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Consequences of Being an OFAC Specially Designated National

 

Consequences of Being an OFAC Specially Designated National

Being designated as a Specially Designated National (SDN) by the Office of Foreign Assets Control (OFAC) can have severe consequences for both individuals and organizations. An SDN designation essentially cuts off the target from the U.S. financial system and freezes any assets under U.S. jurisdiction.

According to OFAC, “U.S. persons are generally prohibited from dealing with [SDNs]” [1]. This means that all U.S. citizens, permanent residents, companies, and entities are legally prohibited from conducting any business or transactions with SDNs. Failure to comply can result in hefty civil and criminal penalties.

Freezing of Assets

One of the most immediate effects of being named an SDN is that any assets held in the U.S., such as bank accounts, real estate, shares in U.S. companies, etc., will be frozen. This means the SDN will no longer have access to or be able to use those assets. According to OFAC, upon designation, an SDN’s assets are “blocked” [2].

In addition, U.S. persons, including financial institutions, are legally required to block or freeze any assets they hold that belong to an SDN. Failure to do so can result in civil penalties of up to $295,141 per violation [5]. Willful violations can lead to criminal fines of up to $1 million and imprisonment of up to 20 years [5].

For SDNs, having assets frozen indefinitely can have devastating personal and professional consequences. They lose access to potentially significant funds and equity that may be crucial for daily living or business operations.

Prohibitions on Transactions

In addition to freezing assets, being named an SDN also prohibits U.S. persons and companies from engaging in any transactions or dealings with an SDN. This includes:

Christine Twomey
Christine Twomey
2024-03-21
Just had my Divorce case settled 2 months ago after having a horrible experience with another firm. I couldn’t be happier with Claire Banks and Elizabeth Garvey with their outstanding professionalism in doing so with Spodek Law Group. Any time I needed questions answered they were always prompt in doing so with all my uncertainties after 30 yrs of marriage.I feel from the bottom of my heart you will NOT be disappointed with either one. Thanks a million.
Brendan huisman
Brendan huisman
2024-03-18
Alex Zhik contacted me almost immediately when I reached out to Spodek for a consultation and was able to effectively communicate the path forward/consequences of my legal issue. I immediately agreed to hire Alex for his services and did not regret my choice. He was able to cover my case in court (with 1 day notice) and not only was he able to push my case down, he carefully negotiated a dismissal of the charge altogether. I highly recommend Spodek, and more specifically, Alex Zhik for all of your legal issues. Thanks guys!
Guerline Menard
Guerline Menard
2024-03-18
Thanks again Spodek law firm, particularly Esq Claire Banks who stood right there with us up to the finish line. Attached photos taken right outside of the court building and the smile on our faces represented victory, a breath of fresh air and satisfaction. We are very happy that this is over and we can move on with our lives. Thanks Spodek law 🙏🏼🙏🏼🙏🏼🙏🏼🙌🏼❤️
Keisha Parris
Keisha Parris
2024-03-15
Believe every single review here about Alex Z!! From our initial consultation, it was evident that Alex possessed a profound understanding of criminal law and a fierce dedication to his clients rights. Throughout the entirety of my case, Alex exhibited unparalleled professionalism and unwavering commitment. What sets Alex apart is not only his legal expertise but also his genuine compassion for his clients. He took the time to thoroughly explain my case, alleviating any concerns I had along the way. His exact words were “I’m not worried about it”. His unwavering support and guidance were invaluable throughout the entire process. I am immensely grateful for Alex's exceptional legal representation and wholeheartedly recommend his services to anyone in need of a skilled criminal defense attorney. Alex Z is not just a lawyer; he is a beacon of hope for those navigating the complexities of the legal system. If you find yourself in need of a dedicated and competent legal advocate, look no further than Alex Z.
Taïko Beauty
Taïko Beauty
2024-03-15
I don’t know where to start, I can write a novel about this firm, but one thing I will say is that having my best interest was their main priority since the beginning of my case which was back in Winter 2019. Miss Claire Banks, one of the best Attorneys in the firm represented me very well and was very professional, respectful, and truthful. Not once did she leave me in the dark, in fact she presented all options and routes that could possibly be considered for my case and she reinsured me that no matter what I decided to do, her and the team will have my back and that’s exactly what happened. Not only will I be liberated from this case, also, I will enjoy my freedom and continue to be a mother to my first born son and will have no restrictions with accomplishing my goals in life. Now that’s what I call victory!! I thank the Lord, My mother, Claire, and the Spodek team for standing by me and fighting with me. Words can’t describe how grateful I am to have the opportunity to work with this team. I’m very satisfied, very pleased with their performance, their hard work, and their diligence. Thank you team!
Anthony Williams
Anthony Williams
2024-03-12
Hey, how you guys doing? Good afternoon my name is Anthony Williams I just want to give a great shout out to the team of. Spodek law group. It is such a honor to use them and to use their assistance through this whole case from start to finish. They did everything that they said they was gonna do and if it ever comes down to it, if I ever have to use them again, hands-down they will be the first law office at the top of my list, thank you guys so much. It was a pleasure having you guys by my side so if you guys ever need them, do not hesitate to pick up the phone and give them a call.
Loveth Okpedo
Loveth Okpedo
2024-03-12
Very professional, very transparent, over all a great experience
Bee L
Bee L
2024-02-28
Amazing experience with Spodek! Very professional lawyers who take your case seriously. They treated me with respect, were always available, and answered any and all questions. They were able to help me very successfully and removed a huge stress. Highly recommend.
divesh patel
divesh patel
2024-02-24
I can't recommend Alex Zhik and Spodek Law Firm highly enough for their exceptional legal representation and personal mentorship. From the moment I engaged their services in October 2022, Alex took the time to understand my case thoroughly and provided guidance every step of the way. Alex's dedication to my case went above and beyond my expectations. His expertise, attention to detail, and commitment to achieving the best possible outcome were evident throughout the entire process. He took the time to mentor me, ensuring I understood the legal complexities involved to make informed decisions. Alex is the kind of guy you would want to have a beer with and has made a meaningful impact on me. I also want to acknowledge Todd Spodek, the leader of the firm, who played a crucial role in my case. His leadership and support bolstered the efforts of Alex, and his involvement highlighted the firm's commitment to excellence. Thanks to Alex Zhik and Todd Spodek, I achieved the outcome I desired, and I am incredibly grateful for their professionalism, expertise, and genuine care. If you're in need of legal representation, look no further than this outstanding team.
  • Trade deals
  • Sales or purchases of goods, services, or technology
  • Financial transactions
  • Brokering services
  • In-kind donations

U.S. companies must screen their vendors, partners, and customers against the SDN list to avoid inadvertent violations. If an SDN is identified, the U.S. company must immediately cease business with them.

For SDNs who rely on trade with U.S. companies or access to U.S. financial systems, being cut off can be catastrophic. It essentially locks them out of the world’s largest economy and financial hub.

Reputational Damage

Being named to OFAC’s SDN list also carries a huge reputational risk. The SDN designation signals that the U.S. government considers the individual or entity to be a threat to national security or involved in illegal activities like terrorism or human rights abuses.

This stigma can discourage other companies, even non-U.S. ones, from doing business with the SDN. Banks may refuse to handle funds connected to SDNs to avoid any potential risk. An SDN designation can essentially make someone a pariah in the global financial community.

Removal from the SDN List

Getting off the SDN list is challenging but not impossible. According to OFAC, “Persons may seek to be removed from the Specially Designated Nationals and Blocked Persons List” [3] by submitting a request for reconsideration.

The SDN must provide evidence countering OFAC’s basis for designation and demonstrate they no longer meet the criteria for being named an SDN. This may require proving that the SDN has cut ties with sanctioned governments, entities, or individuals, or ending engagement in activities like human rights abuses, corruption, or terrorism.

OFAC states that removal decisions take into account “U.S. foreign policy and national security concerns” [5]. So even if an SDN demonstrates changed behavior, geopolitical factors may still weigh against removal.

Navigating the removal process often requires extensive legal assistance from professionals well-versed in OFAC regulations. One option is retaining an OFAC SDN removal lawyer [4] who can petition for delisting and negotiate on the SDN’s behalf.

Practical Steps upon Designation

If designated as an SDN, quick action is required to mitigate the consequences:

  • Consult legal counsel immediately about petitioning for removal and protecting assets.
  • Inform all financial institutions, vendors, and partners of the designation. Ensure no further transactions occur.
  • Notify company leadership and stakeholders about the designation.
  • Halt any planned U.S. travel or activity subject to OFAC jurisdiction.
  • Cooperate fully with OFAC to resolve any allegations and seek removal.

Checking the SDN List

The SDN list is frequently updated, so regular screening is essential. According to OFAC, “All individuals and entities that fall under U.S. jurisdiction should use OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List)” [5].

In addition to the main SDN list, OFAC maintains other sanctions lists that may have different prohibitions. For example, the Denied Persons List from the Department of Commerce [3].

Various free online tools like SanctionScanner [6] allow searching and screening against the SDN list. Using such tools to regularly screen customers, suppliers, partners, and transactions can help identify any SDN matches early.

Conclusion

Being designated an SDN by OFAC is no trivial matter. It essentially cuts off the target from the U.S. financial system and freezes assets. Doing business with U.S companies or individuals becomes illegal. Removal from the list is challenging and may require extensive legal help. Regular screening against the SDN list is essential to avoid inadvertent violations. If designated an SDN, immediate action is required to mitigate the consequences.

 

Being designated as an SDN has widespread implications beyond just freezing assets and cutting off transactions. Here are some additional consequences:

  • Difficulty accessing global banking services – Many foreign banks, even non-US ones, may refuse to open accounts or process payments for SDNs to minimize regulatory risk. This can make routine banking and finance activities challenging.
  • Travel restrictions – SDNs may be denied visas or entry to the US and even some allied countries who want to cooperate with US sanctions. This can severely limit business and personal travel.
  • Reputational harm – The SDN label can harm personal and corporate brands and lead to loss of partners, customers, and contracts. Many companies and individuals may not want public association with SDNs.
  • Legal costs – Petitioning for removal from the SDN list often requires extensive attorney fees and litigation costs that may total hundreds of thousands of dollars.
  • Diversion of resources – Significant executive time and company resources may be consumed with managing the fallout from the designation rather than core business activities.
  • Unwinding of deals – Existing deals, partnerships, and ventures with US companies or individuals may need to be unwound, often at significant expense.

While OFAC does not outright ban doing business with US entities, the prohibition on US persons transacting with SDNs makes it effectively impossible[1]. US contractors, partners, suppliers, vendors, customers, and investors must all cease engagement, disrupting business[2].

In addition, foreign entities that continue knowingly doing business with SDNs can face “secondary sanctions” from the US. This includes cutting off access to the US financial system, travel restrictions, and asset freezes[3][4].

While using cryptocurrencies like Bitcoin could potentially circumvent the banking system, transacting with SDNs still carries legal jeopardy and sanctions risk[5][6]. Overall, SDN designation is a modern form of economic warfare intended to isolate the target from the worldwide economy.

Given the gravity of the consequences, SDNs must take proactive steps to challenge the designation and seek removal. In addition to petitioning OFAC directly, filing lawsuits to be delisted may be an option, albeit costly and uncertain. Some argue the SDN process lacks sufficient due process protections for designees.

Financial institutions also carry a heavy compliance burden to frequently screen customers and transactions against the SDN list. Penalties for facilitating prohibited transactions can be severe. Advanced monitoring tools and restricted party screening is essential to avoid missteps.

The SDN list gives the US Treasury’s Office of Foreign Assets Control powerful global reach to advance national security and foreign policy goals. But designees argue it is prone to overreach, unfair targeting, and unintended harm to innocent parties.

References

1
https://ofac.treasury.gov/faqs/402
2
https://quizlet.com/546972636/ofac-flash-cards/
3
https://quizlet.com/321546715/office-of-foreign-assets-control-ofac-flash-cards/
4
https://www.jdsupra.com/legalnews/u-s-sanctions-laws-dangers-ahead-for-18252/
5
https://news.ycombinator.com/item?id=32386189[6] https://news.ycombinator.com/item?id=32585606 https://www.law360.com/articles/1351678/ofac-designations-come-under-fire-for-lack-of-due-process https://www.acamstoday.org/ofac-regulations-require-ongoing-monitoring/
https://www.dowjones.com/risk/products/ofac-name-screening/

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