August, 2021

A Comprehensive Guide to OFAC Sanctions

A Comprehensive Guide to OFAC Sanctions

You’ve probably heard that sanctions are being rolled out at record speeds against a whole myriad of targets. Iran, Cuba, Russia, and Crimea are the usual suspects but did you know that there are many more different types of targets on the different OFAC lists that you have to consider? For example, the OFAC’s Specially Designated Nationals list alone includes about 6,300 people connected with the sanctions’ targets.

Your company has to avoid these targets or face consequences. The penalties for sanction violations are severe and can destroy a business.

In this article, you’ll learn everything that you need to know about the OFAC sanctions lists and how to not fall victim to them.

What are sanctions?

Sanctions are political-trade tools used for enforcing policies and ensuring lawful behavior. Countries, international organizations, and regulatory bodies, such as the OFAC, can sanction organizations, individuals, and other countries that aren’t compliant with their views and policies. Learn more about sanctions here.

What is OFAC?

The Office of Foreign Asset Control (OFAC) is a United States government agency responsible for overseeing and enforcing trade and economic sanctions. OFAC governs what type of business you can do with whom and where you can do it.

What are the types of OFAC sanctions programs?

There are different kinds of sanctions, each with a different purpose. Some are aimed at very specific goods, some are aimed at broader targets, such as companies, and some cover entire countries.

Comprehensive sanctions usually are quite broad and prohibit commercial activity with a whole country. They can include various types of restrictions, for example, restrictions on import and export, trade brokering, and financing. Not all the listed sanctions are equal; some are very strict embargoes but some are more relaxed regulations.

Limited programs provide guidelines and specify how to interact with certain countries. They impose restrictions in specific areas, not general embargoes. They may prohibit trading certain kinds of goods or doing specific business-related activities in a country. For example, they could prohibit mining for oil in a specific area of the Arctic.

List-based sanctions are used to target specific individuals or groups who pose a threat to the US economy, foreign policy, or national security. They block US citizens from performing financial transactions with people and corporations on sanctions lists, such as the Specifically Designated Nationals and Blocked Persons List (the SDN list).

List-based sanctions are the most often used and preferred type of sanctions. They allow the US to target specific individuals and entities without the negative consequences that broader embargoes cause for the target country’s population.

Secondary sanctions are used most frequently during the last 5 years. They target entities outside of the US (foreign citizens, financial organizations, etc.) who do business with certain countries that the US has sanctioned.

This means that other non-US citizens and organizations have to comply with certain US sanctions due to secondary sanctions.

For example, if a foreign bank has a significant volume of transactions with Iran (who is on the US sanctions lists), then that foreign bank could face penalties from the US These penalties could include prohibitions for the bank to work with US citizens or restrictions on that bank’s accounts in the US. 

Who has to comply with OFAC sanctions?

  • All US citizens and non-citizen permanent residents regardless of their location.
  • Every person and incorporated entity located in the US and their foreign branches.
  • Branches of foreign companies located in the US.
  • Foreign subsidiaries owned or controlled by US companies.
  • Some programs require that people in possession of certain US-origin goods also have to comply.
OFAC sanctions list checker non-compliance penalties image

What are penalties for non-compliance?

There are both civil and criminal penalties for OFAC violations.

Civil penalties are punishable by fines up to $55,000 per violation and seizure of the involved property.

Criminal violations are punishable by more severe penalties. For example, fines for criminal violations can range up to $20 million and can be accompanied by imprisonment of up to 30 years.

The severity of punishment depends on the violations that have occurred, how many times they happened, and what acts they breached. For example, if the violations broke the Trading With the Enemy Act, fines up to $1 million and 10 years imprisonment can be enforced. If the International Emergency Economic Powers Act is breached, then fines of up to $250,000 for individuals and $500,000 for companies can be enforced.

You can find more details about OFAC sanctions here.

How can your business ensure OFAC compliance?

You can’t do business with any sanctions targets, otherwise, you will have to face harsh consequences. The fines alone are enough to ruin most businesses, not to mention the imprisonment.

But ensuring compliance can be quite a handful. Keeping up with the convoluted legal structures and intertwining sanctions regimes of different countries is a serious task. It's a challenge even for teams of legal experts.

That’s where we at Sanction Guard will help you out. Our sanction checker app integrates with your online store’s platform, such as Shopify, and operates in the background. We do all the dirty work of checking each of your customers against all the most important sanctions lists. When any suspicious information comes up, we let you know. You still get to make the final decision about serving any order, just without the guesswork.

Check out the Sanction Guard checker for your ecommerce business.

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