Office of Foreign Assets Control (OFAC)

The Office of Foreign Assets Control (OFAC) is a department of the Treasury that provides a framework for compliance with U.S. trade law. OFAC controls international sanctions and embargoes. Each entity that is subject to U.S. jurisdiction must maintain a policy for management commitment; risk assessment; internal controls; testing and auditing; and compliance training.

OFAC issues several methods for sanctioning foreign countries, organizations, or individuals. The first is a comprehensive embargo, where no trade or economic activity is permitted whatsoever. More limited sanction programs exist where trade restriction is only necessary for a particular region, industry, group, or individual.

The OFAC describes two methods for financial institutions to avoid sanctioned entities or individuals. The first is to process a sucpicious transaction, then report it. The second is to completely prevent a party from sending or receiving money.

OFAC frequently finds violations for trade with a sanctioned entity, specially designated nationals and blocked persons, or other familiar human mistakes that result in accidental business with an unauthorized organization. In particular, the OFAC monitors payment rails for transactions with a sanctioned country, specially designated national, or anyone on its consolidated sanctions list.

Violations can range in severity. Sanctions fall on a spectrum, from no action required to serious criminal referrals. For a minor infraction, an institution might receive a cautionary letter. More severe civil and criminal penalties follow particularly egregious or reckless statutory violations. Overall, OFAC has discretion to determine the characteristics of the violation and the penalties imposed for such a violation.