OFAC Lawyer Arkady Bukh: U.S. Economic Sanctions 101

What is OFAC?

OFAC is an acronym for the United States Office of Foreign Assets Control, a government agency that is part of the US Department of Treasury. This particular office has been given oversight regarding the enforcement and regulation of economic sanctions, trade embargoes, and other transaction prohibitions enacted upon foreign entities, individuals, and countries in the interest of protecting American trade and national security.

Put more simply, it is the job of OFAC to ensure that national security and foreign policy goals are carried out in regards to economic sanctions.

As an investor, business owner, or company looking to participate in foreign and international trade, there is a potential that you may do business with more nefarious groups, such as terrorist cells and otherwise, without even realizing it. In this case, OFAC may step in to ensure that American trade and national security are protected.

International economics are difficult enough to wrangle for investors and those looking to expand the reaches of their businesses throughout the world, but dealing with economic sanctions due to your line of work can multiply the difficulty of establishing that international trade. OFAC must abide by a very specific set of rules and regulations, and oftentimes these can be difficult for anyone but OFAC agents and legal professionals to decode and follow, leading to misunderstandings and situations where your business may find itself in hot water due to illegal commerce.

It’s important to note that while the Office of Foreign Assets Control is quite stringent when it comes to following the guidelines and procedures set in place to protect American assets and national security, their rulings and processes are fluid and ever-changing based upon the political climate and leaders in office.

For businesses located in countries that are currently under economic sanctions, only experts and OFAC officials could possibly predict what the situation will look like one year from today, but things may indeed look very different.

That is why it is so important to have an attorney who deals in international and OFAC law–to protect your business interests in the event of a run-in with sanctions and prohibited transactions you may not have even been aware of.

Who is Subject to OFAC Screenings?

For anyone looking to hire or do business with those in other countries with a US-based business, it is important to note that there is a list of individuals for whom it would be illegal for you to do business with under current economic sanctions.

An OFAC screening can be performed at any time should the United States government catch wind that businesses and individuals are currently working with known enemies, terrorists, or those working against the American state interests. Not abiding by these government sanctions can have immediate consequences, which is why it is essential to ensure you obtain legal counsel before any issues arise.

While it may sound like a monumental task to ensure you do not hire anyone or use the services of Specially Designated Nationals (SDNs) and Blocked Persons as specified under OFAC’s authority, it is actually a quite simple process. Tools like the US Department of Treasury website make it quite easy to search through and find exactly who you are looking for, but other issues may not be as cut and dry.

It’s always important to err on the side of caution and consult with the best OFAC lawyers when it comes to foreign nationals and unknown persons–the consequences of not doing so can impact your reputation and business prospects irreparably, as ignorance is irrelevant when it comes to following US law.

What Transactions are Subject to OFAC Regulation?

One of the main purposes of the Office of Foreign Asset Control is to prevent and enforce penalties against those who commit transactions that are prohibited by United States sanction programs. “Prohibited transactions” are defined by the Department of Treasury as

… trade or financial transactions and other dealings in which U.S. persons may not engage unless authorized by OFAC or expressly exempted by statute.

Those operating or running businesses in the United States are subject to OFAC regulations, and any international transaction may come under scrutiny should the office find evidence of trade with sanctioned countries, nationals, or known terrorist groups.

It’s also important to note that while OFAC may penalize those who knowingly work against American trade interests, they also retain the authority to approve exemptions to any and all statutes that they abide by on a case-by-case basis.

Types of OFAC Sanctions

The Office of Foreign Assets Control oversees, administrates, and enforces a number of economic sanctions programs for the United States, which include a variety of different types of tariffs, trade bans, and embargoes that are levied against countries that do not cooperate with the interests of the American people and our economy.

While there are different types of economic sanctions depending upon what country or foreign power you are working with, a list of the most common types of OFAC sanctions you will run into is below.

• Tariffs – Tariffs are simply taxes on imports and exports that the United States levies upon countries that may threaten trade or other national security interests. Currently, the US is imposing a 25% tariff on a number of different types of Chinese imports under the Trump administration, as well as other tariffs that target Canadian and Mexican steel and aluminum industries.
• Trade Barriers – Trade barriers can come in a variety of forms, and in theory, “free trade” should mean that there are no barriers. However, barriers in the form of import quotas, licenses, and internal subsidies for certain industries can restrict the ability of certain types of businesses to operate outside of the United States. Adding in time-consuming and profit-cutting trade barriers are often meant to encourage domestic stimulus for the industries it targets.
• Embargoes – A full embargo against a country means that there is to be no trade between the countries. Take, for example, the United States’ long-standing embargo against Cuba, which disallowed any type of trade between the two countries due to a long-standing feud stemming back to the Cuban Missile Crisis. This embargo was not just a diplomatic insult–it was a way of punishing Cuba for its support of a Communist regime.

Depending upon the individuals, entities, and businesses that perform prohibited transactions, those who are citizens of the United States must comply by the rules and regulations that were set up by the Executive as well as legislating bodies with regards to foreign trade. OFAC sanctions programs may include stipulations depending upon industry or individuals.

A talented and well-informed OFAC law firm may assist you in understanding these issues, which may include:

• Aiding in Gaining Export and Import Licensure
• Avoiding Prohibited Commercial Transactions
• Protecting Your Personal Transactions
• Voluntary Disclosure of Prohibited Transactions
• Unfreezing Your Property and Assets
• Compliance With OFAC Regulations and Other US Offices
• Removal of a Mistaken/Wrong Name from the SDN and Blocked Persons List

Unfreezing and Unblocking Frozen Property and Assets

It can be almost impossible to keep up with US and international law enforcement news, even when it concerns your industry. When you find assets, property, and finances frozen due to OFAC oversight, however, you may wish you’d kept up with your research. Because OFAC is charged with enforcing economic sanctions against foreign enemies, terrorists, and other people who threaten American trade, you may find yourself without access to important funds, property, and other assets at a crucial time when you are suspected of engaging in trade with an SDN.

Blocking assets is one way that OFAC, as well as its governing bodies, can ensure that it has enough time and evidence when they have decided to prosecute.

If you are a business owner who has recently had their assets frozen due to an OFAC investigation, contacting a qualified OFAC lawyer or legal professional may help you to regain your frozen assets more quickly and ensure that they are not taken as evidence of further crimes.

Typically, frozen or blocked assets will be held by a financial institution, shipping company, or any other transactional entity due to suspicion of interaction with someone from the SDN and Blocked Persons List. These intermediary entities have an obligation to report these transactions to OFAC as well as to the domestic authorities, leaving the assets in question in limbo until a decision is made regarding the legality of the suspicious transaction.

For most investors and business owners who are short on time, frozen and blocked financial assets and property are not an area to navigate without an experienced legal team at your back.

This type of law and enforcement relies on fine details, and as such requires the expertise of lawyers who have dealt with OFAC regulations and had success finding exemptions in the past.

What is the 50% Rule?

In order to make a determination as to whether or not a company is blocked due to partial ownership or involvement with those on the SDN and Blocked Persons List, the Office of Foreign Assets Control uses what is referred to as the “50% rule”.

To ensure that US persons and business owners have no involvement whatsoever with those on the SDN list and those who fall under the purview of sanctions programs, OFAC may block any company who is owned at 50% by a forbidden entity.

For example, say Samuel is on the SDN list–a company named Company 1 with which he has purchased a 50% stake in may be considered blocked, even if it does not appear directly on the list. Further, should Company 1 purchase more than 50% stake in Company 2, Company 2 may be considered blocked as well.

Sometimes these companies are referred to as being “shadow blocked” because they will not appear on the SDN list but US persons cannot have any involvement in transacting with them or else they risk charges from OFAC. These shadow blocked entities are not often obvious after a quick search of the SDN list, but professionals in the OFAC world may be able to help you to understand why your assets have been blocked with a thorough research process.

Rules like this one are not uncommon when it comes to the endless OFAC regulations and exemptions. In order to wade through this complex puzzle of regulations, it’s extremely beneficial to have a team of talented OFAC attorneys behind you.

Due to the ever-changing nature of international law, it can be a challenge to keep up with this type of law on your own, and hiring a team of legal professionals with the expertise to defend you will pay off when it comes to expanding your business across international borders.

OFAC Licensing

In the United States, every industry comes under the purview of different regulations and penalties to ensure that all trade is in compliance with OFAC’s sanctions programs. In some industries, it’s possible to gain import and export licensing that, while often costly, can remove some trade barriers that make it more difficult for your international business and investments to thrive.

When you are involved in international importing and exporting products, complying with OFAC regulations and sanctions is essential to ensure that you will not be charged in the future for unintentionally breaking the law or not gaining the right type of licensing for the industry you are in. But staying ahead of the latest changes in regulatory compliance and sanctions laws can be challenging even for someone in the know, which is why it is crucial to have an attorney to turn to when it comes to questions of compliance law.

There are a few regulations that apply to importers and exporters specifically under OFAC’s oversight, and these have led to problems in the past including:

• Importers who have goods or finances blocked may not receive the products they are counting on from an important shipment
• Exporters whose property is blocked and who will be fined due to working with a blocked country or individual from the SDN list
• Importers facing charges due to accepting shipments carried on vessels chartered by blocked or sanctioned countries
• Trade restrictions for certain countries, like Cuba and Iran, for importers and exporters

It’s not always obvious, due to the intricate nature of shipping large amounts of products or goods, whether you have indeed broken OFAC’s rules when you are accepting or sending out shipments that may or may not have passed through the hands of a banned regime or a corporation owned by a blocked entity.

Doing your research or working with a top-rated OFAC lawyer can save you thousands of dollars in fines and legal fees in the long run when it comes to getting the proper approval and licensing for your industry.

OFAC Enforcement Actions

The Office of Foreign Assets Control not only regulates and can make exemptions for sanctions and blocked persons, but they can also pass enforcement actions against individuals and entities that break the laws that they oversee. Typically enforcement actions will involve the office attempting to gain payment in the form of fines and penalties from the company in question.

For a real-life example, we can look at the most recent OFAC action that happened on October 20th, 2020. The office put forth an enforcement action for Berkshire Hathaway for engaging in prohibited transactions with Iran, forcing the company to pay $4 million to settle with OFAC and disclose its ties to Iran However, because the company self-disclosed the conduct (which was performed through a subsidiary), the penalties were not as large as they may have otherwise been had they refused to cooperate with the OFAC investigation.

When OFAC comes for your company or investments, contacting legal experts is the first step you should take to ensure that your endeavors will continue long into the future. Protecting your assets and businesses will be at the forefront of your mind, but avoiding penalties will also be more possible with the help of expert OFAC attorneys.

Contact our OFAC law firm today to jumpstart your case to the forefront of our client list.

OFAC SDN List Removal

Need to get removed from the SDN and Blocked Persons List? There are several reasons why a company or individual may need help being removed from this list–a case of mistaken identity is often the case, but other issues like old or outdated information may persist on the SDN list before they are brought to the attention of those who have the authority to take them off of the list.

In order to begin the process of OFAC SDN list removal, contacting the administration of the office to file for reconsideration is the very first step.

It may not be easy to get through to the office, but filing an administrative reconsideration is essential to ensuring that your designation can be changed and you will have a chance at being removed from the blocked persons list. This reconsideration must include the reasons why the OFAC designation is incorrect or has no real basis. If the designation is currently substantiated, evidence of steps taken to correct the issues presented and to remove any threats to economic national security.

To help get your SDN List Removal application started, call Bukh Global today to speak to an expert OFAC attorney who has dealt with cases like this before.

No matter what you are facing, our team can help to remediate the situation and get you on the path towards compliance with US law.

OFAC Compliance

Ensuring that you comply with every rule that OFAC sets out for American business can be a trying task, but those OFAC lawyers with expertise in sanctions, import and export licensing, and other complex international trade issues can lead the way when it comes to OFAC compliance. Regulatory statutes and laws can be difficult for even the most intelligent of investors, so passing off that onerous task to the legal professionals who have expertise in this field is a wise move.

Oftentimes, issues of OFAC compliance that can sprout up include:

• Limiting the exposure of US employees from those in sanctioned areas
• Being in a related industry or sector to a sanctioned area
• Having a large volume of international business with intense growth
• Are exposed to high-risk contacts or end-users

In order to avoid paying large penalties and having to bankrupt your business, get ahead of OFAC compliance issues by starting a compliance program. With the help of our legal team, establishing an OFAC compliance program can save you millions of dollars of fines, fees, and other penalties in the long run.

Contact Bukh Global today to begin setting up your compliance readiness checklist and protect your assets for years to come, no matter what the political climate looks like.

What Countries Are Blocked by OFAC

OFAC not only has regulations against working with certain individuals, like international criminals and terrorists, but also oversees sanctions against a few different countries. Included below is a list of several key countries that are blocked by OFAC, along with the general type of sanction program that they are a part of.

• Cuba – Sanctions began in 1958 as an embargo on arms sales, and in 1962 this was extended to most exports, only excepting humanitarian aid and food. Today, the embargo remains but is not enforced as heavily as when it was established–US allies, for instance, may do business with Cuba, but American businesses are prohibited by sanctions.
• Iran – US persons are completely prohibited from doing business with or maintaining accounts with those in Iran, due to ongoing tensions between the United States and the Iranian government.
• Libya – Due to the ongoing conflicts in Libya, first in 2011 and then updated in 2016, a full out ban was put upon anyone contributing to the destabilization of this country, whether that meant working to coerce or disrupt financial institutions or energy operations. US persons are not allowed to participate in the Libyan economy if their aim is to further destabilize its fragile state.
• North Korea – Long known for its violent dictatorship, all US persons are prohibited from transacting with North Korean industry in any way.
• Russia/Ukraine – This program began in 2014 as a response to the crisis in the Ukraine and the subsequent Russian response, but was amended in 2019 by the Trump Administration to reflect a more open bond between the US and Russia.

Other countries that have appeared on the list of sanctions programs include Burma, Sudan, Syria, Venezuela, and Zimbabwe.

For more specific information on sanctions, take a look at the OFAC directory of common questions, or contact one of our OFAC attorneys to start consulting on your unique case.