What is Office of Foreign Assets Control (OFAC)?

The Office of Foreign Assets Control (OFAC) plays a pivotal role in safeguarding national security by enforcing economic and trade sanctions against targeted foreign countries and regimes. With over 1,500 sanctions programs currently active, OFAC’s influence extends globally, impacting businesses and financial institutions worldwide. Each year, OFAC’s sanctions help curb illicit activities by freezing assets, blocking transactions, and restricting trade with entities involved in terrorism, drug trafficking, and other serious threats. 

What Does OFAC Mean?

OFAC means ‘Office of Foreign Assets Control’.

What Does the OFAC Do?

OFAC's primary purpose is to develop programs that protect U.S. foreign policy and national interests by cooperating with domestic and foreign intelligence agencies. OFAC is also responsible for administering economic OFAC sanctions and imposing civil monetary penalties.

Through its programs, OFAC prohibits a U.S. individual or entity from doing business with designated entities, including foreign governments, individuals, and groups, and imposes restrictions on their financial transactions and assets. OFAC maintains a list of Specially Designated Nationals and Blocked Persons (SDN) identifying individuals and entities subject to U.S. sanctions.

What is the OFAC Responsible For?

The Office of Foreign Assets Control (OFAC) is essential to U.S. national security and foreign policy by administering and enforcing economic and trade sanctions. Its primary roles include:

• Developing and maintaining sanctions lists targeting individuals, organizations, and nations deemed a threat to U.S. interests.
• Ensuring compliance by U.S. citizens and businesses through monitoring, investigating suspicious activity, and enforcing penalties when necessary.
• Providing guidance and resources to help organizations comply with complex sanctions regulations.
• Reviewing and granting licenses for activities that may qualify for sanctions exemptions, ensuring that exemptions are appropriately implemented.
• Advancing U.S. foreign policy and security by addressing significant international risks through strategic sanctions programs.

How Do OFAC Sanctions Work?

OFAC enforces two main categories of sanctions:

1. Primary Sanctions: These sanctions directly prohibit U.S. residents and entities from engaging in any form of business or transactions with entities, individuals, or countries identified by OFAC as targets of sanctions. This includes a wide range of prohibitions designed to restrict economic and financial activities with those designated as threats to U.S. national security, foreign policy, or economy.
2. Secondary Sanctions: These are designed to extend the reach of U.S. sanctions beyond its borders, targeting foreign individuals, companies, and financial institutions that engage in certain transactions with sanctioned entities. These sanctions aim to deter non-U.S. entities from doing business with those under U.S. sanctions, effectively isolating the sanctioned targets from the global financial system.

The scope of OFAC's sanctions includes various forms of restrictions, such as:

• Trade Restrictions: These include bans or limitations on the import and export of goods, services, and technology between the U.S. and the sanctioned targets.
• Investment Restrictions: Prohibitions on direct or indirect investments in entities or countries that are under sanctions.
• Asset Freezes: Blocking or freezing of assets and financial resources of countries, organizations, or individuals identified as sanctioned targets.
• Travel Restrictions: Limitations or bans on travel for individuals who are directly targeted by sanctions.

OFAC implements these sanctions through:

• Comprehensive Sanctions: These are broad and affect entire countries, prohibiting most direct and indirect transactions with the sanctioned country.
• Selective Sanctions: These are more targeted, focusing on specific individuals, companies, or economic sectors within a country rather than the country as a whole.

Types of OFAC Sanctions

Country-Based Sanctions

The U.S. government typically imposes country-based Sanctions in response to certain defined transactions and government regimes of interest. These sanctions usually target specific industries or sectors within a country and prohibit various activities such as trade in services and goods, financial transactions, and technology transfers. 

The nature and extent of these sanctions vary significantly. For instance, nations like Belarus, Libya, and Sudan face restrictions that primarily target transactions involving certain entities or individuals. Conversely, other countries are subject to more extensive measures, including:

• Restrictions on Russia
• Restrictions on North Korea
• Restrictions on Iran

List-Based Sanctions 

List-based sanctions are a specific type of OFAC sanction that involves identifying and listing individuals, entities, and organizations on the Specially Designated Nationals and Blocked Persons List (SDN List). Those listed are considered to pose a threat to U.S. interests, and all U.S. persons are prohibited from engaging in transactions with them. This approach allows for targeted actions against those involved in terrorism, narcotics trafficking, human rights abuses, and other malign activities, effectively cutting them off from the U.S. financial system and economy. Additionally, according to OFAC's 50 Percent Rule, property and interests in property of entities that are directly or indirectly owned by one or more blocked persons to the degree of 50 percent or more in total are also blocked. This rule extends the impact of sanctions to entities controlled by sanctioned individuals or entities, further restricting their access to the U.S. financial system.

Sectoral Sanctions

Targeted sanctions that focus on specific sectors of a country's economy are known as sectoral sanctions. These sanctions involve specific sectoral sanctions identifications, pinpointing industries or segments contributing to undesirable activities.  

For instance, after Russia's annexation of Crimea in 2014, the US government imposed sectoral sanctions on select firms in Russia's financial and energy sectors. These sanctions barred US individuals from financing or investing in these firms, effectively blocking their access to the US financial system and market.

Sectoral sanctions of OFAC are considered a more focused approach than broad-based OFAC sanctions since they aim to minimize the impact on non-targeted sectors of the economy. Nevertheless, they can still have significant economic and political implications for the targeted country and nations that conduct business with them.

To assist with understanding and compliance, OFAC provides detailed guidance and frequently asked questions (FAQs) for specific sanction programs. This information covers a range of topics, including:

• The Virtual Currency Industry
• Instant Payment Systems
• Implementing the Price Cap Policy
• Credit Report Consumers
• Services for compliance across different sanction programs

OFAC License

OFAC issues two types of licenses: general licenses and specific licenses. General licenses are granted to provide exceptions to sanctions imposed on a country basis. These licenses allow for exemptions from certain sanctions and prohibitions in specific transactions. The exceptions granted under general licenses typically cover activities such as humanitarian aid, legal consultations, information services provided through websites, and personal communications with relevant countries. It's important to note that these licenses are only applicable to U.S. citizens and cannot be obtained by individuals or institutions from third countries.

On the other hand, a specific license requires an application process. Individuals or organizations can apply to OFAC for a specific license, which provides an exception tailored to their particular circumstances. The issuance of a specific license is a response to the application submitted by the applicant. Whether for general or specific licenses, individuals or institutions engaging in transactions must adhere to all the terms and conditions specified in the licenses.

It is crucial to comply with the terms of the licenses granted by OFAC to ensure that transactions are conducted legally and in accordance with applicable sanctions regulations. Non-compliance can result in severe penalties and legal consequences. Therefore, individuals and organizations should consult with legal professionals or experts familiar with OFAC regulations and the OFAC SDN list to navigate the licensing process and ensure full compliance with the terms of the licenses granted.

What is an OFAC Check?

Performing an OFAC check is a vital compliance process used to screen individuals and organizations against OFAC lists. It identifies SDNs, terrorists, narcotics traffickers, and others involved in activities that pose national security risks.

OFAC searching helps businesses ensure they are not interacting with prohibited parties. If a match is found during the OFAC match, companies must take action to avoid severe penalties, including fines ranging from $50,000 to $10 million and up to 30 years in prison for violations. This check ensures compliance with U.S. trade and economic sanctions.

How to Comply with OFAC Regulations

Complying with OFAC  regulations is crucial for individuals and businesses operating in the United States or conducting business with U.S. entities. Failure to comply with OFAC regulations can result in severe penalties and legal consequences. Here are some key steps to ensure OFAC compliance:

1. Understand the OFAC Framework: Familiarize yourself with the OFAC regulations, including the sanctions programs, lists, and sanctions list search. Stay updated on any changes or additions to the OFAC sanctions lists.
2. Screen Customers and Transactions: Implement a robust screening process to check your customers, clients, and business partners against the OFAC sanctions lists. This screening process should cover new and existing customers and be performed regularly to identify potential matches. Virtual asset providers are also included in this obligation.
3. Utilize Compliance Software: Consider using compliance software or tools that automate the screening process. These tools can scan your customer data and transactions against the OFAC sanctions lists in real time, reducing the risk of human error and ensuring more efficient compliance.
4. Develop Compliance Policies and Procedures: Establish comprehensive compliance policies and procedures within your organization. These should include guidelines for screening, reporting, record-keeping, and responding to potential matches or suspicious activities.
5. Training and Awareness: Provide regular training and awareness programs to employees, ensuring they understand their responsibilities and the importance of OFAC compliance. This includes educating employees about red flags, suspicious activities, and reporting requirements.
6. Maintain Records: Keep detailed records of your compliance efforts, including screening results, documentation of due diligence, and any actions taken in response to potential matches. These records should be securely stored and easily accessible for auditing purposes.
7. Report Suspicious Activities: If you identify any suspicious activities or potential matches with the OFAC sanctions lists, promptly report them to the appropriate authorities. Cooperate fully with investigations and provide any requested information or documentation.
8. Stay Updated: Monitor OFAC sanctions list and announcements, regulatory changes, and updates to the sanctions lists. It is essential to remain informed about any new sanctions, removals from the list, or changes in compliance requirements.
9. Conduct Due Diligence: Before entering into any business relationships or transactions, conduct due diligence to ensure that your partners and customers are not on the OFAC sanctions lists. This includes verifying the identity of individuals and conducting risk assessments for higher-risk transactions.
10. Seek Professional Advice: If you have doubts or complexities regarding OFAC compliance, consider seeking professional advice from legal or compliance experts specializing in sanctions and regulatory matters.

If you have doubts or need guidance on OFAC SDN list compliance or OFAC compliance in general, consider seeking legal counsel or consulting with compliance professionals specializing in sanctions and regulatory compliance.

How Should Companies Report to OFAC?

• Gather all relevant information: Ensure you have all the necessary information to support your suspicions of a possible violation. This may include documents, emails, and any other evidence that can help OFAC in its investigation.
• Contact OFAC: You can report a possible violation by calling OFAC's hotline at 1-800-540-6322 or emailing them at [email protected].
• Provide details: When reporting a possible violation, be sure to provide as much detail as possible about the incident, including the parties involved, the nature of the transaction, and any other relevant information that can help OFAC in its investigation.
• Keep your identity confidential (optional): If you prefer to remain anonymous, you can report the possible violation without revealing your identity.
• Follow up: After you report a possible violation, it's a good idea to follow up with OFAC to ensure that they received your report and to check on the status of the investigation.