Washington — President Obama has imposed sanctions in the last few months related to instability in Ukraine, human rights abuses in the Central African Republic and violence in South Sudan. With public interest in sanctions increasing, Office of Foreign Assets Control (OFAC) Director Adam Szubin answered questions about them in two recent Treasury Department blog posts, outlined below.
Who is responsible for implementing and enforcing sanctions at the Treasury Department?
The Treasury Department’s Office of Terrorism and Financial Intelligence (TFI) defends the U.S. and global financial systems against abuse and uses financial intelligence to combat security threats. Its Office of Foreign Assets Control (OFAC) enforces financial sanctions aimed at weapons procurement rings, narcotics and criminal cartels, terrorist groups and threatening regimes.
How are new sanctions programs created?
The president deploys and enforces financial sanctions in response to declared national emergencies. He can prohibit or restrict transactions and freeze property to confront the emergency. The person or entity sanctioned has been reported by a bank, company or individual, who retains the funds or relevant property but must maintain it according to strict OFAC regulations. The president signs an executive order to the Treasury Department on the sanctions, then OFAC issues regulations and guidance on them. It can also issue licenses to authorize otherwise prohibited transactions.
How does OFAC develop targets for sanctions?
When directed, OFAC builds cases against those contributing to the national emergency, using information from law enforcement and intelligence agencies, foreign governments, United Nations expert panels and other reliable sources. Treasury Department and Justice Department attorneys review the cases, and OFAC coordinates with a number of government agencies, including the State Department and the intelligence community. Once a case is complete, the OFAC director signs a “designation memorandum” designating the target(s) for sanctions. The action takes public effect when the target or targets are placed on OFAC’s List of Specially Designated Nationals (the SDN list).
How can someone know which individuals or entities are sanctioned?
OFAC’s SDN list, which currently numbers nearly 6,000, is frequently updated, with updates immediately disseminated via RSS feed and OFAC’s website and published in the Federal Register, the U.S. government’s official journal. All U.S. and other financial institutions that hold relevant assets must block them immediately and report them to OFAC within 10 days. OFAC has an online SDN list search tool that allows searches based on partial names and other limited information.
Do sanctions change behavior?
They can. Targeted financial sanctions apply concentrated pressure that isolates bad actors and makes it harder for them to continue their activities. In the legitimate international financial system, conscientious people and institutions will often shun them and their business. A narcotics trafficker once compared sanctions to la muerte civil, or “civil death.” Even those targets who operate outside regulated institutions can find it more difficult to travel across borders, receive wire transfers or procure needed materials.
“Time and time again, we have seen illicit actors struggle with the consequences of designations, and approach OFAC to forswear their prior activities and seek delisting,” Szubin said.
For more sophisticated companies or entire governments, their comparatively larger resources and greater access to the international financial system provide both advantages and liabilities. The more integrated a target is within the global economy, the more vulnerabilities it faces and the more it has to lose. A smart sanctions strategy engages many partners and focuses on pressure points. For governments, sanctions by themselves rarely determine policy, but sanctions coupled with intensive diplomacy can influence decisionmaking and prompt change.
What are the practical effects of sanctions?
Sanctions immediately prohibit U.S. individuals and entities from doing business with those named, wherever they are located. They freeze all assets within U.S. jurisdiction and assets in branches of U.S. financial institutions abroad. They prohibit any transaction by a foreign financial institution involving a designated entity or individual from being routed through a U.S. institution (which is the case for most dollar-denominated transactions). Even if a transaction passes for a millisecond through New York on its way to the final transaction point, the transfer is prohibited and it will be blocked.
If a Specially Designated National (SDN) owns 50 percent or more of an entity, the entity is also blocked, regardless of whether it is specifically named on the SDN List. Non-U.S. financial institutions around the world often will refuse to do business with SDNs, even if they are not legally required to do so, which reflects the reputational risk of doing business with someone on the SDN List and underscores the gravity and impact of U.S. sanctions.
How are sanctions enforced and how do you ensure compliance?
OFAC draws from publicly available information, law enforcement and intelligence sources, anonymous tips and self-disclosures to detect potential sanctions violations. Its civil enforcement tools include cautionary letters, monetary penalties and referral to law enforcement authorities.
How does OFAC communicate with the companies and individuals it regulates? How can I contact OFAC?
OFAC answers questions on sanctions compliance through a hotline and email, receiving over 100,000 calls and emails every year. It also holds regular conferences, panels and webcasts. It has Web pages and brochures for every sanctions program and publishes other guidance, such as its Frequently Asked Questions (FAQs). It has published hundreds of FAQs in the last two years.
How can individuals and entities be removed from the sanctions list?
A designated U.S. or foreign person may ask OFAC to reconsider their case or challenge their designation in a U.S. district court. Since the goal of sanctions is behavioral change, OFAC seeks to reward those who change behavior and motivate others to do so. Since 2012, OFAC has removed nearly 500 persons from its SDN list after they changed behavior.