When OFAC Extraterritorial Sanctions Apply Abroad

When OFAC Extraterritorial Sanctions Apply Abroad

Hey there! Have you ever wondered when the big bad Office of Foreign Assets Control can come after you or your company for doing business abroad? I know I have. OFAC sanctions can seem scary and confusing – but stick with me and hopefully this article will help explain when their powers extend beyond the good ol’ USA.

First up, what is OFAC? It’s basically the part of the US Treasury Department that enforces economic and trade sanctions against foreign countries, groups, and individuals. Their goal is to support US foreign policy and national security interests. OFAC has the power to freeze assets and restrict trade with sanctioned parties.

What Makes Sanctions Extraterritorial?

Extraterritorial basically means “beyond the physical territory of a country.” So extraterritorial sanctions are ones that apply to foreign individuals, companies, and governments – even for actions that happen completely outside of the US. OFAC doesn’t just go after US citizens and companies – their powers can extend globally.

For example, say a French company sells equipment to a company in Iran. That transaction happens entirely outside the US – but if the Iranian company is sanctioned by OFAC, the French company could potentially face penalties too. Crazy right?

How Can OFAC Go After Foreign Companies?

OFAC has a few sneaky ways to assert jurisdiction over foreign parties:

• Secondary sanctions target foreign companies for doing business with sanctioned parties. Even if the transaction is legal where it happens, OFAC sees it as “supporting” the sanctioned party.
• If a foreign company or bank has any operations in the US, OFAC can penalize their US assets or restrict their access to the US financial system. Major ouch!
• Personal jurisdiction – if foreign executives visit or own property in the US, OFAC can revoke their visas or seize assets.
• Using US currency for transactions can give OFAC jurisdiction, since almost all international banks use dollars.

So even if a company avoids direct dealings with the US, OFAC has some crafty ways to hook them. Kinda like how the IRS hunted down Capone for tax evasion when they couldn’t pin other crimes on him. The Treasury don’t play around!

What Actions Can Trigger OFAC Sanctions?

Some common scenarios that could lead to OFAC extraterritorial sanctions include:

• Exporting goods or services to a sanctioned country
• Importing goods like oil, minerals, or agricultural products from a sanctioned country
• Investing in industries like energy, mining, or infrastructure in a sanctioned country
• Extending credit to a sanctioned government or company
• Facilitating transactions for sanctioned parties as an intermediary
• Operating an international payments system that involves sanctioned jurisdictions

So even indirect dealings can sometimes lead to trouble if OFAC thinks you are finding loopholes or “supporting” a sanctioned party. Talk about guilt by association!

What Penalties Can OFAC Impose?

Oh boy, OFAC has quite the enforcement toolbox to work with:

• Fines up to $311,562 per violation, or twice the value of the underlying transaction
• Freezing or seizing assets under US jurisdiction
• Revoking US visas or blocking entry into the US
• Prohibiting targeted companies from accessing the US banking system
• Referring cases to the Department of Justice for criminal prosecution

Yikes! Those penalties can really add up and cripple a company’s ability to do business. OFAC collected over $1.5 billion in fines between 2019-2021. Clearly they are not messing around.

Recent Extraterritorial Sanction Cases

To make this all more concrete, let’s look at some real-world examples of OFAC flexing its extraterritorial muscle:

Huawei

In 2019, OFAC added the Chinese tech giant Huawei to the Entity List, restricting its access to US technology. This applied to all Huawei subsidiaries globally. Yup, OFAC crippled a foreign company over national security concerns. Trade wars ain’t fun!

Nord Stream 2

OFAC sanctioned companies working on the Russia-to-Germany Nord Stream 2 gas pipeline in 2020. This included targeting a German port contractor whose only “crime” was offloading pipes for the project. Collateral damage in economic warfare!

Rosneft Trading

OFAC penalized this Swiss-based Russian oil trading firm in 2020 for working with Venezuela’s state oil company PDVSA. Rosneft elected to leave Venezuela rather than tangle further with OFAC. One less birthday card for Maduro!

UniCredit Bank

This Italian bank got smacked with a $1.3 billion fine in 2019 for processing payments for sanctioned entities like Iran and Syria between 2002-2011. Should have read the OFAC tea leaves better!

Defending Against OFAC Sanctions

Given how far OFAC’s reach can extend, what can foreign companies do to avoid potential sanctions?

• Screen all new clients and transactions against OFAC’s Specially Designated Nationals list
• Implement IP blocking and geo-fencing to prevent access from sanctioned jurisdictions
• Institute robust compliance programs and conduct regular audits
• Prohibit dealings with high-risk sectors like defense, energy, and aviation
• Avoid facilitating transactions in US dollars that involve sanctioned entities