Sanctions have recently been a favorite tool of U.S. foreign policy makers seeking to financially coerce compliance with their national security and foreign policy goals. Accordingly, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) has a bevy of powers at its disposal to enforce these sanctions, including freezing assets, barring access to the U.S. financial system and imposing hefty fines for non-compliance. As OFAC tracks money through the world financial system, those who violate U.S. sanctions face significant repercussions.
Although sanctions have long been an element of U.S. foreign policy, they became more commonly applied after Iraq's invasion of Kuwait in 1991, and again in 1995 when they were used to target drug traffickers and those threatening disruption of the Middle East peace process. OFAC's role expanded further after the Sept. 11, 2001 attacks, when President George W. Bush issued an executive order authorizing the Treasury and State Department to target those who commit, threaten or support terrorism. Since then, sanctions have been applied to a variety of actors — foreign countries, regimes, terrorists, criminal organizations, human-rights abusers, etc. — to target their assets and isolate them from the global financial system.
All U.S. persons and entities are subject to OFAC's regulations and program requirements — regardless of where they are located — and are responsible for ensuring they do not engage in OFAC-prohibited transactions. To do so, U.S. parties must ensure they know the other parties involved and that they understand the true nature of a financing or payment relationship before carrying out a transaction. Although every transaction involving a U.S. person is subject to OFAC review, compliance is particularly important with respect to overseas and cross-border transactions.
Compliance with OFAC regulations is crucial from a business, financial and reputational-risk perspective. The agency's increased scrutiny of foreign banks in recent years has resulted in a number of high-priced settlements with those accused of OFAC violations. In general, however, OFAC is willing to forgo more punitive action against those who self-report violations and work with the agency to address existing issues and program vulnerabilities. OFAC compliance programs should therefore strive to foster a culture of self-reporting violations and emphasize ongoing monitoring and review to help internally assess the scope of possible violations.
An effective OFAC compliance program requires that employees understand its importance. WeComply's online course on OFAC Sanctions and Embargoes provides an overview of OFAC sanctions programs and their key provisions to help employers implement an efficient compliance program.