As the global economy develops and international relations become stronger, more and more organizations and individuals are faced with the need to comply with OFAC sanctions and various international regulations. The main regulator is the US Office of Foreign Assets Control (OFAC). Since OFAC sanctions have a significant impact on international trade and financial transactions, it is important to know who must comply with OFAC regulations and what consequences may arise if they are violated.
What are OFAC Sanctions?
The Office of Foreign Assets Control (OFAC) is the agency within the United States Department of the Treasury responsible for administering and enforcing economic and trade sanctions. These sanctions are based on U.S. foreign policy and national security interests and are designed to counter threats from foreign countries, entities, and individuals. As the agency itself explains:
“U.S. persons must comply with OFAC regulations, 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 the cases of certain programs, foreign subsidiaries owned or controlled by U.S. companies also must comply. Certain programs also require foreign persons in possession of U.S.-origin goods to comply.”
OFAC sanctions include:
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- Asset Blocking: Freezing the financial assets and property of sanctioned persons. For example, in 2022, OFAC froze the assets of certain Russian oligarchs in response to events in Ukraine;
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- Trade restrictions: Prohibitions or restrictions on the export or import of goods, technology, and services. For example, a ban on the export of high-tech equipment to Iran;
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- Financial restrictions: Prohibitions on financial transactions and investments. This may include a ban on providing loans or investing in companies from sanctioned countries;
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- Other measures: Imposition of visa restrictions, prohibition on the provision of certain services, etc.
OFAC publishes and updates lists of sanctioned persons and entities, including the Specially Designated Nationals and Blocked Persons List (SDN List), which financial institutions and companies are required to consult. SDN Legal Services provided by our sanctions lawyers can help organizations and individuals navigate the complexities of this list.
Who must Comply with OFAC?
OFAC sanctions have extraterritorial effect and apply not only to U.S. persons and entities, but also to a number of foreign persons and entities. OFAC compliance program is mandatory for the following categories:
U.S. Citizens and Residents
All US citizens, regardless of their place of residence, as well as permanent residents (Green Card holders), are required to comply with OFAC sanctions. Compliance program means a ban on any transactions and interactions with persons and organizations under economic sanctions. For example, a US citizen is prohibited from conducting financial transactions with companies from Syria without an appropriate license.
Non-U.S. Persons
Foreign nationals and entities may also be subject to OFAC sanctions if:
- Activities within the United States: Any transactions conducted within the United States or using U.S. infrastructure, such as banking systems or servers, are subject to OFAC sanctions. For example, a European company conducting U.S. dollar transactions through a U.S. bank must comply with OFAC sanctions;
- Use of U.S. goods or technology: The export or re-export of U.S. goods, services, or technology. For example, selling equipment with U.S. components to North Korea is prohibited;
OFAC may sanction foreign individuals and entities for interacting with sanctioned persons or countries. For example, an Asian company may be sanctioned for interacting with Iranian entities on the SDN list.
Financial Institutions
Institutions that are required to comply with OFAC regulations, such as banks and other financial institutions that are registered in the United States or that conduct business in U.S. dollars.
Financial institutions that are subject to the BSA (and subject to OFAC oversight) include:
- FDIC-insured banks
- Commercial banks and trust companies
- Private bankers
- U.S. agencies and branches of foreign banks
- Credit unions
- Thrift institutions
- Brokers and dealers registered with the U.S. Securities and Exchange Commission (SEC)
- Unregistered securities and commodities brokers and dealers
- Investment bankers
- Investment companies
- Currency exchanges
- Issuers, redeemers, and cashers of traveler’s checks, money orders, and “similar instruments”
- Credit card system operators
- Insurance companies
- Precious metals, stones, and jewels dealers
- Pawnbrokers
- Loan and financing companies
- Travel agencies
- Licensed money transmission businesses
- Telegraph companies
- Automobile, airplane, and boat dealers
- Casinos and other gambling establishments
- Futures commission merchants, commodity trading advisors, and commodity pool operators registered under the Commodity Exchange Act (CEA)
- Other businesses and agencies designated by the U.S. Treasury Department
Business Entities in the U.S. and Abroad
Beyond regulating financial institutions under the BSA, OFAC also oversees a wide range of business entities, both within the U.S. and internationally. OFAC’s authority extends to:
- All entities operating within the United States
- U.S.-incorporated businesses and their foreign branches, regardless of location
- Certain foreign subsidiaries owned or controlled by U.S. companies
- Foreign individuals or entities handling U.S.-origin goods
While businesses operating exclusively within the U.S. may not typically encounter OFAC-related issues, even a single international transaction can trigger OFAC compliance obligations. In some instances, companies may find themselves facing OFAC scrutiny beyond their control, such as when a foreign customer from a sanctioned country initiates contact. Despite this, businesses must be ready to adhere to OFAC regulations in these situations.
OFAC Sanctions Programs
OFAC administers various sanctions programs that target individual countries, entities, and individuals. Sanctions program restricts transactions with specific foreign entities and individuals, either directly (such as those designated as Specially Designated Nationals (SDNs)) or indirectly, based on their location in a sanctioned country or their involvement in a restricted industry sector.
OFAC’s sanctions lists, including the SDN List, are publicly accessible, and it is expected that all businesses and individuals review these lists prior to engaging in or facilitating any prohibited transactions involving foreign parties. Furthermore, OFAC’s country-specific sanctions currently ban or limit transactions with entities in certain nations, even if the parties involved are not individually listed as SDNs. To them belong:
The list of OFAC sanctions programs is subject to change, so it is recommended to regularly check the official OFAC website for up-to-date information or contact an OFAC sanctions lawyers.
Contact OFAC Compliance and Defense Lawyers
OFAC compliance program is a complex and dynamic process that requires a professional approach. Violation of sanctions can lead to serious legal and financial consequences.
If you have any problems related to the imposition of sanctions on you or your company, we recommend that you contact us. Our team of qualified OFAC sanctions lawyers has many years of experience in the field of international sanctions legislation and is ready to provide the following services:
- Compliance consultations: we will help develop and implement effective OFAC compliance program. An OFAC compliance lawyer will analyze your activities and point out potential risks;
- Counterparty verification: we carry out an in-depth analysis and verification of partners and clients against sanctions lists. This allows you to avoid unintentional interaction with persons from the SDN List;
- Personnel training: we conduct trainings and seminars for employees on current issues of sanctions legislation. Sanctions lawyers will help your staff stay abreast of the latest changes;
- Legal support: we represent clients in negotiations with regulatory authorities, provide assistance in investigations;
- Monitoring changes: We provide timely information on changes in sanctions legislation and new OFAC requirements. For example, if your company plans to enter into a contract with a foreign partner, an OFAC compliance attorney will conduct a full check and ensure the security of the transaction. By contacting us, you can minimize risks and ensure full OFAC compliance programs.
Contact our experienced OFAC Compliance and Defense Lawyers for expert guidance on navigating complex sanctions regulations. Get in touch today to ensure your operations stay compliant and secure.
