Managing Compliance with U.S. Treasury Department OFAC Obligations: Even If Your Business Is Exclusively Outside the U.S.

Abstract

The U.S. has long used trade and economic sanctions as elements of its national security and foreign policy. These sanctions target individuals and countries that represent national security threats to the U.S. and affect a wide range of transactions, both within the U.S. and beyond borders. Understanding these regulations and the transactions they cover is critical to anyone participating in international business transactions. Indeed, if you engage in international business from outside the U.S., there is a good chance that your work will involve U.S. companies, subsidiaries of U.S. companies, U.S. banks, or U.S. citizens and permanent residents. Or you may yourself be a U.S. citizen, U.S. permanent resident or an employee of a U.S. subsidiary located outside the U.S. In these cases, some of your activities may be regulated by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). These regulations have a surprisingly broad reach, even covering certain activities that take place entirely outside the U.S. For the international business and legal representative, it is essential to understand the scope and coverage of the OFAC regulations and recognize how they can apply to transactions outside the U.S. Failure to comply with the regulations can result in personal liability as well as U.S. sanctions on your company or organization, limiting your ability to transact business in the U.S. and with U.S. companies. In general, the OFAC regulations serve to restrict certain types of trade with countries or entities of concern. OFAC has a variety of country-specific regulations. Two of the most well known are the Cuban Assets Control Regulations (31 C.F.R. Part 515) and the Iranian Transaction Regulations (31 C.F.R. Part 560). These regulations restrict trade with Cuba and Iran in many significant ways. Another well-known set of restrictions are those imposed on individuals or organizations of concern to the U.S., the so-called “Specially Designated Nationals” (SDNs). The names of these individuals and entities appear on OFAC’s SDNs list. The list includes organizations such as al-Qaeda, Hezbollah, and Hamas, as well as particular individuals, including known terrorists, supporters of weapons of mass destruction programs, and drug kingpins. This article highlights ten key aspects of the OFAC regulations for the international business representative operating predominantly outside the U.S. Our list focuses on the particular risks to non-U.S. persons, and U.S. persons operating outside the U.S.