Targeted Foreign Countries and Regimes
In an effort to support the foreign policy of the United States and to protect the nation’s trade and security interests, the Office of Foreign Assets Controls (OFAC) imposes economic and trade sanctions on foreign countries and regimes whose own interests are in conflict with those of the United States. OFAC-administered sanctions are imposed against targeted countries and regimes, as well as individuals and companies. When targeted, such persons are known as Specially Designated Nationals (SDNs). OFAC-targeted foreign countries and regimes are excluded from trade and business with the United States. However, this exclusion is effectuated by imposing restrictions against U.S. persons and persons subject to the jurisdiction of the United States.
U.S. citizens and permanent residents involved in international business are, under most conditions, prohibited from directly or indirectly engaging in trade, commerce, or other business dealings with targeted countries or SDNs. Only when U.S. persons comply with sanctions does an OFAC-targeted country or person effectively become “sanctioned.” Therefore, full and complete compliance with these restrictions by U.S. persons and businesses is an important component of achieving U.S. foreign policy and national security objectives. Accordingly, OFAC zealously and aggressively enforces these prohibitions to ensure compliance and deter future non-compliance.
Specially Designated Nationals (SDN) List
OFAC publishes a list of Specially Designated Nationals (SDNs), which includes human rights abusers, terrorists, narcotics traffickers, rough diamond traders, weapons of mass destruction proliferators, and others. The SDN List serves as notice to U.S. persons that they must avoid dealing with those particular persons. The list is continuously evolving, and those who conduct international business or provide services to foreign nationals must be aware of these changes.
Sometimes changes to the SDN List can be anticipated, such as with the escalation of the conflict in Syria or Ukraine. However, changes can be abrupt and unexpected. Indeed, most changes are abrupt because the element of surprise is designed to catch the target, and the target’s assets, off-guard. If a target doesn’t know he is about to be sanctioned, then he will be unable to move his assets to avoid having them blocked. However, getting caught off-guard with respect to compliance is legally impermissible, and every transgression is considered a violation. A U.S. person who is not in compliance with OFAC sanctions may soon discover that he or she is facing civil or criminal penalties, even when the transgression was harmless or occurred innocently.
For various reasons, the U.S. Department of the Treasury, through the Office of Foreign Assets Control, has placed economic and trade sanctions against or involving a number of foreign countries. These include the following:
- The Balkans
- The Ivory Coast
- The Democratic Republic of Congo
- North Korea
Anyone who wishes to engage in trade or commerce with these nations or SDNs in these countries must be in compliance with OFAC sanctions and have appropriate licensing, if applicable, to do business. Of particular concern are the sanctions against Iran, Syria, Sudan, and Cuba because they are comprehensive, country-based programs. Also of concern are the sanctions targeting Ukraine and Burma because both situations are evolving rapidly, leaving open many legal and regulatory questions.
Iran Sanctions Regime
United States economic sanctions against Iran are promulgated in the Iranian Transactions and Sanctions Regulations (ITSR) (31 C.F.R. Part 560) and the Iranian Assets Control Regulations (31 C.F.R. Part 535). These sanctions began in the 1980s as a result of Iran’s role in the hostage crisis of 1979, its support of international terrorists, as well as the country’s acts of aggression against “non-belligerent” shipping vessels in the Persian Gulf. Iran is also one of the world’s major culprits in the proliferation of weapons of mass destruction.
The Iranian sanctions regime is the most heavily enforced OFAC-administered sanctions program. OFAC’s enforcement and targeting efforts are primarily focused on Iran due to the extreme threat it poses to the U.S. economy and national security. However, the legal authorities forming the foundation of the Iran sanctions are complex and encompass multiple statutes, executive orders, regulations, rules, licenses, and policies. Making sense of these overlapping authorities makes compliance and licensing efforts for U.S. persons and businesses very difficult.
Iran sanctions broadly prohibit virtually all direct and indirect imports of goods or services from Iran. Iran sanctions also broadly prohibit virtually all direct and indirect exports of goods, services, or technology to Iran. Further, no United States person or entity may export items with knowledge or reason to know that the items are intended to be used to supply the Government of Iran or will later be sent or re-exported to Iran. Moreover, all transactions and facilitation of transactions involving Iran are also prohibited. The risk of non-compliance in the context of facilitation is especially great in the business world. Simply referring business to a foreign person who then proceeds to deal with Iran may constitute prohibited facilitation. Financial dealings, including investments, loans, or lines of credit, in Iran or with entities controlled by the Iranian government are also prohibited.
As comprehensive as the Iran sanctions are, there are many exceptions, exemptions, and licenses that authorize specific transactions with Iran. These include the exportation of food, medicine, and medical devices to Iran and certain transactions related to inheritances, family remittances, and other non-commercial activities. Determining whether an application needs to be filed with OFAC depends upon the specific facts of the proposed transaction.
Ukraine-related Sanctions (Russia Sanctions)
Ukraine-related sanctions are primarily imposed pursuant to the International Emergency Economic Powers Act (IEEPA) and several executive orders. These presidential national security powers were invoked as a result of the unrest in Ukraine. The President and the Department of the Treasury have stated on numerous occasions that the sanctions are designed to change Vladimir Putin’s decision-making calculus with respect to Russia’s incursion into Ukraine.
OFAC-administered sanctions against Ukraine are listed in 31 C.F.R. Part 589. These sanctions are of the blocking variety, prohibiting nearly all activities between U.S. persons and the persons or entities that appear on the SDN List with the “UKRAINE” tag. If a U.S. person is already in possession of property belonging to such persons, they would be required to block that property and report the blocking to OFAC within 10 days.
Conducting business with Ukraine or Russia is fraught with regulatory risk because the situation in the region appears to be deteriorating rapidly. As recently as June 20, 2014 OFAC added 7 more names to the SDN List related to the crisis in Ukraine. Anticipating who may be the next target of sanctions or foregoing business in the region altogether may be in the best interest of U.S. persons and businesses. Compliance through anticipation is key to protecting oneself.
Syrian Sanctions Regime
OFAC sanctions against Syria began in 2004 as a result of the nation’s support of terrorism, proliferation of weapons of mass destruction, continued occupation of Lebanon, and efforts to undermine global efforts to stabilize Iraq. Multiple presidential executive orders impose economic and trade sanctions against Syria. OFAC then promulgated regulations in 31 C.F.R. Part 542. Syrian sanctions prohibit the following:
- New investments in Syria;
- Direct or indirect exportation or supply of services to Syria;
- Importation of Syrian petroleum or petroleum products;
- Any financial transaction related to Syrian petroleum or petroleum products; and
- Any approval or facilitation by a United States person of a transaction between a foreign national and Syria that would have been illegal if performed by a citizen of the United States.
Civil penalties for violating U.S. economic sanctions against Syria can be high as $250,000 or twice the amount of the underlying transaction that violated the executive orders or sanctions regulations. Criminal penalties include a maximum of 20 years of imprisonment and a fine of up to $1 million.
The United States has imposed an embargo and economic sanctions against Cuba since the early 1960s under the Trading with the Enemy Act (TWEA). OFAC sanctions against Cuba are found in 31 C.F.R. Part 515, the Cuban Assets Control Regulations (CACR). Cuba-related travel transactions must be authorized under either a general or specific license. However, no goods of Cuban origin may be brought back or imported into the United States, with the exception of informational material. The regulations also limit the carrying or sending of money to Cuba through authorized remittance forwarders.
No person subject to United States jurisdiction may purchase Cuban cigars—even from a third-party country—and transactions involving property in which the Cuban government or a Cuban national has an interest are prohibited. Furthermore, nothing may be exported from the United States into Cuba or to a Cuban national, including exportations and re-exportations that are channeled through a third-party country. Nor are U.S. persons permitted to travel to Cuba through a third country without the proper authorizations.
Violating the Cuban Assets Control Regulations carries civil penalties of $65,000 per offense, and criminal penalties including a maximum of 10 years in prison and $1 million in corporate fines.