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Sanctions Lists and Designations

Economic sanctions–restrictions on trade, financial transactions, etc.–are a key tool countries use to pressure and punish other nations. The U.S. maintains several sanctions programs targeting countries like Iran, North Korea, Syria, and Russia as well as terrorist groups and narcotics traffickers.

At the heart of these sanctions regimes are various designated persons and entities. If you end up on one of these sanctions lists, you could face blocked assets, trade restrictions, and more.

OFAC’s Role

In the U.S., the Office of Foreign Assets Control (OFAC) administers and enforces economic sanctions. OFAC operates under the Department of Treasury.

OFAC has the power to designate–aka add to a sanctions list–individuals, companies, vessels, etc. engaged in prohibited activities. For example, conducting business with off-limit countries or aiding narcotics trafficking.

Some key OFAC sanctions lists:

• Specially Designated Nationals (SDN): Bars U.S. persons from dealing with listed individuals/entities and freezes assets under U.S. jurisdiction.
• Sectoral Sanctions Identifications (SSI): Limits certain financing transactions with listed Russian firms.
• Foreign Sanctions Evaders (FSE): Denies U.S. market access to foreign companies violating U.S. sanctions.

Per OFAC, over 9,000 entities are currently designated. Recent additions include Russian oligarchs, North Korean cyber criminals, and more.

Designation Process

OFAC designations involve multiple government agencies. For example, the State Department often nominates foreign sanctions targets.

While OFAC keeps some designation details secret, it’s clear the agency relies on intelligence sources, news reports, tips, etc. to identify potential candidates.

Before finalizing a designation, OFAC notifies the target. Who can then challenge the pending action. If the designation proceeds, assets under U.S. jurisdiction are blocked.

Delisting

OFAC doesn’t designate entities indefinitely. Delisting happens through a few channels:

• Automatic expiration: Some programs have set time limits on designations, such as 1 year.
• Changed circumstances: OFAC may remove entities who are deemed to no longer pose a sanctions risk.
• Delisting petitions: Those designated can request removal and provide reasons why.

If successful, a delisting re-opens access to the U.S. financial system and economy.

UN and Other Jurisdictions

OFAC isn’t the only designator out there. The United Nations Security Council also maintains a consolidated list targeting terrorists, human rights abusers, and weapons proliferators.

In addition, other jurisdictions like the UK and EU have their own sanctions programs and designated persons lists.

While not identical, there is significant overlap across major sanctions lists. So designation by OFAC often leads to addition by allied countries as well.

Controversies

OFAC’s broad powers and opaque processes have sparked criticism. Civil liberty groups argue U.S. sanctions often punish civilians in target countries more than regimes.

In addition, designated entities argue OFAC:

• Uses vague criteria lacking due process
• Makes mistaken identifications
• Gives little recourse to challenge determinations

Recent court rulings have pressed OFAC to strengthen its designation procedures. But major reforms remain unlikely given national security sensitivities.

Risks of Designation

Given OFAC’s central role, being added to one of its major sanctions lists brings severe consequences:

• Asset freeze: All property under U.S. jurisdiction is blocked, although some humanitarian transactions are permitted.
• Transaction ban: U.S. individuals and companies face prohibitions on dealing with designated entities.
• Reputational damage: Being labeled a sanctions violator makes firms toxic for global partners.
• Follow-on designations: Other jurisdictions often sanction entities designated by OFAC as well.

Avoiding Designation

While controversial, OFAC’s broad powers make sanctions compliance essential for international businesses. Firms must screen customers, vendors, and transactions to ensure no exposure to designated entities.

Robust know-your-customer procedures, restricted party screening, transaction monitoring, and other controls help avoid the severe fallout of winding up on an OFAC blacklist.

In addition, organizations should have procedures in place for petitioning OFAC if they are designated. Quick action is needed to seek delisting and prevent further damage.

The Future of Sanctions

Looking ahead, sanctions and designations will remain a key U.S. foreign policy tool, especially with legislation like CAATSA and other counterterrorism laws expanding OFAC’s authorities.

However, overuse of sanctions could accelerate development of alternative cross-border payment channels. And spur countries feeling targeted to reduce reliance on the U.S. dollar.

Expanding Sanctions Authorities

In recent years, Congress has passed laws steadily expanding the sanctions powers of the executive branch. Examples include:

• The Countering America’s Adversaries Through Sanctions Act (CAATSA) in 2017, which imposed additional sanctions on Iran, Russia, and North Korea.
• The 2021 National Defense Authorization Act, which strengthened sanctions authorities related to Russia.
• Various counterterrorism laws like the 2022 NDAA expanding OFAC’s ability to target terrorist organizations.

With a large bipartisan consensus on sanctions, this trend of growing executive powers seems likely to continue.

Overuse Concerns

However, many experts argue overuse of sanctions could undermine their effectiveness long-term.

Potential risks if sanctions are applied too liberally include:

• Targeted nations accelerating efforts to develop alternative cross-border payment channels to bypass the U.S.-dominated SWIFT system.
• Increasing de-dollarization as sanctioned countries opt to use other currencies to avoid exposure to the U.S. financial system.
• Alienating allies who face collateral damage from broad secondary sanctions.

Maintaining sanctions as an impactful foreign policy tool likely requires more judicious and narrow application going forward.