OFAC Economic Sanctions Programs
The United States, through the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), employs economic sanctions programs for a variety of purposes, including:
- Criminal Enforcement;
- Humanitarian; and
- National Security.
Initially, economic sanctions were adopted pursuant to the 1917 Trading with the Enemy Act (TWEA). Modern sanctions, since 1977, have largely fallen under the statutory authority of the International Emergency Economic Powers Act (IEEPA). The IEEPA authorizes the president to implement economic sanctions:
(T)o deal with any usual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the Unites States, if the President declares a national emergency with respect to such threat.
50 U.S.C. Section 1701(a).
Who is Regulated
Contrary to popular belief, OFAC economic sanctions programs do not regulate the targeted nations, persons, and organizations. Rather, all economic sanctions regulate United States persons. A United States person includes:
- U.S. citizens, wherever located;
- Permanent U.S. resident aliens (also known as lawful permanent residents or LPRs), wherever located;
- Entities organized under U.S. law (e.g., corporations);
- All entities and persons located in the United States; and
- Entities owned or controlled by U.S. citizens
Types of Economic Sanctions
Currently, there are numerous economic sanctions programs that target countries, persons, entities, and organizations. The traditional type of economic sanctions are country-based sanctions, which prohibit virtually all activity and transactions involving a certain country. The U.S. government has begun to use other kinds of sanctions known as list-based sanctions. List-based sanctions (also known as smart sanctions), target particular persons, entities, and organizations, rather than an entire nation or regime. In the last five or so years, the U.S. has been implementing a new kind of supplementary sanction, known as secondary sanctions, which target third country actors doing business with targeted regimes, persons, and organizations.
There are five major country-based sanctions programs currently in effect, broadly regulating nearly all transactions with:
Burma (Myanmar) used to be on this list, but since 2011 the U.S. government largely lifted the country-based sanctions because of significant democratic reforms taking place in Burma.
Country-based sanctions function by prohibiting certain defined transactions, and sometimes travel, within the country’s territory, with persons who ordinarily reside in within the country, and with the targeted governmental regime. Each sanctions programs has its own regulatory scheme, but they generally prohibit:
- Trade in goods,
- Trade in services,
- Trade in technology, and
- Financial transactions.
At times, the sanctions include prohibiting the vesting of property. This can make it problematic when a U.S. person inherits property from a family member living in one of the nations listed above.
The oldest of these country-based sanctions programs, those involving Cuba, are also the broadest. They prohibit transactions with Cuban individuals and non-governmental organizations even in third countries. U.S. persons are usually obligated to block the property of every Cuban national in their possession. In that respect, the Cuba sanctions program is unique among country-based sanctions. Furthermore, the newest of the country-based sanctions against Burma (now lifted) and North Korea were also the narrowest in scope.
Country based sanctions, though painted with a broad brush, also have general licenses which allow certain types of activity, like the provision of legal services, the exchange of information and informational materials, personal communications, humanitarian aid, and journalistic projects. Although many of the sanctions programs share similar exemptions, the general licenses differ across the various sanctions program.
Nonetheless, the use of country-based sanctions has decreased with the advent of more flexible list-based programs (described in further detail below). Although sanctions programs that target entire nations may be more punitive to governments that are considered enemies of the United States, the use of broad sanctions regulations have also harmed the civilian populations of such nations.
List-Based Sanctions (Smart Sanctions)
The use of list-based sanctions, or smart sanctions, has allowed the U.S. government to more precisely target persons and groups who pose a threat to national security, foreign policy, and economy of the United States. Indeed, list-based sanctions have been particularly helpful from a law enforcement perspective of OFAC sanctions.
OFAC prohibits transactions between U.S. persons and individuals, entities (e.g., corporations), and organizations on the Specially Designated Nationals and Blocked Persons List, or SDN list. The SDN list, which is amended on an “as-needed” basis, targets persons involved with:
- Narcotics trafficking;
- Weapons proliferation (particularly WMDs);
- Human rights abuses;
- Genocide; and
- Transnational Organized Crime.
The U.S. government has demonstrated a preference for list-based sanctions for two reasons. First, smart sanctions are able to target bad actors without the substantial collateral country based sanctions impose on a targeted nation’s population. Second, list-based sanctions can be effectively enforced through automated screening, which enables U.S. persons to check clients and businesses against the SDN list.
Because of their flexibility and precision, smart sanctions are now the standard for OFAC sanctions programs. List-based sanctions have become the norm for law enforcement-based economic sanctions programs. In addition, the U.S. enforces UN Security Council resolutions with list-based sanctions. These two traits are likely the reason why President Barack Obama chose to use list-based sanctions for the recent Ukraine-Related Sanctions Program.
Secondary sanctions are a relatively new kind of sanction that has been implemented frequently over the past five years, particularly relating to Iran. These kinds of sanctions supplement other sanctions programs by targeting non-U.S. persons (primarily foreign financial institutions and foreign sanctions evaders) who do business with individuals, countries, regimes, and organizations in Iran.
For example, if the volume of transactions between a foreign financial institution and Iran are significant enough, that foreign financial institution risks being designated pursuant to one of the legal authorities authorizing the use secondary sanctions. Once designated, secondary sanctions can prohibit U.S. persons from doing business with that foreign financial institutions or require U.S. banks to limit or restrict that foreign financial institution’s correspondent accounts in the United States.
As of the time this page was written, secondary sanctions have applied only to Iran, though that can and may change.
How an OFAC Lawyer Can Help
With numerous comprehensive, overlapping, and selective sanctions programs in existence, U.S. persons may inadvertently violate or confront an issue with OFAC sanctions. Moreover, persons who may want to undertake a project or investment that presently conflicts with OFAC sanctions, or may in the future form the basis for designation as a target (e.g., secondary sanctions), may want to consult with an OFAC attorney.
Prior to engaging in such activities, individuals and businesses should determine whether their proposed activities are in compliance with the law. An OFAC lawyer can help by explaining the current sanctions programs that are in place, and further explain what steps are necessary to ensure OFAC compliance moving forward.