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Key Aspects of OFAC Administered Sanctions
The Office of Foreign Assets Control, or OFAC, administers and enforces economic sanctions programs for the US Department of Treasury. These sanctions target foreign countries, groups, and individuals based on US foreign policy and national security goals. OFAC’s sanctions can be comprehensive, blocking all assets and trade, or selective, targeting only certain sectors or parties. Understanding how OFAC sanctions work is crucial for any global business.
Contents
What is the Purpose of OFAC Sanctions?
OFAC uses economic sanctions as a foreign policy tool to accomplish the following goals without resorting to war:
- Counter threats to national security like terrorism, weapons proliferation, and drug trafficking
- Punish human rights abuses
- Deter aggression by adversarial nations
- Isolate rogue regimes like North Korea and Iran
- Support US allies and spread democracy
By blocking assets and restricting trade, OFAC sanctions put economic pressure on targeted countries or entities. The impacts can range from minor inconveniences to crippling economic crises. OFAC walks a fine line between punishment and avoiding humanitarian catastrophes.
OFAC does not create sanctions policy. Instead, it implements programs based on laws passed by Congress and executive orders issued by the President. Some key legal authorities for OFAC include:
- Trading with the Enemy Act of 1917 – Allows broad sanctions during wartime
- International Emergency Economic Powers Act of 1977 – Authorizes peacetime sanctions for national emergencies
- Anti-Terrorism and Effective Death Penalty Act of 1996 – Allows sanctions against terrorist organizations
- Countering America’s Adversaries Through Sanctions Act of 2017 – Sanctions Russia, North Korea, and Iran
- Executive orders like E.O. 13876 blocking Venezuela’s assets
New laws and executive orders constantly expand OFAC’s powers. Businesses must keep up to date on legal changes affecting sanctioned countries and parties.
Who Do OFAC Sanctions Target?
OFAC publishes several sanctions lists targeting:
- Countries – Cuba, Iran, North Korea, Syria, Venezuela
- Regimes – Belarus, Burma, Central African Republic, Democratic Republic of Congo, Russia, South Sudan, Zimbabwe
- Terrorist groups – Al-Qaeda, Hamas, Hezbollah, ISIS, Palestinian Islamic Jihad
- Transnational criminal organizations – Los Zetas, Brothers’ Circle, Camorra, Yakuza
- Weapons proliferators – Iran, North Korea, Syria
- Narcotics traffickers – Hundreds of individuals and entities
- Human rights abusers – Dozens of individuals
Businesses must screen customers, suppliers, and transactions against OFAC lists to avoid violations. Sanctions apply to US companies and foreign subsidiaries.
What Transactions Do OFAC Sanctions Prohibit?
Transactions prohibited by OFAC include:
- Exports and imports with sanctioned countries
- Financial dealings with sanctioned banks and companies
- Investments in sanctioned countries
- Travel to sanctioned countries
- Facilitating transactions by third parties that would be prohibited for US persons
OFAC sanctions can block assets owned by targeted individuals and entities. US persons are prohibited from dealing with blocked property.
How Are OFAC Sanctions Enforced?
OFAC closely monitors sanctions compliance using:
- Tips from financial institutions on suspicious activity
- Corporate voluntary disclosures
- Law enforcement intelligence
- Open source information
When violations occur, OFAC can impose civil penalties up to $311,562 per violation, or up to twice the value of the underlying transaction. Criminal penalties for willful violations include up to $1 million in fines and 20 years in prison.
Designing an OFAC Compliance Program
To avoid violations, companies should implement a risk-based OFAC compliance program including:
- Management commitment to compliance
- Risk assessment of customers and transactions
- Internal controls like screening software
- Testing and auditing
- Training programs
- Escalation process for potential issues
No compliance program is perfect. But showing good faith efforts to comply can help companies avoid willful violations.
Managing Potential OFAC Violations
If a potential OFAC issue arises, companies should:
- Stop prohibited transactions from going forward
- Block any assets involved
- Investigate internally
- Voluntarily disclose to OFAC
- Improve compliance program
Voluntary self-disclosure is a mitigating factor for OFAC penalties. Being proactive shows good faith and a commitment to compliance.
OFAC sanctions are complex, but vitally important to understand. By designing and implementing an effective sanctions compliance program, companies can avoid potentially serious legal and reputational risks. With good compliance, businesses can follow OFAC’s rules while:
- Continuing international business activities safely
- Avoiding costly penalties and legal issues
- Protecting corporate reputation
- Contributing to national security goals
- Supporting human rights objectives
Some best practices for sanctions compliance include:
- Conducting regular risk assessments
- Screening all customers and transactions
- Providing tailored training to staff
- Implementing well-documented policies and procedures
- Performing audits and testing
- Encouraging a culture of compliance
Staying up to date on new OFAC rules is also essential. Laws and targeted parties frequently change. For example, Russia sanctions expanded dramatically in 2022 after the invasion of Ukraine.
While complex, OFAC rules exist for important policy reasons. With proper compliance programs, companies can follow the rules successfully.