International Services Group

Trading with the Enemy

The Office of Foreign Assets Control (“OFAC”), of the United States Department of the Treasury, administers a series of laws and regulations that impose economic sanctions against nations perceived to be hostile to United States’ foreign policy and national security objectives.  The U.S. Government has long utilized a variety of economic sanctions (including trade embargoes, blocked assets controls, and other commercial and financial restrictions) to further its foreign policy objectives. Today, economic sanctions remain a powerful tool in the diplomatic arsenal as the U.S. strives to: (1) successfully conduct the war and reconstruction of Iraq; (2) deny financial and logistical support to terrorist groups; and (3) stem the flow of sensitive products and technologies to proliferators of weapons of mass destruction. 

In order to advance the aforementioned goals, the U.S. government has imposed sanctions against various countries around the world, as well as against groups who threaten the security, economy, and safety of the U.S. (i.e., narcotics traffickers and terrorists).  In recent years, it has become evident that the U.S. Government considers economic sanctions to be powerful foreign policy tools, and consequently, the Government requires active participation and support from U.S. corporations, entities, and citizens.

Oversight and management of U.S. sanctions is entrusted to the Department of the Treasury.  As a branch of the Treasury, OFAC is responsible for promulgating, developing, and administering U.S. economic sanctions.  However, other regulatory agencies such as the Department of Commerce’s Bureau of Industry and Security, and the Department of Homeland Security, Customs and Border Protection, cooperate in ensuring compliance with U.S. economic sanctions.

OFAC Sanctions Consequences
OFAC acts under executive wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction.  Many of the sanctions are based on United Nations Resolutions and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.  Persons and entities that are subject to U.S. sanctions and regulations include the following:  (1) American citizens and permanent resident aliens, wherever they are located; (2) individuals and entities located within the territorial boundaries of the U.S. (including all branches of foreign corporate entities); and (3) corporations organized under U.S. law.  Willful violations of U.S. sanctions can lead to penalties providing for up to ten (10) years imprisonment and/or $100,000 fine for individuals and a fine of up to $1,000,000 for corporations.

It should be noted that foreign subsidiaries of U.S. firms are generally not subject to U.S. sanctions and regulations.  However, all U.S. parent corporations, citizens, and residents, wherever located, are strictly prohibited from approving or providing financial assistance, advice, consulting services, goods, or any other support to subsidiaries in connection with any export destined for a sanctioned country.  Accordingly, a U.S. corporation or citizen may not facilitate or assist foreign companies (e.g., as financiers, brokers or other intermediaries) with transactions in which they themselves could not directly participate.  Furthermore, U.S. employees of foreign corporations or subsidiaries (including board members) must ensure that they do not engage in transactions on behalf of their employer which would be prohibited if the company was American.

Beware of  Specially Designated Nationals
U.S. sanctions programs go far beyond the borders of target countries.  The U.S. Government has identified and listed thousands of “front” individuals and organizations, known as “Specially Designated Nationals” (SDN), to further the effectiveness of sanctions regimes.  SDNs are individuals and entities located anywhere in the world that are owned, controlled by, or acting on behalf of the government of a sanctioned country, designated international narcotics traffickers or terrorists.  SDNs include companies, banks, vessels, and individuals that, at first glance, may not appear to be related to the sanctions targets they actually represent.  Most SDNs have innocuous names and are located in countries with which the U.S. enjoys harmonious trade relations.  Nonetheless, all property and interests of a SDN that come into the possession of a U.S. corporation must be blocked.  Blocking or “freezing” property immediately imposes an across-the-board prohibition against transfers or transactions of any kind with regard to the property.  Examples of property could include, but are not limited to money, checks, drafts, debts, obligations, notes, letters of credit, warehouse receipts, bills of sale, evidences of title, negotiable instruments, trade acceptance, contracts, goods, wares, merchandise, chattels, and ships.

Individuals or organizations who act on behalf of the government of sanctioned nations anywhere in the world are considered to be SDNs.  A list of SDNs can be obtained from OFAC, and includes banks domiciled in Europe and Africa, as well as the names of individuals who are officers and directors of substantial international corporations.  However, this is only a partial list and a U.S. individual or organization engaging in an international transaction must take reasonable care to make certain that a foreign national is not acting on behalf of a sanctioned government.  U.S. individuals and organizations who transact business with a SDN may be subject to criminal and civil prosecution.

As of January 2005, the following countries and/or regions are subject to various sanctions regimes enforced and administered by the Office of Foreign Assets Control:  Balkans, Burma (Myanmar), Cuba, Iran, Iraq, Liberia, Libya, North Korea, Sierra Leone, Sudan, Syria, and Zimbabwe.  Due to the current international political climate and the U.S. government’s commitment to national security, any corporation conducting business with any overseas entity should take the necessary measures to ensure full and complete compliance with all United States sanction regimes. Failing to do so could expose corporations and/or their employees to severe civil and criminal penalties.

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Joseph J. Dehner Joe Dehner concentrates his practice on multinational business and securities disputes. He counsels a wide variety of companies, domestic and foreign, on issues confronting global business, including transnational investment, mergers and acquisitions, joint ventures, customs and trade issues, international business structures, distribution and agency agreements and the resolution of international disputes.