What is OFAC?
The Office of Foreign Assets Control (OFAC) is the agency within the US Department of the Treasury that administers and enforces US economic and trade sanctions.
OFAC sanctions support US foreign policy and national security goals. They target countries, regimes, terrorists, drug traffickers, proliferators of weapons of mass destruction, and others whose activities threaten US interests. OFAC decides who is sanctioned, publishes the lists, issues licenses, and penalizes violations.
OFAC rules reach far beyond US banks. Any US person must comply, and because so much of the world's trade and finance runs through the US dollar and US institutions, firms around the world screen against OFAC lists as a standard part of sanctions screening.
What types of sanctions does OFAC enforce?
OFAC enforces two main types of sanctions. Comprehensive country sanctions prohibit virtually all transactions with an entire country, such as Cuba, Iran, or North Korea. Targeted sanctions apply to specific individuals, entities, vessels, or sectors.
OFAC publishes several lists for targeted sanctions, including the following.
- The Specially Designated Nationals and Blocked Persons (SDN) List, which names people and entities whose property is blocked
- The Sectoral Sanctions Identifications (SSI) List, which restricts certain dealings with companies in specific sectors
- Other non-SDN lists for particular sanctions programs
US persons are generally prohibited from dealing with anyone on the SDN List. Under OFAC's 50 Percent Rule, entities owned 50 percent or more by one or more SDNs are also treated as blocked, even if they do not appear on the list themselves.
Who has to comply with OFAC sanctions?
All US persons have to comply with OFAC sanctions. US persons include US citizens and permanent residents wherever they are located, entities organized under US law and their foreign branches, and anyone physically in the United States. Some programs, such as those for Cuba and Iran, also reach foreign entities owned or controlled by US persons.
Non-US firms often screen against OFAC lists too. Transactions in US dollars or through US banks can expose them to OFAC enforcement, and many correspondent banks require their partners to follow OFAC rules.
What happens when a firm finds an OFAC match?
A confirmed OFAC match requires the firm to block or reject the transaction. Firms must immediately block property and interests in property belonging to SDNs and report blocked property and rejected transactions to OFAC within 10 business days.
OFAC can authorize some transactions through licenses. A firm can apply for a specific license for an individual transaction, and OFAC issues general licenses that authorize certain types of activity, such as humanitarian payments.
OFAC violations can bring heavy civil penalties. OFAC can impose penalties even when a firm did not know it was dealing with a sanctioned party, which is why firms screen customers, counterparties, and payments against OFAC lists daily and before wires settle.
