The Office of Foreign Assets Control (OFAC) is the primary regulatory body responsible for the national security of the USA. It implements the country’s foreign policy through the administration of economic and trade sanctions. In the context of growing international economic ties, understanding OFAC’s functions and the necessity for SDN legal services. Particularly important are the considerations for companies and individuals engaged in international activities. Let’s explore what OFAC stands for, what it is, as well as what OFAC does and the consequences of failing to comply with its requirements.
What is OFAC?
OFAC stands for the Office of Foreign Assets Control. It is a division of the US Department of the Treasury responsible for administering and enforcing economic and trade sanctions based on US foreign policy and national security goals. OFAC is tasked with developing, implementing, and monitoring these sanctions, acting under a variety of federal laws and executive orders. The organisation has broad authority to target individuals and organisations that pose a threat to US interests.
Established in 1950 in response to the nationalisation of US property in China, OFAC was initially intended to manage frozen assets and oversee foreign investments. Over time, its functions have significantly expanded. Today, OFAC administers more than 30 different sanctions programmes aimed at:
- Foreign governments and regimes that violate international norms;
- Terrorist organisations and their accomplices;
- Purveyors of weapons of mass destruction;
- Human rights violators and corrupt individuals;
- Transnational criminal organisations.
The jurisdiction of OFAC applies to all US citizens and residents, companies registered in the US, including their overseas branches, as well as any transactions that go through US territory or the financial system. This means that even foreign companies are required to monitor OFAC enforcement. Otherwise, they could also be subject to OFAC sanctions if they use American banks or conduct transactions in US dollars.
OFAC Sanctions
OFAC sanctions regulations serve as a tool to exert pressure on states, organisations, and individuals whose activities contradict the interests of the USA. They are divided into primary and secondary sanctions.
Primary sanctions directly prohibit US citizens and companies from engaging in certain types of activities with entities that are under sanctions. These restrictions include a ban on financial transactions, trade, providing services, and any other form of interaction with sanctioned individuals or organisations.
Failure to comply with primary sanctions may lead to:
- Civil fines, the amount of which can reach up to a million dollars for each violation.
- Criminal penalties, including imprisonment for up to 20 years;
- To reputational losses and the limitation of business opportunities.
Secondary sanctions are aimed at foreign individuals and organisations that are not US citizens or companies, but are involved in prohibited activities with entities under US sanctions. These sanctions are used to extend the influence of sanctions programs beyond the jurisdiction of the US.
The consequences of secondary sanctions may include:
- Restriction of access to the American financial system;
- Freezing of assets in the territory of the USA;
- Ban on entry to the US for company executives;
Foreign assets control (OFAC) has the authority to impose significant fines and sanctions for non-compliance with requirements. The amount of the fines depends on the severity of the violation and can be increased in cases of deliberate circumvention of sanctions. Therefore, companies often turn to OFAC compliance lawyer to avoid infringements and minimise risks. Besides financial consequences, offenders may face criminal prosecution, confiscation of assets, a ban on participation in government contracts, and long-term reputational damage.
What’s the Purpose of OFAC?
The primary objectives of OFAC are to ensure national security and support the foreign policy interests of the USA. To achieve these goals, OFAC performs a number of functions:
- Office of foreign assets develops and updates sanction lists that include countries, organisations, and individuals subject to sanctions. These lists serve as a tool for asset freeze and preventing illegal transactions;
- The organisation actively monitors financial flows and commercial activities, conducting surveillance and investigation of suspicious transactions. OFAC collaborates with financial institutions and companies to identify and prevent violations.
- OFAC issues guidance, clarifications, and answers to frequently asked questions, assisting businesses and individuals in correctly interpreting and complying with sanction requirements. This includes training and informing about new sanction programmes and changes in legislation.
- In certain instances, OFAC may issue licences permitting transactions that would otherwise be prohibited. This enables the provision of humanitarian aid, support for democratic institutions, or the fulfilment of other critical needs in line with the interests of the US.
- Economic sanctions serve as a means of exerting influence on the international stage, allowing the US to advance its foreign policy objectives without resorting to military force. They are aimed at deterring hostile actions, combating terrorism, and protecting human rights.
OFAC Sanctions List
Office of foreign assets control (OFAC) sanctions lists serve as a primary tool for identifying individuals and organisations with whom interaction is prohibited. They assist businesses and private individuals in avoiding violations and the associated consequences.
Individuals or companies that violate international norms or engage in prohibited activities can be added to the OFAC sanctions lists. This results in the freezing of their assets in the US and a ban on conducting any financial transactions involving American citizens or companies.
The sanction lists include the names of organisations and individuals, known aliases and alternative names, addresses, and other identifying information, as well as the reasons for their inclusion in the list and the economic sanctions programs being applied. US citizens and companies are prohibited from conducting any business with individuals and organisations included in the sanction lists. This means a ban on financial transactions and providing loans, trading goods and services, investments and joint projects, as well as offering technical assistance or technology.
Since navigating these complex legal norms can be challenging, companies turn to sanctions lawyers Lawyers specialising in compliance with sanctions legislation assist organisations in understanding the requirements, assessing the risks, and developing strategies to prevent violations.
Specially Designated Nationals (SDN)
The Specially Designated Nationals and Blocked Persons List (SDN) identifies individuals and entities associated with specific countries, those under the control or ownership of such countries, and those acting on their behalf. Furthermore, it encompasses individuals and groups, such as drug traffickers and terrorist organisations, not affiliated with any particular country.
All US individuals and entities are prohibited from engaging in any business transactions with persons, companies, and organisations listed on specially designated nationals list.
Consolidated Sanctions List
The Consolidated Sanctions List (Non-SDN Lists) comprises various sanctions lists overseen by OFAC regulations, assisting individuals and organisations in adhering to U.S. sanctions regulations. In contrast to the SDN List, this combined list focuses on particular sectors, individuals, and entities with non-blocking sanctions.
The key lists within the Consolidated Sanctions List include:
- Foreign Sanctions Evaders (FSE) targets individuals or entities that violate U.S. sanctions on Syria or Iran.
- Sectoral Sanctions Identifications (SSI) target specific sectors of the Russian economy.
- The Non-SDN Palestinian Legislative Council (NS-PLC) lists members associated with Hamas or other specified organisations.
- CAPTA List: Restricts foreign financial institutions from operating U.S. accounts.
- Non-SDN Menu-Based Sanctions (NS-MBS): Lists entities subject to specific prohibitions, such as on particular goods or services.
- Sanctions on individuals/entities associated with China’s military-industrial complex (Non-SDN Chinese Military-Industrial Complex Companies, NS-CMIC).
What are OFAC Licenses?
In certain situations, Office of foreign assets control may permit transactions that are normally prohibited by sanctions through the issuance of licenses.
To conduct business with individuals or countries under sanctions programs, it is necessary to obtain permission. OFAC licences are particularly relevant for humanitarian organisations, companies operating in the fields of medicine, agriculture, and other sectors where sanctions could hinder vital activities.
A general licence is a broad authorisation granted to a wide range of individuals or organisations without the need for submitting an individual application. They are issued for specific categories of transactions, are openly published and available to all interested parties, and contain terms and conditions that must be adhered to in order to mitigate the risks of breaching sanctions and related issues.
A special licence is an individual permission issued upon a specific request. The process of obtaining such a licence includes preparing a detailed application describing the planned activity, providing all necessary information and documentation, as well as awaiting the review of the application and the decision by OFAC.
Contact an OFAC Sanctions Lawyer
If you’re encountering issues with OFAC sanctions, do get in touch with us! Our international law firm offers professional assistance in the area of US sanctions law and international sanctions. We provide advice on compliance with sanctions, including analysing company activities for potential risks, and developing and implementing compliance programmes.
Our OFAC sanctions lawyers provide assistance in obtaining the necessary licences, including preparing applications for both general and special licences. We accompany the application review process and interact with OFAC on behalf of our clientfs to ensure the efficient and timely acquisition of permits. In the event of investigations, we represent our clients’ interests, providing legal protection during audits and investigations. We negotiate with regulatory bodies and develop strategies to minimise potential consequences.
