Treasury Notes

 Sanctions 101, Part II of II: Enforcement and Effects

By: Adam Szubin, Director of the Office of Foreign Assets Control
6/2/2014

In Part II of our two-day “Sanctions 101” series, below we have answered some common questions on the enforcement and effects of the Treasury Department’s sanctions program.  For Part I on how sanctions programs are developed and implemented, click here. 


Do sanctions change behavior?

They certainly can.  Targeted financial sanctions apply concentrated pressure on bad actors, isolating them and making it harder for them to continue their bad activities.  For those targets who seek to operate in the legitimate international financial system, sanctions can deliver a massive blow, as conscientious people and institutions will often shun them and their business.  One narcotics trafficker once compared sanctions to “la muerte civil,” or “civil death.”  Perhaps less intuitively, even those targets who do not regularly interact with banks or other regulated institutions can feel the impact of sanctions, as they 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. 

When it comes to sanctions against more sophisticated companies or entire governments, their comparatively larger resources and greater access to the international financial system provide them with both advantages and liabilities.  By one light, 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 will engage as many partners as possible and focus on the pressure points.  When it comes to the decisions of a government, a wide range of domestic and international factors will drive policy, and sanctions by themselves are rarely determinative.  But a concerted sanctions approach, coupled with intensive diplomacy, can put a heavy thumb on a government’s decision-making scale and make change more likely.  Sanctions played that role in Burma by providing incentives of potential relief and the deterrence of additional pressure, we aim to encourage the Burmese government further down the path of reform.  And, as the P5+1 seek to negotiate a resolution to international concerns over Iran’s nuclear program, the overriding goal for Iran is a return to the international community and relief from the sustained, multi-layered sanctions pressure that has encircled it in recent years.

 

What are the practical effects of sanctions? 

Sanctions are effective immediately and U.S. individuals and entities are prohibited from doing business with those named, wherever they are located around the globe.  Also, all assets within U.S. jurisdiction are frozen, including assets based in branches of U.S. financial institutions abroad.  In addition, any transaction carried out by a foreign financial institution involving a designated entity or individual is prohibited from being routed through a U.S. institution (which is the case for the vast majority of dollar-denominated transactions), and such transactions through the United States will be blocked.   In other words, even if a transaction passes for a millisecond through New York on its way to the final transaction point, such 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.  We also find that 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 – a step that reflects the reputational risk of doing business with someone on our SDN List and that underscores the gravity and sweeping impact of U.S. sanctions.

 

How are sanctions enforced and how do you ensure compliance?

The Office of Foreign Assets Control (OFAC) draws from publicly available information, law enforcement and intelligence community sources, anonymous tips, and self-disclosures to detect and respond to potential sanctions violations.  Once detected, the agency has at its disposal a range of civil enforcement tools to address those potential violations – including cautionary letters, civil monetary penalties, and referral to criminal law enforcement authorities (see OFAC’s Enforcement Guidelines, here).

 

How does OFAC communicate with the companies and individuals it regulates?  How can I contact OFAC?

OFAC has a hotline and an email address to answer questions regarding sanctions compliance; we receive over 100,000 calls and emails every year.  We also reach out regularly to a variety of industry groups and affected organizations, through conferences, panels, and webcasts.  While OFAC has limited resources, we seek to maximize our reach by creating separate web pages and brochures for every sanctions program and publishing other guidance, such as our Frequently Asked Questions.  In the last two years alone, we have published hundreds of FAQs, and I would recommend that those with specific questions on our programs start with all of these public resources

 

How can individuals and entities be removed from the sanctions list?

A designated person may seek delisting by seeking administrative reconsideration of their case before OFAC or challenging their designation in a U.S. district court.  Either avenue is available immediately, and both are open to U.S. and foreign persons.  Details on the delisting process are provided in OFAC’s regulations.

Sanctions are a means to an end; the ultimate goal of sanctions is behavioral change.  OFAC therefore seeks to respond to those who demonstrate a change in the behavior that resulted in sanctions, to reward their conduct and incentivize others to act similarly.  Since 2012, OFAC has removed nearly 500 persons from its SDN list upon a showing of behavioral change.

While much more could obviously be written, I hope that these answers can provide a starting point for those looking to learn more about this tool.  We at Treasury are committed to using sanctions aggressively but responsibly, to advance U.S. foreign policy goals and protect our country’s most vital interests. 


Adam Szubin is the Director of the Office of Foreign Assets Control at the United States Department of the Treasury. 

Posted in:  Terrorism and Financial Intelligence
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