OFAC Sanctions
OFAC sanctions are economic and trade restrictions administered by the US Treasury Department's Office of Foreign Assets Control (OFAC) that prohibit virtually all transactions between US persons and specifically designated foreign governments, entities, and individuals, with violations subject to severe civil and criminal penalties.
The Office of Foreign Assets Control was established in 1950, tracing its legal roots to the Trading with the Enemy Act of 1917. OFAC administers over 30 distinct sanctions programs targeting countries, regimes, terrorists, narcotics traffickers, weapons proliferators, and other national security threats. The legal authority for each program derives from a combination of executive orders issued by the President under IEEPA (the International Emergency Economic Powers Act), the Trading with the Enemy Act, and specific acts of Congress such as the Comprehensive Iran Sanctions, Accountability, and Divestment Act.
The Specially Designated Nationals and Blocked Persons List (SDN List) is OFAC's primary enforcement tool, containing thousands of individuals, companies, vessels, and aircraft whose assets are blocked and with whom US persons are generally prohibited from transacting. US persons — including US citizens and permanent residents wherever located, US entities and their foreign branches, and anyone physically present in the United States — must screen counterparties against the SDN List and other OFAC lists before completing transactions. Financial institutions screen millions of transactions daily through automated OFAC compliance systems.
For financial institutions, OFAC compliance is a component of the overall BSA/AML compliance program and is examined by prudential regulators, FinCEN, and OFAC itself. A blocked transaction — one involving an SDN or blocked property — must be frozen immediately and reported to OFAC within 10 business days. A rejected transaction, involving a non-blocked but sanctioned country or program where the transaction is prohibited, must be declined and reported within 10 business days. The distinction matters because a blocked transaction results in the institution holding the funds in an interest-bearing account pending OFAC authorization, while a rejected transaction is simply refused.
Civil penalties for OFAC violations can reach the greater of $356,579 per violation (adjusted annually) or twice the transaction value, with each transaction counted as a separate violation. The largest settlements in OFAC history have involved global banks that processed thousands of prohibited transactions through their US correspondent accounts over extended periods, resulting in aggregate penalties in the hundreds of millions to billions of dollars. OFAC publishes enforcement actions publicly, including the compliance failures identified, providing guidance to the industry on expected practices.
OFAC also issues general and specific licenses that authorize certain otherwise prohibited transactions. General licenses are published regulations permitting classes of transactions — such as certain humanitarian transfers or remittances — without requiring individual approval. Specific licenses are issued case-by-case in response to applications from persons seeking authorization for a particular transaction. Applicants for specific licenses must document the nature of the transaction and demonstrate that it serves a legitimate purpose consistent with US policy objectives.