All U.S. entities involved in international trade or financial transactions are required to comply with the Office of Foreign Assets Control (OFAC) regulations. No exceptions. Exporters and importers must comply. Small, medium and large companies must comply. Even individuals must comply. Failure to comply could result in penalties equal to twice the amount of each non-complying transaction.
To avoid the substantial penalties associated with violation of OFAC regulations, any organization doing business or making payments to any entity outside the U.S. should develop and follow an OFAC Compliance Plan.
If you don’t already have such a plan in place, some OFAC basics are outlined below to help you get started. For additional information, hyperlinks have been provided at the end of the article.
What is OFAC?
The Office of Foreign Assets Control (OFAC) is a division of the U.S. Department of the Treasury. Under the auspices of the Under Secretary of the Treasury for Terrorism and Financial Intelligence, the OFAC administers and enforces laws imposing economic and trade sanctions on foreign entities deemed to be a threat to U.S. national security, foreign policy, or the economy. Entities under U.S. sanctions include foreign governments, narcotics traffickers, and organizations involved in terrorism or the proliferation of weapons of mass destruction.
The OFAC maintains various sanction programs, including:
- Specially Designated National List (SDN list): Identifies individuals and organizations owned, controlled by or acting on behalf of sanctioned countries, along with terrorists and drug traffickers not associated with country sanctions. U.S. citizens, permanent residents and U.S. owned companies, regardless of location, are prohibited from doing any sort of business with any person or organization included on the SDN list. The list, which is constantly changed and updated, consists of thousands of sanctioned persons and entities. (See further information below.)
- Non-proliferation Sanctions: Blocks the property of persons engaged in proliferation activities and their support networks. No U.S. citizen, permanent resident alien, U.S. company (including their foreign branches) or any person or company living or located in the United States, is allowed to engage in any transaction with the entities on this list. Both the Department of Treasury and Department of State are authorized to designate additional proliferators per Executive Order.
- Counter-Terrorism Sanctions: Blocks property and prohibits transactions with persons who commit, threaten to commit or support terrorism.
- Counter-Narcotic Trafficking Sanctions: Blocks all property and interest subject to U.S. jurisdiction and prohibits any activities in support of international drug trafficking.
- Other OFAC Sanctions Programs: Comprehensive or selective sanctions using blocking of assets and trade restrictions to accomplish foreign policy and national security goals.
Compliance with OFAC
The only way to assure compliance with OFAC-administered sanctions is to develop a process for regularly checking customers/clients against the SDN list described above. This can be done by online searches.
Changes are made to the SDN List at random intervals, so it’s a good idea to have updates emailed to you or to a specifically designated person on your staff.
There are also a number of online tools, software, and web sites that can help you search the SDN list. We do not recommend any of these in particular, but, if you are interested, you can find them by doing a web search.
Penalties for Non-Compliance
OFAC violations have serious consequences. Persons not complying with OFAC-administered sanctions are liable for significant penalties, even if their action was inadvertent or uninformed. Penalties include:
- Civil penalties: $250,000 or twice the amount of each underlying transaction up to $1,075,000 per violation
- Criminal penalties: $50,000 to $10,000,000 fine; 10-30 years in prison
- Publication of penalty: OFAC publishes the names of companies that have been penalized
Sources of Information on OFAC
OFAC FAQs: Extensive resource providing answers to public questions regarding OFAC’s activities and sanction regulations
Sanctions Programs and Country Information: List of all current sanction programs with hyperlinks to specific information
OFAC Information for Industry Groups: Hyperlinks to OFAC PDF Industry brochures and FAQs
The information provided in this article was obtained primarily from the U.S. Department of the Treasury’s website — OFAC section. It is not, nor is it intended to be legal advice. It is imperative that any action you take be done on the advice of competent legal counsel, and not based solely upon this article.
This information is provided by ABC-Amega Inc. ABC-Amega is a respected receivable management firm headquartered in the United States with more than 90 years experience in commercial receivable management.
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