Global sanctions have shot up the scale of high risks to be prioritized by international companies and financial institutions, including real estate, corporate and trust service provider businesses. The battle against International terrorism and the prohibition of nuclear arms is top of the collective political agenda for most countries who are keen to seek to minimize the threats faced by the international community. The US authorities and courts actively enforce global sanctions imposed by OFAC both nationally and where there is extra territorial reach.
Many people mistakenly believe the sanctions imposed by the Office of Foreign Asset Control (‘OFAC’) apply to US persons only and USD apply only to USD transactions. OFAC sanctions have a much wider application in that:
It is an offence for any person (US or not) to conspire to cause a US person to contravene OFAC by, for example, stripping payee details from payment messages to prevent a US person identifying and blocking a payment involving a party under OFAC sanctions.
OFAC applies to all transactions in the US, including all USD payments, whoever makes them, whether or not they have a presence in the US. This means that all USD transactions involving a party under OFAC sanctions are liable to be blocked or frozen by US correspondent banks. All such blocked and frozen transactions are reported to the US authorities, which track the identity of the foreign financial institutions that do business with parties under OFAC sanctions.
OFAC applies to all US persons, including US-person employees of non-US businesses operating outside the US. The effect is that if a US-person employee processes a transaction in any currency in contravention of OFAC, they will commit a criminal offence.
OFAC applies to all non-US persons operating in the US. Where the US presence is through a subsidiary, US jurisdiction is unlikely to permeate to the parent, but where the US presence is in the form of a branch or agency, the US-based activities of the entire corporate body may become subject to US jurisdiction.
Try out your knowledge by testing yourself on the Cozen OFAC quiz.
Question 1: My client is a US company interested in a joint venture with an Iranian company. They set up a real estate company in Dubai trading in dollars. I start to help set up the deal. Have I committed an offence?
Question 2: My team are excited as they have a new client. The client is a US trust company and it is difficult to check out all of the shareholders, we complete the deal in accordance with the tight deadline. The due diligence comes back one month later and the major shareholder is Russian blocked person under OFAC. Have I committed an offence?
Question 3: Can I get a license from OFAC to transact or trade with an embargoed country?
(b) In some circumstances
Question 4: OFAC administers a number of comprehensive sanctions programs against:
(a) Burma (Myanmar), Cuba, Iran, North Korea, Sudan, and Syria
(b) Burma (Myanmar), Cuba, Iran, and Syria
(c) Burma (Myanmar), Cuba, Iran, Sudan, and Syria
Question 5: The fines for violations can be substantial. Do you know what range of fines/ imprisonment is applicable for willful violations? Criminal penalties include fines ranging from:
(a) $50,000 to $1,000,000 and imprisonment ranging from 5 to 10 years
(b) $500,000 to $10,000,000 and imprisonment ranging from 10 to 20 years
(c) $50,000 to $10,000,000 and imprisonment ranging from 10 to 30 years
Question 6: Can OFAC change its previously stated, non-published interpretation or opinion without first giving public notice?
(a) No – public notice will be given
(b) Yes – so due diligence is advised
Question 7: Does OFAC itself require that banks set up a certain type of compliance program?
Question 8: Is there a dollar limit on which transactions are subject to OFAC regulations?
(a) Minimum $1000
(b) Minimum $100
(c) No minimum or maximum limit
Question 9: Can I send money to a sanctioned country using a third-country company’s website? Can I buy gifts for someone in a sanctioned country over the internet? The websites tell me that it’s ok because they themselves are not sanctioned parties.
Question 10: The US Treasury Department has a long history of dealing with sanctions. Dating back prior to the War of 1812, Secretary of the Treasury Gallatin administered sanctions imposed against “a country” for the harassment of American sailors. What country?
Question 11: OFAC applies to all transactions in the US including all USD payments, whoever makes them, whether they have a presence in the US.
Question 12: A non-US person would not be caught by OFAC if he was outside the US but had caused a US person to breach OFAC so the payment could not be identified from a sanctioned payer.
Please see answers below.
Answers: Q1 – a (correct, highly likely committed assistance, circumvention offences), Q2 – a (correct, highly likely), Q3 – b (correct), Q4 – c (correct, but the US has since 2012 eased sanctions against Burma so they are not technically as comprehensive), Q5 – c (correct), Q6 – b (correct), Q7 – b (correct), Q8 – c (correct), Q9 – b (correct, you cannot do something indirectly that you would not be able to do directly), Q10 – c (correct), Q11 – a (correct, this means that all USD transactions involving a party under OFAC sanctions are liable to be blocked or frozen by US correspondent banks), Q12 – b (correct, it is an offence for a person, US or not, to conspire to cause a US person to contravene OFAC by e.g. stripping payee details from payment messages to prevent a US person identifying and blocking payment under OFAC).