Criminal Defense Lawyers

OFAC Sanctions Risks for Non-US Companies

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) administers and enforces economic sanctions against foreign countries, entities, and individuals. While OFAC sanctions generally apply to U.S. persons and companies, non-U.S. companies may also face risks related to OFAC sanctions compliance depending on their activities and connections to the U.S.

In this article, we’ll break down key information non-U.S. companies need to know about OFAC sanctions risks and compliance obligations. We’ll cover:

• What is OFAC and what sanctions programs does it administer?
• How do OFAC sanctions apply to non-U.S. companies?
• Types of OFAC sanctions risks for non-U.S. companies
• Managing OFAC sanctions risks as a non-U.S. company
• Penalties and enforcement actions

What is OFAC and What Sanctions Programs Does it Administer?

OFAC is a financial intelligence and enforcement agency within the U.S. Department of Treasury. It administers and enforces economic sanctions programs primarily against foreign countries, entities, and individuals engaged in activities contrary to U.S. national security and foreign policy interests.

Some key facts about OFAC:

• OFAC currently administers over 30 economic sanctions programs targeting countries like Iran, North Korea, Syria, and regions like Crimea.
• Sanctions programs can involve trade embargoes, asset freezes, restrictions on financial transactions, export controls, and other measures.
• OFAC maintains the Specially Designated Nationals (SDN) list and other sanctions lists of blocked individuals and companies subject to asset freezes and transaction prohibitions.
• OFAC has authority to impose civil penalties up to $295,141 per violation against entities that violate its sanctions.

While each OFAC sanctions program is unique, they generally prohibit U.S. persons and companies from conducting unauthorized transactions and dealings with targeted governments, entities, vessels, and individuals.

Some major OFAC sanctions programs include:

• Cuba sanctions
• Iran sanctions
• North Korea sanctions
• Syria sanctions
• Venezuela sanctions
• Sanctions related to Russia’s invasion of Ukraine

U.S. companies must comply with OFAC’s prohibitions, but how do these rules apply to non-U.S. companies? Let’s take a look.

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How Do OFAC Sanctions Apply to Non-U.S. Companies?

In general, OFAC sanctions directly prohibit transactions and dealings by U.S. persons, entities organized under U.S. law like companies and nonprofits, U.S. citizens and permanent residents wherever located, and individuals and entities physically located in the United States.

However, OFAC sanctions can also restrict the activities of non-U.S. companies in certain situations, even if the company has no physical presence or subsidiaries in the U.S. This mainly occurs through two mechanisms:

1. Transactions involving U.S. persons or the U.S. financial system – If a non-U.S. company engages in transactions involving U.S. persons, financial institutions, or clearing services, they may be subject to OFAC compliance obligations. For example, U.S. banks are prohibited from processing transactions related to OFAC sanctioned countries like Iran. If a non-U.S. company routes prohibited transactions through the U.S. financial system, they risk enforcement action.
2. “Secondary” OFAC sanctions – Certain OFAC sanctions authorize secondary sanctions against non-U.S. persons even for conduct that occurs entirely outside the U.S., if that conduct relates to a targeted sanctions program. For example, non-U.S. entities that engage in significant transactions with Iran’s energy sector can be subject to OFAC secondary sanctions.

In essence, OFAC sanctions can create compliance obligations and risks for non-U.S. companies depending on the program, their business partners, use of the U.S. financial system, and other factors.

Types of OFAC Sanctions Risks for Non-U.S. Companies

Given the extraterritorial reach of OFAC in some cases, non-U.S. companies may face a range of sanctions-related risks including:

• Conducting prohibited transactions – Engaging in trade, financial transactions, or other dealings with OFAC sanctioned countries, governments, entities, vessels, or individuals that would be prohibited for U.S. persons.
• Facilitating prohibited transactions – Enabling or supporting transactions by third parties that would violate OFAC sanctions and be prohibited if performed directly by a U.S. person. For example, providing financial services, shipping, or other support.
• Processing or receiving prohibited transactions – Handling transactions directly or indirectly involving OFAC sanctioned parties or countries as an intermediary. For example, transmitting prohibited funds through a U.S. bank.
• Sanctions evasion – Altering or omitting information to conceal the involvement of OFAC sanctioned parties in order to process prohibited transactions. For example, concealing the origin or destination of goods shipped to or from a sanctions target.
• Exposure to secondary sanctions – Engaging in transactions or activities subject to secondary sanctions even if lawful where conducted and no U.S. persons are involved.

While not an exhaustive list, these examples illustrate common situations where non-U.S. companies may face OFAC sanctions risks if they do not take steps to identify and mitigate sanctions risks. While not an exhaustive list, these examples illustrate common situations where non-U.S. companies may face OFAC sanctions risks if they do not take steps to identify and manage their sanctions exposure.

Managing OFAC Sanctions Risks as a Non-U.S. Company

Given the complex and evolving nature of OFAC sanctions, non-U.S. companies should take proactive steps to manage sanctions risks. Some best practices include:

• Developing and implementing a risk-based OFAC compliance program appropriate to the company’s risk profile.
• Screening customers, suppliers, and transactions against OFAC’s Specially Designated Nationals (SDN) and other sanctions lists on an ongoing basis.
• Conducting due diligence to identify non-obvious OFAC risks associated with customers, supply chain, jurisdictions, and counterparties.
• Monitoring transactions for OFAC red flags that may indicate sanctions evasion is occurring.
• Ensuring compliance with OFAC regulations when facilitating transactions involving U.S. persons, goods, technology, or the U.S. financial system.
• Assessing in advance whether planned activities could incur secondary OFAC sanctions.
• Training relevant personnel on OFAC requirements.
• Updating compliance programs to align with new OFAC sanctions and restrictions.

Non-U.S. companies should be aware that OFAC may still initiate enforcement actions even if there is no U.S. nexus involved in the prohibited conduct. It is important to view OFAC compliance as a risk management issue given the complex extraterritorial application of U.S. sanctions in some cases.

Penalties and Enforcement Actions

OFAC aggressively enforces violations of its sanctions programs. Some notable penalties and enforcement actions against non-U.S. companies include:

• In 2019, OFAC imposed a $8.6 million penalty against Swiss company SITA for providing software services to Iranian airlines in violation of U.S. sanctions. [1]
• In 2014, OFAC penalized French bank BNP Paribas $963 million for processing transactions involving Sudan, Iran, and Cuba in violation of sanctions. [2]
• In 2021, OFAC coordinated with German authorities to facilitate a $38 million penalty against German chemical distribution company Brenntag for apparent violations of chemical-related restrictions on North Korea and Syria. [3]
• In 2022, OFAC sanctioned United Arab Emirates-based oil trading firms for facilitating transactions related to Iranian petroleum. [4]

These cases illustrate OFAC’s willingness to take action against non-U.S. companies across industries and jurisdictions. Violations can result in substantial financial penalties as well as reputational damage.

Conclusion

While not directly subject to all OFAC sanctions, non-U.S. companies may still face significant sanctions risks depending on their activities, partners, and use of the U.S. financial system. By understanding key OFAC regulations, proactively managing sanctions risks, and staying up to date on program changes, non-U.S. companies can mitigate OFAC compliance obligations and enforcement exposure.

Sources:

[1] https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20190215_sita.pdf
[2] https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20140703.aspx
[3] https://home.treasury.gov/news/press-releases/jy0415
[4] https://home.treasury.gov/news/press-releases/jy0708