OFAC Sanctions

What Is OFAC?

OFAC stands for the Office of Foreign Assets Control, a division of the U.S. Department of the Treasury responsible for administering and enforcing economic and trade sanctions based on U.S. foreign policy and national security goals.

OFAC sanctions aim to:

  • Prevent the financing of terrorism and weapons proliferation,

  • Combat narcotics trafficking, human rights abuses, and corruption, and

  • Support U.S. foreign policy objectives, such as promoting democracy or deterring aggression.

In practice, OFAC restricts or prohibits financial and commercial transactions with specific countries, regimes, entities, and individuals that threaten U.S. or global stability.

Legal Framework and Authority

OFAC derives its powers primarily from:

  • The Trading with the Enemy Act (TWEA),

  • The International Emergency Economic Powers Act (IEEPA), and

  • Executive Orders issued by the President of the United States.

These laws allow the U.S. government to impose economic restrictions in response to threats to national security, foreign policy, or the economy.
Once a sanctions program is established, OFAC enforces it through regulations codified in Title 31 of the Code of Federal Regulations (CFR).

Types of OFAC Sanctions

OFAC implements a range of sanctions programs, including:

  • Comprehensive Country-Based Sanctions: These prohibit nearly all trade and financial dealings with targeted jurisdictions (e.g., North Korea, Iran, Syria).

  • List-Based or Targeted Sanctions: These apply to specific individuals, companies, vessels, or organizations—regardless of where they are located—designated on OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List.

  • Sectoral Sanctions: Focused measures that target specific sectors (e.g., energy, defense, finance) of a country’s economy, such as those applied to Russia.

  • Secondary Sanctions: Apply to non-U.S. persons or companies that knowingly conduct certain transactions with sanctioned parties, effectively extending U.S. sanctions beyond its borders.

The SDN List and Other Sanctions Lists

OFAC publishes several sanctions lists that institutions must monitor, including:

  • SDN List (Specially Designated Nationals and Blocked Persons) – individuals and entities whose assets are blocked and with whom U.S. persons are generally prohibited from dealing.

  • Non-SDN Lists – such as the SSI (Sectoral Sanctions Identifications) List, the FSE (Foreign Sanctions Evaders) List, and others related to specific programs.

How OFAC Sanctions Work

When an individual, entity, or jurisdiction is sanctioned:

  • All property and interests in property within U.S. jurisdiction are blocked (frozen).

  • No U.S. person — including citizens, permanent residents, U.S.-incorporated companies, or foreign branches of U.S. entities — may deal with them.

  • Transactions in U.S. dollars often fall under OFAC jurisdiction, even if neither party is in the U.S., since dollar transactions typically clear through U.S. correspondent banks.

This means that foreign banks and companies can also be exposed to OFAC enforcement if they process transactions that transit the U.S. financial system.

Compliance Responsibilities

Who must comply with OFAC sanctions?

  • All U.S. persons (citizens, residents, and companies),

  • Foreign subsidiaries or branches of U.S. entities, and

  • Non-U.S. institutions engaging in transactions that involve U.S. financial infrastructure or goods of U.S. origin.

All such entities must:

  • Screen customers, vendors, and transactions against OFAC lists,

  • Block or reject prohibited transactions, and

  • Report blocked property and rejections to OFAC within 10 business days.

A strong OFAC compliance program typically includes:

  • Automated sanctions screening systems,

  • Escalation and investigation procedures for potential matches,

  • Record-keeping and reporting processes, and

  • Employee training and internal audits.

Penalties and Enforcement

Violations of OFAC sanctions can lead to severe consequences:

  • Civil penalties up to hundreds of thousands of dollars per violation,

  • Criminal penalties including imprisonment,

  • Loss of banking licences or export privileges, and

  • Reputational damage and regulatory restrictions.

OFAC applies a “strict liability” standard — meaning a violation can occur even without intent or knowledge.
However, OFAC considers the strength of a company’s Sanctions Compliance Program (SCP) when determining penalties.

OFAC Licensing and Exemptions

Certain transactions are exempt or authorised through:

  • General Licenses – pre-approved categories of transactions (e.g., humanitarian aid, remittances, journalism).

  • Specific Licenses – granted by OFAC upon request, allowing limited activity that would otherwise be prohibited.

Applicants must submit detailed justifications, and licenses are issued only under strict oversight.

Global Reach and Coordination

OFAC sanctions have a global impact due to the dominance of the U.S. dollar and U.S. financial system.
Even non-U.S. institutions must often comply or “de-risk” to avoid exposure to secondary sanctions.

OFAC frequently coordinates with partners such as the European Union, United Kingdom, and United Nations to ensure alignment of international sanctions measures.

Why OFAC Sanctions Matter for Compliance Professionals

Understanding OFAC sanctions is essential for anyone working in banking, fintech, trade finance, crypto, or compliance.
A single oversight can lead to major regulatory action, as seen in high-profile enforcement cases involving global banks and corporations.

Useful Resources