OFAC And Economic Sanctions

OFAC (Office of Foreign Asset Control) is the part of the Department of Treasury that administers and enforces economic sanctions imposed by the U.S. against various countries and individuals. OFAC supervises an array of sanctions programs, which fall into one of two basic categories:

1. Comprehensive sanctions programs that broadly forbid transactions with all individuals and companies in specific countries: Russia, Cuba, Iran, Myanmar, Sudan and Syria.
2. Non-comprehensive programs that forbid transactions with specifically named individuals and entities who are in certain countries (such as North Korea or the Ivory Coast) or who are engaged in terrorism, proliferation of weapons of mass destruction or international narcotics trafficking. These individuals and entities are included in a list maintained by OFAC that is formally known as the Specially Designated Nationals and Blocked Persons, or the SDN List.

The various sanctions programs are authorized by two main federal statutes either the Trading with the Enemy Act (TWEA) or the International Emergency Economic Powers Act (IEEPA).

All U.S. citizens and permanent residents must comply with OFAC regulations, whether or not they currently reside in the U.S. OFAC sanctions programs also apply to all persons and businesses within the U.S., as well as to foreign branches of U.S. companies. The Cuba sanctions program also applies to foreign subsidiaries that are owned or controlled by U.S. companies.

Violations of OFAC sanctions programs

With certain exceptions, a U.S. company may not engage in financial transactions with, sell goods to, or provide services to any person or entity on the SDN List or to nationals of the countries that are the subjects of the comprehensive sanctions programs. This is the most common and obvious scenario that constitutes an OFAC violation.

However, there are other kinds of situations that can also potentially give rise to a violation of OFAC sanctions programs. Some of them include the following:

• A U.S. company acquires a European bank, some of whose customers are Cuban nationals, and now finds itself providing banking services in violation of the Cuba sanctions;
• A U.S. parent company provides back-office services for its overseas subsidiaries, which may engage in business with entities or persons on the SDN list;
• A financial institution makes a loan in support of a sale of goods that are shipped on a vessel affiliated with an shipping company that is a national of a country subject to comprehensive sanctions;
• Employees of a financial institution excise accurate information in order to disguise transactions involving a Syrian business;
• A food manufacturer sells its products to wholesalers knowing that the products will be resold to a prohibited country’s supermarkets.

The sanctions programs are complicated and many ramifications can be easily overlooked, even by businesses that fully intend to comply.

The criminal and civil penalties for violating the terms of an OFAC sanctions program can be very severe. Some OFAC sanctions violators have faced tens of millions of dollars in penalties. Even in smaller cases, the penalties may be several times the value of the prohibited transaction, since OFAC views its penalties as a deterrence, not a restitution.

Depending on the particular statute behind particular sanctions program, violators can face criminal penalties of as much as 20 years? imprisonment and a fine of $1 million. Asset forfeiture provisions may allow the government to claim property involved in the violation. Civil penalties can be as high as $250,000 per violation or an amount equal to twice the amount of the transaction that is the basis of the violation.

Norman Spencer Law Group PC provides guidance to U.S. and overseas businesses and individuals who wish to implement practices and protocols designed to minimize the chances of inadvertently violation OFAC sanctions programs. Our team of highly skilled and knowledgeable attorneys also provides consultation as to specific transactions that may trigger OFAC issues, as well as representation to those who have? been charged with OFAC violations.

To find out more about how Norman Spencer Law Group PC can help you navigate the complexities of OFAC, call us at (212) 577-6677.

We are located in New York City but we provide assistance to clients in federal and regulatory matters across the country and abroad.