Quick Guide to US Sanctions

Any business exploring engaging in international commerce eventually encounters economic sanctions. For those companies that do not understand them, sanctions can seem like an insurmountable obstacle to their success. But this need not be the case. With expertise in international trade and political risk, Lynx Global Intelligence is here to help your business navigate the world of economic sanctions.

Sometimes I hear that the President is involved with sanctions, but sometimes people talk about Congress as well. Who is actually responsible for sanctions?

This all depends on the sanctions program. Some sanctions programs are derived from Executive Orders, like the sanctions programs against Venezuela. Other programs, are authorized by legislation from Congress. Many countries, like Iran and Cuba, are subject to multiple sanctions programs which are a mixture of Executive Orders and laws.

Regardless of which branch of government creates the sanctions program, all financial sanctions are administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). OFAC works in concert with other government agencies to determine targets for sanctions and enforce them as required by the Executive Order or law. OFAC also administers the Specially Designated Nationals (SDN) List, which contains the names of all people and entities which have been targeted for sanctions by the U.S. government.

Are sanctions just directed at countries, or can they be levied against individuals?

Individuals, governments, economic sectors, and companies can all be the target of a U.S. sanctions program. While it is common for new media to speak of sanctions being directed at countries (i.e. “sanctions against North Korea”), and the SDN List does contain individuals who were targeted because they belong to a country’s government, like President Nicolas Maduro of Venezuela. But depending on the sanctions program, individuals and companies which are not affiliated with governments can also be put on the list. This includes money launders, criminal organizations, narcotraffickers, state-owned companies, and terrorists. This is why entities like Russia’s Rosneft, and individuals like Sinaloa Cartel boss Joaquin “El Chapo” Guzman are also on the SDN List.

So as long I stay away from obvious dangers like drug kingpins, terrorists, and rouge nations, I don’t have to worry about sanctions, right?

Not necessarily. Staying away from these characters will certainly help, but it will not guarantee that your business will never encounter sanctions. Most sanctions programs allow OFAC to target not just the primary bad guy, but their associates as well. The degree to which these people can be targeted is spelled out in the law or Executive Order which authorizes the sanctions. For example, the Foreign Narcotics Kingpin Act allows OFAC to designate not just the leaders of a drug-trafficking organization, but also individuals and companies that supporting these organizations or acting on their behalf. This means that people and organizations can still be sanctioned even if they are not direct participants in illegal activities.

So how do I know whether someone is sanctioned or not?

Fortunately, OFAC provides an online search tool that will allow anyone to type in an individual’s name and see if they are on the SDN List. Lynx Global Intelligence also checks individuals and companies against the SDN List as part of the due diligence service we provide to our clients. Being unaware that you are working with designated individual or entity is no excuse, and will not stop OFAC from penalizing you for this behavior.

I hear what you’re saying about sanctions being serious, but I have a prospective business deal that might involve sanctioned parties. How bad can it possibly be?

The exact punishment for engaging in prohibited activities can vary, and will be spelled out by the legislation or Executive Order which authorizes the sanctions. Sufficed to say, federal prosecution is a long an expensive process, and is not a threat to be taken lightly.

Besides the financials costs associated with defending your company through to a trial or a settlement, there are other costs to this poor choice.

One of the most significant costs is the damage this will due to your company’s reputation. Being known as a sanctions violator can cause irreparable damage to a company’s public standing. A quick glance at OFAC’s press room reveals that they will not hesitate to widely publicize the fact that they caught and a penalized a company for breaking the sanctions. If your or your company is caught doing this, any basic search of the Internet will now reveal that you engaged in blatantly illegal activities, which can only harm your reputation. Once that information is publicly available, any future business partners will now have good reason to think twice about working with you. One of the services that LGI provides to its clients is an assessment of reputational risk, which gauges the impact of working with another company with an unsavory reputation might impact our client. If LGI were to see that a company had engaged in sanctions-busting, we would not recommend that our partners forge a business relationship with them.

Also, keep in mind that the sanctioned individual or entity you are working with was designated for a reason. The sanctions only came about because they were doing something that the U.S. Government felt to be immoral, dangerous, or a threat to national security. This should give you pause, and force you to think long and hard about whether this is the best place to invest time, money, and resources. Lynx Global Intelligence can help you make that assessment, and recommend alternatives which could prove to be more fruitful.

Okay, but are there any legal ways to engaged with sanctioned entities?

To some extent, there is. OFAC does allow limited commerce with sanctioned individuals and entities, in the form of licenses. There are two types of licenses: general and specific. General licenses are for categories of people engaged in certain types of transactions which have been determined by OFAC not to violate the sanctions. In this case, there is no need to apply for a license. Specific licenses on the other hand are granted to individuals and companies for a given transaction. If you require a specific license, then you must submit an application to OFAC detailing who you are transacting with and what it is you want to do with them.

There’s a lot of moving parts here. Is there someone who can help me navigate all this?

Absolutely. Lynx Global Intelligence is happy to help your business engage with potential international partners in a diverse array of places. We can advise you about potential security challenges, including sanctions, and help you determine a path forward. We fully understand that international markets can be challenging, and are here to guide you.