Sanctions

Torres Trade Law provides guidance regarding the most recent regulatory updates administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury.

We advise clients regarding the scope of the sanctions and their extraterritoriality, potential exceptions, and filing of licenses. We have assisted companies with internal audits and reviews, internal investigations, voluntary self-disclosures, and developing internal compliance programs.

We can also provide advice on the following:

• Transaction counseling
• Preparation of legal opinions
• Formulation of sanctions compliance programs
• Structuring transactions
• Compliance audits
• Licensing
• Training
• Negotiation of OFAC enforcement penalties

Our EU network advices on licensing under the EU dual-use, military export control regimes, and economic sanctions.

Economic Sanctions FAQs

1. What are U.S. economic sanctions?

U.S. economic sanctions are measures imposed by the U.S. government to restrict or prohibit trade, financial transactions, and other economic activities with specific countries, entities, or individuals. Economic sanctions are typically utilized to promote U.S. foreign policy or national security objectives. They also serve as an important tool to influence the behavior of foreign governments, combat terrorism, prevent weapons proliferation, or respond to human rights violations.

2. What legal authorities authorize the imposition of sanctions?

The primary authority for implementation of economic sanctions is the International Emergency Economic Powers Act (“IEEPA”) which authorizes the President to implement economic measures to combat threats to U.S. national security and foreign policy objectives. Other key sanctions authorities include the Trading with the Enemies Act (“TWEA”), which provides the President with the authority to restrict trade with an adverse nation during times of conflict, and the United Nations Participation Act (“UNPA”) that enables the President to impose economic sanctions on certain countries and foreign parties when mandated by the UN. The President may impose sanctions via issuance of Executive Orders that are carried out and enforced by OFAC. OFAC also promulgates sanctions regulations to assist with implementation of sanctions programs which can be found in 31 C.F.R. Parts 500-599.

3. What government agency is responsible for enforcement of U.S. economic sanctions?

The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) is the primary agency responsible for enforcing U.S. economic sanctions. OFAC administers and enforces sanctions programs by investigating violations, issuing penalties, and maintaining lists such as the Specially Designated Nationals (“SDN”) List, which identifies individuals, entities, and organizations subject to asset freezes or blocks from dealings with U.S. parties. In addition to OFAC, the U.S. Department of State Division for Counter Threat Finance and Sanctions is also responsible for developing and advancing certain sanctions programs related to key national security and foreign policy objectives including the promotion of human rights, combat of corruption and elections interference, and protection of U.S. cybersecurity. Other agencies like the Department of Commerce’s Bureau of Industry and Security (“BIS”) and the Department of Justice (“DOJ”) may also be engaged in cases involving sanctions violations, particularly in cases involving criminal violations or violations of U.S. export controls in addition to economic sanctions.

4. What are common forms of economic sanctions?

Some sanctions programs may be comprehensive, targeting entire countries and restricting virtually all dealings with actors within a subject country. However, other sanctions programs may be more targeted, focusing instead on restricting trade or other dealings with specific individuals, companies, or economic sectors in a target country.

5. What countries are subject to comprehensive sanctions programs?

Currently, the U.S. maintains comprehensive sanctions programs, or trade embargoes, with respect to Cuba, Iran, North Korea, Syria, and the Crimea, Donetsk, and Luhansk regions of Ukraine. Dealings with parties in these countries, including involvement in transactions that indirectly benefit parties within these countries are generally prohibited under U.S. law.

6. What are sectoral sanctions?

Sectoral sanctions are a type of sanctions program targeting specific economic sectors within a subject country. Sectoral sanctions may consist of restrictions on financial dealings or trade in relation to a country’s finance, energy, defense, technology, or other targeted economic sectors. Sectoral sanctions may also restrict the import of specific goods from a target country or provision of certain items or services to a target country in order to restrict access to economic resources and government revenue (see our related article here). For example, under Russia-related sanctions, U.S. persons are prohibited from providing luxury goods (e.g., certain clothing, jewelry, cosmetics, etc.) to parties within Russia and are also prohibited from engaging in certain transactions with major Russian banks, energy companies, and defense firms listed under OFAC’s Sectoral Sanctions Identifications (“SSI”) List.

7. Who must comply with U.S. economic sanctions?

U.S. persons, wherever located, foreign persons that are within the United States, and U.S. entities and their foreign branches must comply with U.S. economic sanctions. Foreign persons may also be required to comply with U.S. sanctions when a subject transaction or activity involves a U.S. nexus (i.e., U.S. currency, U.S. bank, or U.S.-origin goods). Additionally, under some programs, foreign parties may themselves be designated on OFAC’s sanctions lists if they engage with or materially assist sanctioned persons or entities, even when the foreign party’s activities do not involve a U.S. nexus.

8. What is a U.S. nexus, and why does it matter?

Transactions involving a U.S. nexus may implicate U.S. sanctions prohibitions, even where the transaction is conducted on foreign soil by foreign parties. A U.S. nexus refers to the involvement of U.S. persons, U.S. currency, or U.S.-origin goods in a subject transaction that triggers U.S. jurisdiction. For example, foreign actors engaged in the sale of non-U.S. origin goods in Russia may implicate U.S. sanctions prohibitions if the transaction is routed through a U.S. bank or conducted using U.S. dollars. Thus, foreign parties should remain aware and monitor for triggers of U.S. sanctions jurisdiction to prevent inadvertent violations of U.S. sanctions laws.

9. How do I know if a particular entity or person is subject to U.S. economic sanctions?

OFAC maintains several sanctions lists that identify individuals and entities subject to targeted blocking sanctions, asset freezes, or other trade restrictions. It is a best practice for parties that transact with foreign persons and entities to screen these involved parties against U.S. sanctions lists to prevent inadvertent dealings with sanctioned parties. Sanctions screening can be conducted via the Consolidated Screening List administered by the U.S. International Trade Administration. However, it should be noted that some sanctioned parties seek to conceal their identities via use of false names, addresses, or front companies to evade U.S. sanctions restrictions. Parties involved in high-risk sectors or that engage in business in high-risk countries may need to conduct additional due diligence reviews outside of sanctions screening to mitigate potential evasion risks and ensure compliance with U.S. sanctions laws.

10. What are the consequences of violating U.S. economic sanctions.

A party engaged in violations of U.S. economic sanctions may become subject to an investigation and enforcement action by OFAC, or in certain egregious cases, have their case referred to the U.S. Department of Justice for prosecution. For most sanctions programs, a violation can lead to the assessment of a civil monetary penalty of up to $377,700. Criminal violations can generally lead to a fine of up to $1,000,000 and a prison sentence of up to 20 years. In addition, violating parties risk having any active licenses authorizing otherwise prohibited activities modified or revoked entirely by OFAC.

11. What should you do if you discover a potential violation of U.S. economic sanctions?

A party that discovers a potential violation of U.S. economic sanctions should take immediate action to stop the violating conduct and prevent the potential violation from continuing further. It is good practice to consult internal or external legal counsel once a potential violation is discovered to receive guidance on next steps and how to properly remediate violative conduct. In some cases, a party may choose to voluntarily disclose potential sanctions violations to OFAC. Voluntarily disclosing a violation to OFAC can lead to significantly reduced fines (typically 50% of the subject transaction value) and reduce the risk and severity of a potential enforcement action. For more information on voluntary self-disclosures see our VSD Handbook.