Criminal Defense Lawyers

How Do OFAC Sanctions Programs Work?

The Office of Foreign Assets Control, or OFAC, is an agency within the U.S. Department of the Treasury that administers and enforces economic and trade sanctions against foreign countries, organizations, and individuals based on U.S. foreign policy and national security goals. But what exactly does OFAC do, and how do its sanctions programs work? Let’s break it down.

What is the purpose of OFAC sanctions?

The main purpose of OFAC sanctions is to put economic and trade pressure on foreign regimes, groups, or individuals that threaten U.S. national security, foreign policy, or economy. For example, sanctions may aim to:

• Deter countries from supporting terrorism or pursuing weapons of mass destruction
• Punish human rights abuses or corruption
• Disrupt dangerous organizations like drug cartels or cybercriminals
• Respond to hostile actions like election interference or military aggression

By imposing sanctions that restrict trade, investment, and access to U.S. financial systems, the U.S. hopes to impose costs and change behavior of foreign actors without having to use military force.

What kinds of sanctions can OFAC impose?

OFAC administers two main types of sanctions programs:

1. Comprehensive sanctions, which broadly prohibit commercial activity and freeze assets of entire countries, governments, or regions. Examples are the long-standing sanctions on Cuba, Iran, North Korea, and Syria.
2. Targeted sanctions, which block transactions and freeze assets of specific individuals, companies, groups, or sectors in a country. These aim to minimize civilian impact while pressuring bad actors.

Within those programs, OFAC has a lot of flexibility. Some common sanctions tools include:

• Freezing assets under U.S. jurisdiction
• Banning U.S. persons from conducting financial transactions with sanctioned entities
• Restricting imports/exports and trade in specific goods, services, or technologies
• Blocking property, equipment, and other assets of sanctioned persons
• Revoking U.S. visas or imposing travel bans

OFAC also publishes a Specially Designated Nationals (SDN) list of individuals and companies owned or controlled by, or acting on behalf of, targeted countries or groups. U.S. persons are generally prohibited from dealing with anyone on the SDN list.

How does the sanctions process work?

The process for imposing OFAC sanctions typically involves these key steps:

1. The President identifies a foreign threat and declares a “national emergency” under various federal laws like the International Emergency Economic Powers Act (IEEPA) or the Trading with the Enemy Act (TWEA).
2. The President issues an executive order defining the threat and delegating authority to the Secretary of the Treasury to implement sanctions.
3. OFAC publishes new sanctions regulations and guidance for the public on how to comply.
4. OFAC investigates and targets specific entities, individuals, groups or sectors that meet criteria outlined in the EO.
5. Their assets are blocked, commercial licenses suspended, and parties placed on the SDN list.
6. OFAC periodically adds new designations and enforcement actions to increase pressure.
7. Sanctions continue until foreign policy objectives are met, or the President terminates the national emergency.

While the President has broad discretion, the OFAC process involves input from National Security Council, State Department, Commerce Department, and intelligence agencies to identify targets and determine effectiveness.

Who has to comply with OFAC sanctions?

OFAC regulations apply to:

• “U.S. persons”, meaning citizens, permanent residents, and companies/organizations incorporated in the U.S. including foreign branches.
• All individuals and entities within the United States, including foreign citizens/companies.
• In some cases, foreign subsidiaries owned or controlled by U.S. companies.

Certain “targeted” and “secondary” OFAC sanctions also seek to prohibit non-U.S. parties from doing business with sanctioned entities, by threatening to cut them off from access to U.S. markets or financial system.

What are some key OFAC sanctions programs?

Some of the largest OFAC sanctions programs include:

Cuba sanctions

Comprehensive embargo in place since the 1960s. Prohibits most financial transactions and trade except for authorized humanitarian goods. Travel and remittances are restricted. The Cuban Assets Control Regulations outline details.

Iran sanctions

Block trade and transactions connected to Iran’s energy, shipping, shipbuilding, and other sectors. Aim to pressure Iran to limit nuclear program and end support for terrorism. See the Iran sanctions program.

North Korea sanctions

Comprehensive import/export ban and asset freezes to pressure North Korea over nuclear weapons and human rights abuses. The North Korea Sanctions and Policy page has details.

Russia/Ukraine-related sanctions

In response to Russia’s invasion of Ukraine, OFAC has imposed major sanctions on Russia’s financial, energy, and defense sectors. It also blocks trade and assets of many Russian government officials, oligarchs, and companies. See the Ukraine/Russia program page.

What are some key OFAC regulations and guides?

U.S. companies subject to OFAC should be familiar with the following regulations and compliance guidance:

• The OFAC Sanctions Programs and Country Information page outlines all the different sanctions regimes.
• The Specially Designated Nationals (SDN) List provides names of thousands of blocked/sanctioned entities.
• The Consolidated Sanctions List data feed includes the SDN List plus other sanctioned parties.
• The OFAC Compliance Brochures give an overview of best practices.
• The OFAC FAQs provide guidance on tricky compliance issues.

OFAC also routinely issues new sanctions announcements, general licenses, and penalty notices that companies should monitor.

What are some key things to avoid?

To manage sanctions risk, U.S. companies should screen customers, vendors, and transactions to avoid:

• Conducting any business with individuals, companies, vessels, or countries on the SDN list
• Facilitating transactions via third parties that would be prohibited directly
• Altering or stripping data fields to hide involvement of sanctioned entities
• Processing payments, providing software, equipment or services that enable sanctioned activities
• “Self-sanctioning”, or avoiding lawful business not subject to OFAC restrictions

OFAC penalties for civil violations can be up to $307,922 per violation or twice the value of the underlying transaction. Criminal fines and imprisonment are also possible for willful violations.

What are some key best practices?

Steps for building an OFAC compliance program include:

• Monitoring OFAC updates, new sanctions, and changes to the SDN list
• Implementing sanctions screening software for customers, vendors, and transactions
• Conducting risk assessments to identify vulnerability points
• Drafting an OFAC compliance policy and training staff
• Performing periodic audits to identify program gaps
• Implementing procedures for investigating potential issues, filing reports to OFAC, and taking corrective action

Documenting your OFAC compliance program is critical, as OFAC will consider it when assessing civil penalties for any violations. By taking proactive measures, companies can manage sanctions risk while avoiding unnecessary business disruption.

OFAC sanctions are complex, but fundamentally aim to give the U.S. leverage in pursuing national security and foreign policy goals without military force. By understanding how OFAC operates, U.S. companies can comply with sanctions regulations and avoid severe enforcement actions.