Morrison & Foerster
OFAC Sanctions
Training
Sanctions Overview
Two Main Types of U.S. Sanctions Programs
The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers over 30 different sanctions programs against targeted:
Comprehensive
Comprehensive
Freeze the assets of all or part of the target jurisdiction’s government (including government-controlled entities)
Prohibit virtually all U.S. person transactions with the target jurisdiction, including exports, transshipments, financial services, etc.
These sanctions cover: Cuba, Iran, North Korea, Syria, Crimea, and the separatist regions of Ukraine (Donetsk and Luhansk)
List-Based
Freeze the assets of persons OFAC has placed on its “blacklist” (known as the “Specially Designated Nationals and Blocked Persons List” or “SDN List”)
Prohibit U.S. person / U.S. nexus transactions with these blocked persons
These prohibitions also cover entities owned 50 percent or more, directly or indirectly, by one or more SDNs
List-Based
All “U.S. persons” or transactions with a “U.S. nexus”
Applicable to:
Possible penalties for noncompliance:
Civil penalties
of up to the greater of approximately $330,497 or twice the value of the transaction
Criminal penalties
are also applicable for willful violations
Strict liability standard
no demonstration of intent/knowledge is required
Primary
“Secondary” “Extraterritorial”
Sanctions
Scope of U.S. Sanctions
Entities
Any U.S. legal entity (including branches located abroad)
For Cuba and Iran, foreign subsidiaries of U.S. companies
Applicable to “U.S. Persons”
Use of/transiting through the U.S. financial system
Use of U.S. IT infrastructure (e.g., U.S. servers)
U.S.-origin goods or services
U.S. persons
Processing payments
to or through the U.S.
financial system
Engaging in U.S. dollar transactions cleared
in the U.S.
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OFAC Prohibitions
Applicable when there is a U.S. nexus to a transaction, such as when the transaction involves:
For North Korea, foreign subsidiaries of U.S. financial institutions
Any entity – even branches or subsidiaries of foreign companies – physically located in the United States
Governments/Regimes
Individuals
Vessels/Entities
Activities
Transactions
Each sanctions program has its own regulatory regime, encompassing a mixture of available types of sanctions
Sanctions can change at any time by:
Statute
Executive Order
Regulation
Addition of your company’s name onto the OFAC SDN List
Being cut off from the U.S. economy and U.S. financial system
U.S. NEXUS:
USE OF THE U.S. FINANCIAL SYSTEM
Applicable to:
Transactions outside the United States with
no U.S. nexus.
Available only for those sanctions programs where the U.S. government believes the national security and foreign policy issues are of paramount importance
Currently applicable to the Iran, North Korea, Ukraine/Russia, Syria, Cyber and Global Terrorism sanctions programs, and most recently, Hong Kong
Possible penalties for noncompliance:
Individuals
Any U.S. citizen anywhere in the world
Any U.S. permanent resident (green card holder) anywhere in the world
Any individual, regardless of nationality, located in the United States
Individuals
Entities
The Russia and Venezuela sanctions programs contain elements of both types
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“The 50
Percent Rule”
Any entity owned 50 percent or more, directly or indirectly, by one or more SDNs is subject to the same prohibitions as its owners, even if its name does not appear on the SDN or other OFAC sanctions lists.
U.S. and third-country persons (individuals and entities) are expected to use reasonable due diligence and know your customer (“KYC”) procedures to identify entities covered by the 50 Percent Rule and freeze their assets/not transact with them.
SDN
50%
25%
25%
SDN Owner
SDN Owner
Non-SDN
Owner
55%
15%
30%
Non-SDN
55%
15%
30%
Non-SDN
50%
25%
25%
SDN
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