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How OFAC Designates Sanctioned Individuals and Entities
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 targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in targeted activities described in U.S. sanctions programs. OFAC acts under presidential national emergency powers and certain statutory authorities to impose controls on transactions and freeze assets under U.S. jurisdiction.
OFAC publishes a list known as the Specially Designated Nationals and Blocked Persons List (SDN List), which includes individuals, groups, and entities that are owned or controlled by, or acting for or on behalf of, targeted countries, as well as terrorists, narcotics traffickers, and others who are blocked from doing business with U.S. persons. Their assets are blocked and U.S. persons are generally prohibited from dealing with them.
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OFAC derives its authority from powers granted to the President under the International Emergency Economic Powers Act (IEEPA). IEEPA authorizes the President to declare a national emergency when an extraordinary threat to the United States arises that originates in substantial part in a foreign state. The President can then order the blocking of transactions and freezing of assets to deal with the threat.
Through Executive Orders, the President delegates IEEPA powers to the Secretary of the Treasury. The Secretary then delegates responsibility for administering sanctions programs to OFAC.
Types of OFAC Sanctions Programs
OFAC administers several types of economic sanctions programs:
- Country-based sanctions, which target entire countries or governments.
- List-based sanctions, which target specific individuals and entities.
- Sectoral sanctions, which target portions of an economy, such as the energy or defense sector.
- Activity-based sanctions, which block certain types of activities, such as transacting with Specially Designated Nationals (SDNs).
Some OFAC sanctions programs can include a combination of these elements. For example, the Ukraine/Russia-related sanctions program contains country-based sanctions on Russia as well as list-based sanctions targeting specific individuals and entities.
How Individuals and Entities are Designated by OFAC
There are several ways an individual or entity can become designated by OFAC and added to the SDN List:
- OFAC receives evidentiary material about an individual or entity that meets the criteria for designation under one of the sanctions programs.
- Other government agencies, such as the Department of Justice or State Department, may submit proposed targets to OFAC for review.
- OFAC also routinely collaborates with other U.S. agencies to coordinate sanctions actions.
- In some cases, OFAC is mandated by Congress to designate specific persons.
According to OFAC, the evidentiary standard for designation is prior to imposing sanctions is “reasonable basis to believe” that a person meets the criteria described in the relevant Executive Order or statute. This is a relatively low legal standard compared to “beyond a reasonable doubt.”
OFAC Evaluation Process
When OFAC receives a sanctionable activity referral, analysts will research and prepare a case to determine if there is sufficient evidence for designation. This may include:
- Reviewing classified/law enforcement data
- Analyzing financial transactions
- Consulting open source information such as news reports
If the case meets the evidentiary standard, it goes to OFAC’s Evaluation and Identification Division for additional vetting. This includes confirming identifier information like addresses, alternate name spellings, etc. The proposed target is also checked against OFAC’s prior designations to avoid duplication.
After vetting, the case goes to OFAC’s Sanctions Compliance and Evaluation Division for a final determination. OFAC’s Director makes the ultimate decision on whether to approve the designation.
Notice of Designation
Once a designation is approved, details are added to the SDN List which is updated and published online. OFAC also issues a public press release announcing the action.
However, in some sensitive cases, OFAC may delay notifying the target to prevent asset flight. The USA PATRIOT Act allows delayed notification for law enforcement or national security reasons.
Challenging a Designation
There is a process for challenging an OFAC designation by submitting a delisting petition. The petition must include evidence that the designee does not meet the criteria for sanctions listing or that insufficient due process was provided.
OFAC does not provide designees with the administrative record or specific reasons for the designation. This limits the ability to directly challenge OFAC’s rationale and evidence. Most petitions focus on correcting factual errors or mistaken identity cases.
If the petition is rejected, the designee can also seek judicial relief by appealing to a federal district court. However, courts generally defer to OFAC’s interpretations of sanctions laws and the evidentiary basis for designations.
Recent Trends in OFAC Designations
Under the Trump administration, OFAC significantly expanded the use of sanctions. There was a proliferation of new sanctions programs targeting countries like Russia, Venezuela, and Iran as well as non-state entities like terrorists and transnational criminal organizations.
The number of Specially Designated Nationals listed by OFAC increased from approximately 6,300 to 9,400 during 2017-2021. Much of this growth stemmed from the Ukraine/Russia-related sanctions program.
However, the evidentiary basis for some Trump era designations was criticized, for example allegations of corruption against officials in Guatemala and Ukraine. OFAC’s use of classified evidence not disclosed to targets also raised due process concerns.
The Biden administration has so far maintained the existing sanctions framework but emphasized coordination with allies rather than unilateral sanctions. It remains to be seen whether sanctions designations will continue at the accelerated pace of recent years.
Pros and Cons of Economic Sanctions
OFAC’s use of targeted sanctions against individuals and entities demonstrates a modern approach to sanctions that minimizes unintended economic and humanitarian impacts. Nonetheless, economic sanctions remain controversial in policy circles.
Arguments in Favor of Sanctions
- Provide a non-military tool for coercing foreign governments and actors
- Can be carefully targeted against bad actors while sparing general populations
- Flexible and easily adjusted as conditions change
- Prevent targeted entities from accessing the U.S. financial system
Criticisms of Sanctions
- Often fail to achieve policy goals and impose suffering without changing behavior
- Blunt tool that may punish civilians and economically isolate countries
- Hard to enforce comprehensive compliance
- Designations rely on classified evidence and deny due process
Debates will continue about whether sanctions are being applied judiciously against legitimate targets. But for now, they remain one of the main tools deployed by the U.S. during international crises.
Conclusion
OFAC sanctions provide the U.S. government with a flexible and scalable tool to apply economic pressure against foreign actors and regimes. However, their overuse or careless application can also have detrimental impacts on innocent populations and international commerce.
Maintaining sanctions programs that are multilateral, transparent, and carefully targeted will be crucial for OFAC’s credibility and effectiveness as an instrument of U.S. national security and foreign policy.
References
U.S. Department of the Treasury Resource Center. Specially Designated Nationals And Blocked Persons List (SDN) Human Readable Lists. Accessed February 20, 2023.
U.S. Department of the Treasury. With Wide-Ranging New Sanctions, Treasury Targets Russian Military-Linked Elites and Industrial Base. September 14, 2022. Accessed February 20, 2023.
U.S. Department of the Treasury Resource Center. Ukraine-/Russia-related Sanctions. Accessed February 20, 2023.
U.S. Department of the Treasury Resource Center. Specially Designated Nationals List – Data Formats & Data Schemas. Accessed February 20, 2023.
U.S. Department of the Treasury. Treasury Designates Individuals and Entities Involved in the Ongoing Conflict in Ukraine. June 20, 2017. Accessed February 20, 2023.
U.S. Department of the Treasury Resource Center. Consolidated Sanctions List (Non-SDN Lists). Accessed February 20, 2023.