US persons.
Sanctions lawyers play a vital role in assisting clients with the clearance process, ensuring compliance with US sanctions laws, and advising on the potential need for an OFAC license.
Specific License vs. General License vs. No License: Which Applies?
| License Type | What It Is | How to Obtain | Processing Time | Best For |
|---|---|---|---|---|
| General License | Broad authorization issued by OFAC for categories of transactions — applies automatically without application | No application needed — check OFAC regulations for your sanctions program | Immediate (already in effect) | Common transactions like humanitarian aid, personal remittances, or journalistic activities |
| Specific License | Individual case-by-case authorization for a particular transaction not covered by a general license | Submit application via OFAC’s eLicensing portal with detailed documentation | 30 days to 6+ months | Unique transactions: asset sales, business wind-downs, legal fee payments, family support |
| No License Available | Transaction is fully prohibited — no license will be granted (e.g., arms sales to sanctioned countries) | N/A — do not proceed | N/A | Transactions prohibited by comprehensive sanctions (North Korea, Iran ITSR, Cuba CACR) |
| No License Required | Transaction is not prohibited by any sanctions program | Document your screening result showing no SDN matches or program prohibitions | Immediate | Routine international transactions with non-sanctioned parties |
Who Needs OFAC Clearance?
Any US person or entity — and foreign entities processing USD transactions through US correspondent banks — must conduct OFAC clearance screening. This includes:
- Banks and financial institutions: Must screen all transactions, customers, and beneficiaries for SDN matches and apply the 50% rule
- Importers and exporters: Must verify foreign counterparties and end-users before shipment or payment
- Law firms and accountants: Must screen clients receiving funds from foreign sources
- Insurance and reinsurance companies: Must screen all policyholders and beneficiaries
- Real estate professionals: Must screen buyers and sellers in high-risk jurisdictions
- Cryptocurrency exchanges: Must screen wallet addresses and users against OFAC’s digital currency addresses list
Process for Getting OFAC Clearance (SDN List Removal)
If a party has been designated and added to the SDN List, obtaining OFAC clearance requires submitting a formal delisting petition. This is a distinct process from transaction screening:
To request removal from OFAC sanctions lists, including the SDN List, Sectoral Sanctions Identifications List, or Foreign Sanctions Evaders List, individuals or entities must submit a petition to OFAC. This request can be sent via mail or email to the agency. The petition must include:
- Identification: Full legal name, aliases, contact person, mailing address, and email
- Date of listing: The date of the original OFAC designation action
- Grounds for reconsideration: Evidence that the designation was factually incorrect, circumstances have changed, or the designated party has divested from sanctioned activities
- Supporting documentation: Corporate filings, financial records, evidence of compliance program implementation
OFAC states that petitioners do not need a lawyer, and the agency accepts petitions directly from the sanctioned party. However, experienced OFAC lawyers dramatically improve the success rate by crafting compelling petitions and ensuring all required documentation is properly assembled. Once submitted, OFAC’s review typically takes several months to over a year depending on case complexity.
Risks of Failing to Obtain OFAC Clearance
Proceeding with a transaction without proper OFAC clearance — or with a party on the SDN List — exposes your organization to significant legal and financial risks:
- Civil penalties: Up to $1,000,000 per violation or twice the transaction value — whichever is greater. In 2024, the maximum per-violation penalty is $375,852 for non-egregious violations
- Criminal prosecution: Willful violations carry fines up to $1,000,000 and imprisonment up to 20 years
- Asset blocking: Immediate freezing of all assets linked to the prohibited transaction
- Banking derisking: Loss of correspondent banking relationships, making future international transactions impossible
- Reputational harm: OFAC publishes enforcement actions publicly — significant reputational damage for businesses
OFAC applies strict liability for civil violations — you do not need to have known you were violating sanctions. However, a strong compliance program and voluntary self-disclosure can reduce penalties by up to 50%. For guidance on building a compliance program, see our OFAC compliance resources.
OFAC Clearance vs. OFAC Licence: Is There a Difference?
These terms are often used interchangeably but refer to different aspects of OFAC compliance:
- OFAC clearance = the process of verifying a transaction or party is not sanctioned (screening + documentation)
- OFAC licence (license) = a formal authorization from OFAC allowing an otherwise prohibited transaction to proceed
A transaction may be “cleared” in the sense that no SDN matches were found — requiring no license. Or it may require a specific OFAC license to proceed with an otherwise prohibited activity. Both processes require careful legal analysis.
When to Contact an OFAC Sanctions Lawyer
You should seek legal counsel immediately if:
- Your transaction screening flagged a potential SDN match and you’re unsure how to proceed
- You received a subpoena or inquiry from OFAC
- Your bank blocked a transaction citing OFAC compliance concerns
- Your company appears on the SDN List and you need removal
- You need a specific OFAC license for an international transaction
- You are conducting business in high-risk jurisdictions (Russia, Iran, Venezuela, Cuba, Myanmar)
Need Expert OFAC Clearance Help?
Our sanctions lawyers have handled 500+ OFAC cases — from SDN list removal petitions to specific license applications and enforcement defense. Fast, confidential, results-driven. Free initial consultation.