Everything you need to know about OFAC Sanctions

What is OFAC?OFAC or Office of Foreign Assets Control is a department of US Treasury that regulates both economic and trade sanctions against countries or individuals who are directly involved or promote terrorism or narcotics related activities. OFAC Sanctions generally regulates United States persons in conducting  or  dealing  with any commerce or trade related activities with the sanctioned countries as listed, which may change from time to time.United States Persons are:U.S. Citizens Permanent U.S. residents / LPRs i.e. Lawful permanent residentsCompanies incorporated under U.S. Law or in U.S.All companies / persons located in the U.S.Companies or entities which are owned /controlled by the U.S. Citizens.Why do Indian Companies or Indian Banks abide by OFAC Sanctions?The obvious question is why are Indian companies regulated from trading with the sanctioned countries or why Indian banks restrict such transactions? Many countries tacitly abide by the sanctions imposed by the U.S, mainly for the below reasons:US dollar is the most traded or accepted currency globally for the international trade, cross-border payments or other related transactions.Today’s global banking system and transactions involve Correspondent banks, which could be based out of US or associated with the U.S. banks.Cross-border payments could directly or indirectly involve U.S. banks, hence third countries companies or banks, often refuse to conduct transactions with companies / countries on the US sanctions list on account of settlement related issues.Economic and diplomatic ties with the U.S.  There are various types of economic sanctions, few of them are stated below:Country Based SanctionsList Based Sanctions/Smart SanctionsSecondary SanctionsCountry Based Sanctions: Below listed countries currently face country-based sanctions, which means any trade or economic transactions involving these countries are restricted.IranNorth Korea.SudanCentral African RepublicSyria andCubaBurma, also known as Myanmar, was earlier a part of the above list. However, in late 2016, sanctions against the Asian country have been ended. Although US sanctions against Burma have been lifted, there are still a few mild restrictions that companies dealing with Burma should be wary of.List Based Sanctions:Also known as ‘smart sanctions’, these are specific to persons, companies, and entities and not the whole country. List-based sanctions allow the government to accurately aim at individuals and entities that are a menace to the country’s security, foreign policy, and economy of the U.S.OFAC forbids any transactions between U.S. persons and individuals, companies on the SDN list i.e. Specially Designated Nationals and Blocked Persons list. Smart-sanctions were used for the Ukraine-based sanctions as they are more precise and don’t end complete ties with a particular country.Secondary Sanctions:These are currently being applied only to non-US persons, entities or organizations that have significant volumes of trade with Iran and can be used against other countries in future when the need arises.
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Everything you need to know about OFAC Sanctions

Kranthi Tilak Reddy
Blog
02nd Nov, 2017
Everything you need to know about OFAC Sanctions

What is OFAC?

OFAC or Office of Foreign Assets Control is a department of US Treasury that regulates both economic and trade sanctions against countries or individuals who are directly involved or promote terrorism or narcotics related activities.

OFAC Sanctions generally regulates United States persons in conducting  or  dealing  with any commerce or trade related activities with the sanctioned countries as listed, which may change from time to time.

United States Persons are:

  • U.S. Citizens

  • Permanent U.S. residents / LPRs i.e. Lawful permanent residents

  • Companies incorporated under U.S. Law or in U.S.

  • All companies / persons located in the U.S.

  • Companies or entities which are owned /controlled by the U.S. Citizens.

Why do Indian Companies or Indian Banks abide by OFAC Sanctions?

The obvious question is why are Indian companies regulated from trading with the sanctioned countries or why Indian banks restrict such transactions?

Many countries tacitly abide by the sanctions imposed by the U.S, mainly for the below reasons:

  1. US dollar is the most traded or accepted currency globally for the international trade, cross-border payments or other related transactions.

  2. Today’s global banking system and transactions involve Correspondent banks, which could be based out of US or associated with the U.S. banks.

  3. Cross-border payments could directly or indirectly involve U.S. banks, hence third countries companies or banks, often refuse to conduct transactions with companies / countries on the US sanctions list on account of settlement related issues.

  4. Economic and diplomatic ties with the U.S.  

There are various types of economic sanctions, few of them are stated below:

  1. Country Based Sanctions

  2. List Based Sanctions/Smart Sanctions

  3. Secondary Sanctions

Country Based Sanctions:

Below listed countries currently face country-based sanctions, which means any trade or economic transactions involving these countries are restricted.

Burma, also known as Myanmar, was earlier a part of the above list. However, in late 2016, sanctions against the Asian country have been ended. Although US sanctions against Burma have been lifted, there are still a few mild restrictions that companies dealing with Burma should be wary of.

List Based Sanctions:

Also known as ‘smart sanctions’, these are specific to persons, companies, and entities and not the whole country. List-based sanctions allow the government to accurately aim at individuals and entities that are a menace to the country’s security, foreign policy, and economy of the U.S.

OFAC forbids any transactions between U.S. persons and individuals, companies on the SDN list i.e. Specially Designated Nationals and Blocked Persons list. Smart-sanctions were used for the Ukraine-based sanctions as they are more precise and don’t end complete ties with a particular country.

Secondary Sanctions:

These are currently being applied only to non-US persons, entities or organizations that have significant volumes of trade with Iran and can be used against other countries in future when the need arises.

Kranthi
Blog Author

Kranthi Tilak Reddy is one of the co founders and COO of White Matter Advisory services P Ltd. He is an Engineering graduate from SRM University and has done his Masters in finance.Being a true go-getter and an optimist to the core he has grown up the ranks in banking industry at an astonishing rate, his last stint being Associate Director, Business Clients -South with Standard Chartered Bank. With over 10 years of association with SME businesses and clients he certainly brings rich vein of expertise to the WMA table but more importantly his alluring passion towards great and customer service” the foundation on which he asserts WMA has been built.

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