Compliance with OFAC: Overview, definition, and example
What is compliance with OFAC?
Compliance with the Office of Foreign Assets Control (OFAC) refers to adhering to the regulations set forth by OFAC, a division of the U.S. Department of the Treasury that administers and enforces economic and trade sanctions against targeted foreign countries and regimes, terrorists, international narcotics traffickers, and individuals or entities involved in activities like money laundering or other crimes. Companies and individuals must comply with OFAC regulations by ensuring they do not engage in prohibited transactions, such as doing business with sanctioned countries, entities, or individuals, and by adhering to U.S. law regarding blocked assets and financial transactions.
For example, a U.S.-based company that operates internationally must verify that it does not do business with any individuals or entities listed on OFAC's Specially Designated Nationals (SDN) list, which identifies sanctioned persons and groups.
Why is compliance with OFAC important?
Compliance with OFAC is important because violations of OFAC regulations can result in significant legal penalties, fines, and reputational damage. U.S. companies are required to ensure that their operations do not facilitate prohibited transactions or dealings with sanctioned individuals or countries. OFAC’s sanctions are designed to support U.S. foreign policy and national security objectives, and non-compliance can lead to enforcement actions, including financial penalties and restrictions on doing business. For businesses, ensuring compliance is essential for maintaining legal and regulatory standing, and it helps mitigate risks associated with international trade.
Understanding compliance with OFAC through an example
Let’s say a U.S. company that imports goods from several countries conducts a business transaction with a supplier based in a country currently under U.S. sanctions. The company must ensure that neither the supplier nor any of its affiliates are on the OFAC SDN list. If the supplier is listed on the SDN list, the company is prohibited from conducting the transaction under OFAC regulations, and it must immediately block any assets and report the transaction to OFAC. Failure to comply with these regulations could result in significant fines or penalties.
In another example, a financial institution that facilitates international wire transfers must screen each transaction to ensure that none of the individuals or entities involved are on the OFAC SDN list. If a customer is found to be linked to a sanctioned entity, the financial institution must block the transaction and report it to OFAC to remain in compliance.
An example of a compliance with OFAC clause
Here’s how a compliance with OFAC clause might appear in a contract or financial agreement:
“The Company represents and warrants that it is in full compliance with all applicable U.S. economic and trade sanctions regulations administered by the Office of Foreign Assets Control (OFAC). The Company agrees not to conduct business with any individual, entity, or country that is subject to OFAC sanctions, and to immediately report any suspected violations of these regulations.”
Conclusion
Compliance with OFAC regulations is crucial for businesses engaged in international trade, finance, or operations. Adhering to these regulations helps prevent unlawful transactions with sanctioned entities or individuals, supports U.S. foreign policy and national security interests, and avoids significant legal and financial penalties. Understanding OFAC’s requirements and ensuring proper screening and due diligence are key to maintaining compliance and reducing risk in cross-border operations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.