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Sanctions FAQ

Frequently-Asked Questions About OFAC Sanctions

Attorneys from LBKM advise clients, both U.S. and foreign, on a wide variety of sanctions-related issues ranging from OFAC compliance to delisting petitions to enforcement actions and criminal investigations. This page is derived from the OFAC FAQ index and is intended to provide users with a general overview of common OFAC and sanctions questions. Users are reminded that every case is unique and while this page is useful for providing basic information, it is not intended to serve as a substitute for focused conversations with experienced counsel under attorney-client privilege. Please contact the below attorneys for a consultation. 


What is OFAC?

OFAC is the Office of Foreign Assets Control of the United States Department of the Treasury.  It is tasked with the enforcement of U.S. economic sanctions targeting certain countries and groups of individuals, such as terrorists and narcotraffickers. Persons and entities subject to U.S. sanctions are said to be “designated” and are referred to as Specially Designated Nationals, or SDNs.

Who must comply with OFAC regulations?

All U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, and all U.S. incorporated entities and their foreign branches. In the cases of certain programs, foreign subsidiaries owned or controlled by U.S. companies also must comply. Certain programs, generally referred to as export control programs, also require foreign persons in possession of U.S.-origin goods to comply even if there is no U.S. person involved. Finally, both U.S. and non-U.S. persons can be charged civilly or criminally if they intentionally violate U.S. sanctions or help other people to do so. 

What are sanctions programs?

OFAC implements, administers, and enforces U.S. sanctions across many jurisdictions. Some of these sanctions are comprehensive in nature and broadly prohibit most transactions by U.S. persons involving the particular jurisdiction, which may include countries and certain geographic regions. The sanctions against Iran are an example of a comprehensive sanctions program.

Other sanctions programs impose targeted sanctions on specific persons in relation to a particular jurisdiction or activity such as individuals and entities on the list of Specially Designated Nationals (“SDN List”) who are “blocked” pursuant to OFAC regulations and authorities. For example, a person may be designated for participating in illicit activity such as narcotics trafficking or terrorism. With limited exceptions, entities owned 50% or more by persons on the SDN List are also blocked (see 50% Rule below).

Aside from the SDN List, OFAC publishes and maintains other sanctions lists that have different prohibitions associated with them. For example, OFAC’s Sectoral Sanctions Identification (SSI) List identifies persons operating in certain sectors that are subject to restrictions other than blocking. These restrictions may include prohibitions on specific activities, such as U.S. persons investing in Russian and Venezuelan sovereign debt. 

What is an “SDN” and what is the OFAC List?

OFAC publishes lists of individuals and entities that are subject to OFAC-administered sanctions. One such list is known as the List of Specially Designated Nationals and Blocked Persons List, or "SDN List," which is available on OFAC’s website. Property and interests in property of the individuals and entities on the SDN List that are within the United States or within the possession or control of U.S. persons are “blocked.” U.S. persons are generally prohibited from dealing with individuals and entities on the SDN List.

Is OFAC the only U.S. government department that has sanctions?

No. In the U.S. there are also sanctions programs administered by the Department of State (e.g. the Engel List for Central America) and the Commerce Department (e.g. export control laws, and lists such as the Denied Persons List and Entity List). In addition, the European Union, United Kingdom, United Nations and various nations have their own sets of sanctions. Most global banks screen against multiple lists. 

What is “Blocking?”

"Blocking" is the OFAC term used to refer to freezing assets or other property. Blocking immediately imposes an across-the-board prohibition against transfers or dealings of any kind regarding the property.

Certain OFAC programs require U.S. persons to block all property and interests in property of certain persons, known as "blocked persons."  Generally speaking, SDNs (see above) are blocked, meaning any of their property in the United States, or in the possession of custody of a U.S. financial institution, must be blocked, and may not be transferred, withdrawn, or otherwise dealt in without authorization from OFAC. For financial institutions, the blocked funds must be transferred to a segregated interest-bearing account. Once property has been blocked, only OFAC can unblock it. 

Title to the blocked property remains with the blocked person, but exercising the powers and privileges normally associated with ownership is prohibited without authorization from OFAC.

How does Blocking work?

All U.S. banks (and all major global banks) have screening filters that examine the parties to wire transfers in real time. The filters pause any wire transfer that contains a name included on the OFAC list or similar to a name on the OFAC list. These payments are then subject to review by bank compliance employees. If the wire appears to involve an SDN, and is being processed by a U.S. bank, then the payment will be frozen, or “blocked.” Blocked funds are placed in a segregated OFAC account and held by the bank, and the bank notifies OFAC. Such funds may only be released when authorized by OFAC. 

Do all OFAC sanctions involve Blocking?

No. Not all OFAC sanctions require blocking. Some sanctions programs simply prohibit U.S. persons from engaging in certain kinds of transactions, such as investing in or transacting in certain types of securities—like the prohibition on U.S. persons from trading in specific Venezuelan bonds. Other programs require U.S. banks to reject wire transfers—that is, to send them back to the originating party—but do not require blocking. 

What can I do if my funds were blocked?

Banks make mistakes. Sometimes a perceived match of a name to the OFAC list is erroneous, or a party to a transfer has the same name as an unrelated person on the OFAC list. Sometimes funds are blocked that should have been allowed pursuant to an exception to the sanctions. These errors occur every day. However, once the bank makes the determination to block funds, it cannot unblock them without authorization from OFAC, even if the bank admits it made a mistake. Calling the bank will not work—the bank legally cannot unblock funds on its own. The only solution lies with contacting OFAC and filing the appropriate paperwork to have the funds released. This is best accomplished with experienced OFAC counsel who understand the regulations, the exemptions, and how to communicate the necessary facts to OFAC. 

What are the penalties for violations?

Individuals and companies violating the regulations can be subject to substantial civil penalties and fines, and persons violating sanctions intentionally may be criminally prosecuted and sentenced to jail. The penalty amount depends on which sanctions program is violated and the conduct at issue. Violations for dealing with Cuba (under Trading with the Enemy Act) can be $90,000 per violation, violations under the Kingpin Act can be $1.5 million per violation, and violations under most sanction programs created under the International Emergency Economic Powers Act are $308,000 per violation. These penalties are assessed per violation, meaning that each discrete transfer or transaction is subject to the financial penalty. Hence, the penalties can add up to enormous amounts. In a series of criminal investigations in the late 2000s to early 2010s by OFAC, the U.S. Department of Justice, and the Manhattan District Attorney’s Office, financial penalties totaled billions of dollars:

More recently, the crypto platform Binance pleaded guilty to violating U.S. sanctions and agreed to a penalty of over $4 billion. 

These were criminal investigations of global financial institutions engaged in intentional sanctions-busting conduct. While most financial penalties are much smaller, they still can be severe. In addition, the public announcement of sanctions violations is always detrimental to a company’s reputation and can make it difficult to establish business relationships with U.S. entities. 

It is important to note that civil (as opposed to criminal) OFAC violations are subject to a strict liability standard, meaning it does not matter whether the business or individual knew or intended to violate sanctions. OFAC may adjust the penalty amount downward for an unknowing or unintentional violation, but the violation will stand. For example, in some cases, U.S. companies hire foreign agents or subcontractors to perform work on their behalf. If those subcontractors violate sanctions while working for the U.S. company, OFAC has imposed financial penalties on the U.S. companies who hired the subcontractors. Because of the strict liability standards, companies engaged in international business of any kind, or who send and receive international payments, should have an OFAC compliance function. By contrast, criminal cases require that the violating party acted “willfully,” meaning they knew they were violating sanctions and acted with knowledge and intent. 

What if I am not a U.S. person?

Non-U.S. persons acting outside of the United States are generally not bound by OFAC regulations, unless their actions bring them within sanctions’ reach. 

For example, in the bank fines highlighted above, the banks at issue were all foreign (non-U.S.) financial institutions. This meant that they were not directly subject to OFAC regulations. They could, if they wanted, provide banking services to individuals and countries on the OFAC list. However, these banks all sent U.S. dollar-denominated payments through correspondent accounts held at banks in the United States. This meant the payments cleared through intermediary banks in the United States, even though they began and ended offshore. The foreign banks hid the fact that the payments involved SDNs by removing—or stripping—the customer information from the SWIFT payment messages. Hence these cases were commonly referred to as “the stripping cases.” The banks violated sanctions because they caused the U.S. correspondent banks to unknowingly process wire payments on behalf of SDNs. Technically this was an OFAC violation because the non-U.S. banks caused the U.S. banks to export financial services to the SDNs. Similarly, Standard Chartered was fined $327 million in the same series of investigations because it provided trade finance facilities to SDNs underwritten by U.S. financial institutions, again by hiding the fact that the trade finance agreements involved SDNs. 

If a payment is in U.S. dollars or otherwise touches the United States or involves a “U.S. person” (which includes U.S. companies, U.S. banks, and foreign branches of both) it must be OFAC compliant. In addition, non-U.S. persons who help others evade U.S. sanctions are subject to civil penalties and possible criminal prosecution.

My business is not in the U.S., why do I need to think about OFAC compliance?

There are many reasons why foreign businesses need to think about OFAC (and other sanctions) compliance. First, if you are dealing with an SDN, there is always a risk that your payments may be blocked (if the payment goes through a foreign branch of a U.S. bank) or rejected by a non-U.S. bank that screens for OFAC as a matter of bank policy. This type of activity may cause even non-U.S. banks to “exit the relationship,” which is bank-speak for “shut down the account.” Also, if the payment involves an SDN and it does go through a U.S. bank (for example if it involves an SDN but does not name the SDN), then you will have violated U.S. sanctions and are subject to financial penalties under OFAC’s “strict liability” legal structure. 

The fact is that any type of significant international business needs to have awareness of sanctions, particularly if it transacts in U.S. dollars. An important factor in OFAC’s assessment of financial penalties is whether the company had an OFAC compliance program. If it did, and the violation was a one-off or mistake, OFAC will apply a significant discount to any financial penalty. n addition, foreign companies involved in the export of technological equipment from the U.S. must have an export control compliance function or they risk fines and being cut off from the U.S. market.

I might have violated OFAC regulations, what should I do?

OFAC encourages anyone who violated U.S. sanctions to report themselves to OFAC. There are good reasons to do so. As stated on OFAC’s website: “Voluntary self-disclosure to OFAC is considered a mitigating factor by OFAC in enforcement actions, and pursuant to OFAC’s Enforcement Guidelines, will result in a reduction in the base amount of any proposed civil penalty.” It is true: OFAC gives steep discounts on penalties where there is self-reporting. However, the decision to self-report is not one to be made lightly and should be taken only after consulting with experienced OFAC counsel.    

What can I do if I am sanctioned by OFAC?

Being sanctioned, or “designated,” effectively cuts off the sanctioned company or individual from the global banking system. Global financial institutions—banks, crypto platforms, investment funds—generally will not accept any clients who have been designated by OFAC and will not offer any services to them. The process of removal from the OFAC list is called “delisting,” and the request for delisting is called a delisting petition. Delisting is a long and complex process.  Delisting generally focuses on one of two arguments. First, that OFAC’s conclusion was incorrect and the individual or entity should never have been listed in the first place. This is a very difficult argument. Second, that the situation has changed and the conditions that were present when the designation was made have been removed or remediated.  For companies, this can sometimes be accomplished via a corporate re-organization that either removes the company from the ownership and control of a designated person, or that spins off certain subsidiaries to remove the sanction issue. A delisting petition requires deep investigation into the underlying reasons for the designation and, often, prolonged negotiation with OFAC.  

Many companies do not need to think about OFAC compliance. But companies engaged in international trade, crypto transactions, and any international financial services business (banking, insurance, finance, shipping) must consider exposure to U.S. and international sanctions. 

What is an OFAC License?

A license is an authorization from OFAC to engage in a transaction that otherwise would be prohibited. There are two types of licenses: general licenses and specific licenses.

A general license authorizes a particular type of transaction for a class of persons without the need to apply. For example, there is a general license allowing for certain payments relating to attorney fees to challenge OFAC action or for humanitarian aid. No application is necessary; the general license permits anyone to engage in the type of transaction contemplated by the license. 

A specific license allows a specific person to engage in a specific type of transaction that would otherwise be banned. The person seeking authority for the transactions must file a written application with OFAC.

As a general rule, if a payment type is not subject to a general license, then the person wishing to engage in the transaction must apply for a specific license, which requires an application to OFAC describing in detail the parties, amount, and purpose of the proposed transaction. 

What is the 50 Percent Rule?

OFAC sanctions generally prohibit U.S. persons from transacting with sanctioned entities or entities that are owned or controlled by sanctioned individuals or entities. If a sanctioned person owns a company outright, then that company is also treated as a “blocked” entity, meaning sanctions will apply. The 50 percent rule refers to the ownership threshold that must be reached for OFAC sanctions to apply. If a non-sanctioned entity is owned by a sanctioned person or entity, and their ownership interest exceeds 50 percent, then the owned entity is also considered “blocked” or sanctioned. In addition, if the entity is owned by two or more sanctioned individuals or entities, and their cumulative ownership totals more than 50 percent, then the owned entity is also considered “blocked” or sanctioned. (Note too that both direct and indirect ownership are considered.) Finally, OFAC also sounds a note of caution where the 50 percent threshold is not reached but the entity is nonetheless controlled by one or more sanctioned parties. In such cases, the entity is not automatically blocked pursuant to the 50% Rule, but OFAC may designate the entity based on such control. 


Attorneys from LBKM advise clients, both U.S. and foreign, on a wide variety of sanctions-related issues ranging from OFAC compliance to delisting petitions to enforcement actions and criminal investigations.