Office of Foreign Assets Control: Overview, definition, and example
What is Office of Foreign Assets Control?
The Office of Foreign Assets Control (OFAC) is a division of the U.S. Department of the Treasury responsible for enforcing economic and trade sanctions against individuals, organizations, and countries that pose a threat to U.S. national security, foreign policy, or economic interests. In contracts, references to OFAC typically confirm that neither party is involved with sanctioned entities or activities.
Why is Office of Foreign Assets Control important?
OFAC compliance is a legal requirement for U.S. businesses. Violating OFAC sanctions—knowingly or unknowingly—can lead to serious civil and criminal penalties. Including an OFAC clause in a contract helps protect businesses by confirming that all parties are authorized to do business under U.S. law and are not on the Specially Designated Nationals (SDN) list or operating in prohibited countries.
Understanding Office of Foreign Assets Control through an example
A U.S.-based software company enters into a license agreement with a foreign distributor. The contract includes an OFAC clause stating that the distributor is not on any U.S. government sanctions lists and will not export the software to restricted regions. This protects the software company from inadvertently violating U.S. sanctions laws and provides grounds to terminate the agreement if the distributor breaches these terms.
Example of an Office of Foreign Assets Control clause
Here’s how an Office of Foreign Assets Control clause may look like in a contract:
Each party represents and warrants that it is not, and is not owned or controlled by, a person or entity that is on the Specially Designated Nationals and Blocked Persons List maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control. Each party further agrees not to engage in any transaction or activity that would cause the other party to be in violation of OFAC regulations.
Conclusion
OFAC clauses help ensure that contractual relationships comply with U.S. sanctions laws. For any business working across borders, this clause protects against legal exposure, reputational risk, and severe financial penalties. Always confirm whether your counterparty is subject to U.S. sanctions before signing.
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.