1. Overview of U.S. Sanctions Laws
Scott Nance
Compliance Consulting

2. Overview Organization of US sanctions laws
Administration of US sanctions
Targets and types of US sanctions
Categories of sanctions
SDNs
Individual countries
Activities

3. Sources of US Sanctions Laws
Constitution
Statutes (laws passed by Congress)
Executive Orders (orders by the President, authorized by statute)
Regulations (rules issued by an administrative agency under either a statute or an EO)
Licenses (general and specific) (permission to perform an action)
Guidance (no legal standing)
Past decisions (no legal standing)

4. The Constitution
The US Constitution is the supreme law of the United States
The Constitution assigns to Congress the power to “regulate commerce with foreign nations” (Art. 1, Sec. 8)
The Constitution also sets due process requirements for legal liability and crimes

5. Sanctions Statutes
Statutes are laws passed by Congress and signed by the President
The two main statutes concerning sanctions are
Trading with the Enemy Act (Cuba) (50 USC Appendix)
International Emergency Economic Powers Act (all others) (50 USC 1701)
These statutes give the President broad powers, including the power to
Prohibit transactions
Order the freezing of assets held by individuals and entities
There are also a number of statutes imposing sanctions against specific countries, including Iran and Sudan

6. IEEPA and TWEA
The International Economic Emergency Powers Act (IEEPA) and the Trading with the Enemy Act provide the authority for the President to act on sanctions
IEEPA is the underlying source of authority for all sanctions programs except Cuba
Cuba sanctions are based on TWEA
To invoke IEEPA, the President must declare an emergency
The emergency must originate from events outside the United States
Under IEEPA and TWEA, the President can
Restrict or prohibit transactions
Freeze property “subject to the jurisdiction of the United States”
IEEPA includes exemptions for
Personal communications
Humanitarian donations
Informational materials
Expenses related to travel
TWEA does not contain these exemptions, but all except travel are reflected in the Cuban sanctions regulations
Penalties
Civil: fines up to $250,000 or twice the value of the transaction
Criminal: fine up to $1 million and up to 20 years in prison

7. Executive Orders
Executive Orders (“EOs”) are issued by the President to address specific situations
EOs can only be issued if authorized by a statute, but statutes confer broad powers
EOs can be used to
Prohibit various types of transactions, including imports, exports, and investments
Order the freezing of assets

8. Regulations OFAC issues regulations which
Implement and interpret statutes and Executive Orders
Create procedures
Regulations are contained in the Code of Federal Regulations, and address
Individual countries
Subject areas (terrorism, non-proliferation)
Common components of sanctions regulations
Prohibitions
Definitions
Interpretations
Licenses
Reporting
Penalties
Procedures
Export control regulations are also relevant to sanctions
Commerce Department: Export Administration Regulations (EAR)
State Department: International Trade in Arms Regulations (ITAR)
Regulations have the force of law, and must be obeyed by both the public and the agencies themselves

9. Licenses
A license is legal permission to engage in conduct that would otherwise be prohibited
Licenses may be issued by
OFAC: for transactions involving countries subject to broad US sanctions
Department of Commerce: for other US exports (EAR dual-use goods)
State Department: Munitions List (ITAR)
Licenses may be general or specific
General licenses authorize general types of conduct in advance
There is no need to apply for a general license
Specific licenses authorize specific transactions
You must apply for and receive a specific license before undertaking the transaction
Specific licenses may authorize certain types of transactions over a fixed period of time
Under either type of license, the conduct must fall precisely within that allowed by the license
Transactions ordinarily incident to a licensed transaction are authorized by the license as well
This generally includes making or receiving payment

10. Guidance
OFAC provides a range of guidance to assist parties in understanding and applying US sanctions
FAQs
Guidance for industries
Guidance on specific topics
Guidance has no legal status, but reflects OFAC’s “official” interpretation and application of the law
OFAC will often announce policy changes through the issuance of new guidance

11. Previous Cases
Unlike in other areas of American law, past decisions by OFAC have no legal status
OFAC decides each case on its merits, and can change its mind at any time
OFAC does not issue formal opinions
It communicates actions through “Release of OFAC Enforcement Information” on its web site
OFAC “decisions” are usual quite general
OFAC settlement agreements and Department of Justice Deferred Prosecution Agreements may provide more detail on the facts, but generally include little legal analysis
OFAC FAQs may also reflect previous decisions
OFAC does try to be consistent
Settlement agreements with other government agencies, including the Department of Justice and the District Attorney of New York, may provide more detail about individual cases, including the facts and the legal reasoning of the US government

12. Administration of US Sanctions Laws
US sanctions laws are primarily administered by the Office of Foreign Assets Control (OFAC)
OFAC is an agency within the Treasury Department
Although it is located in Treasury, OFAC considers itself to be primarily a national security rather than a regulator agency
OFAC administers the main sanctions programs (Cuba, Iran, Sudan, North Korea) and has some responsibility for Syria
The U.S. State Department is responsible for
Administering US secondary sanctions against Iran
Approving exports of arms and other military equipment
The Commerce Department is responsible for licensing all other exports
The Commerce Department is also primarily responsible for administering US sanctions against Syria

13. Administration (Continued)
The Justice Department may also investigate and prosecute sanctions violations
In investigations of US banks, the Federal Reserve and the Office of the Comptroller of the Currency may also be involved
Increasingly, the New York Department of Financial Services also investigates and prosecutes sanctions violations that involve banks located in New York
As almost all US dollar clearing is done through New York, NYDFS has been involved in a number of sanctions investigations of non-US banks

14. Functions of OFAC
General administration of US economic sanctions, including promulgation of regulations
OFAC also makes policy within the limits of law
Investigation of sanctions violations
Designation of individuals as Specially Designated Nationals
Issuance of licenses
Providing advice to the public

15. Targets of US Sanctions
US sanctions may apply to
Designated individuals and entities (SDNs)
Entire countries
Certain types of activities and products
US sanctions target
Terrorism
Narcotics trafficking
Weapons proliferation
Suppression of democracy
Violations of human rights
Blood diamonds
For individuals and entities, the OFAC “tag” indicates the program under which the party is sanctioned (Iran, counterterrorism, etc.)
A full list of the OFAC tags can be found on the OFAC web site

16. Types of US Sanctions Prohibition of transactions Freezing of assets
Denial of access to US financial system, including prohibition on foreign exchange transactions
Denial of various other types of benefits, such as Export-Import Bank financing
Travel bans on foreign persons

17. Direct US Sanctions All US persons must comply with all US sanctions
US persons include
US citizens and permanent residents
All persons physically present in the United States, regardless of citizenship
Entities incorporated in the United States
Foreign branches of US entities
Subsidiaries of US entities incorporated in foreign countries are not generally subject to US sanctions
However, US sanctions do apply to foreign subsidiaries of US companies regarding transactions involving Cuba and Iran

18. Facilitation
US persons may not facilitate transactions by non-US persons where it would be illegal for a US person to engage in the transaction directly
Facilitation is explicitly included as an offense in some sets of sanctions regulations (such as Sudan) but not others (Cuba)
Nonetheless, OFAC will apply the concept of facilitation to all sanctioned countries
Facilitation includes
Approving a transaction
Providing financing or guarantees
Brokering
Referring an opportunity to someone else
Doing anything else to make a transaction possible
The definition of facilitation is very broad
Basically, facilitation means whatever OFAC says it means

19. Examples of Facilitation
A US insurance company brokered reinsurance coverage for European companies in connection with a construction project in Iran
A US bank conducted two wire transfers on behalf of a client where the underlying transaction involved an Iranian element
A US company coordinated and facilitated the sale of fuel to Iran and Sudan by non-US subsidiaries

20. Sanctions and US Dollars
US sanctions do not apply directly to US dollars
However, practically all financial transactions denominated in US dollars are cleared through banks in the United States
Because of this, such transactions are subject to US sanctions laws
Therefore, it is safest to assume that any transaction denominated in US dollars will involve a US person and must therefore comply with US sanctions

21. Direct Sanctions and Non-US Persons
US sanctions generally do not apply to non-US persons (except in limited circumstances involving secondary sanctions)
However, OFAC has penalized non-US persons for violating US sanctions
Causing the export of financial services from the United States (by routing transactions involving sanctioned countries through US banks, but stripping identifying information from payment messages)
Exporting or re-exporting US origin goods or technology to sanctioned countries

22. Indirect US Sanctions
Indirect US sanctions (also called secondary sanctions) allow (but do not require) the United States to punish conduct by foreign individuals and entities
Application of indirect US sanctions is at the discretion of
State Department (with respect to certain types of transactions involving Iran)
OFAC (with respect to transactions involving SDNs)
Indirect sanctions do not apply to US persons
US persons are of course subject to direct sanctions, which prohibit the same conduct punishable by indirect sanctions

23. SDNs
OFAC and/or the State Department may designate individuals and entities as Specially Designated Persons (SDNs)
SDNs are designated under specific “programs” of sanctions
Counter-terrorism
Narcotics trafficking
Non-proliferation
Government officials in various countries
Certain private individuals in Russia
Which agency can designate SDNs depends upon the program involved

24. Transactions with SDNs
US persons may not conduct any transactions with SDNs without a license
US persons must freeze any assets belonging to SDNs that come under the control of the US person
Entities that are owned 50% or more by an SDN, or by more than one SDN in aggregate, are subject to the designation by operation of law
Substantial (though less than 50%) ownership of an entity or control of an entity by SDNs make it more likely that the entity will be designated in the future
While US law does not prohibit non-US persons from dealing with SDNs, OFAC may designate as SDNs persons who “provide support” to SDNs
While OFAC has not generally designated banks that simply hold accounts for SDNs, this is a possibility

25. Cuba: Relevant Laws Relevant statutes Relevant regulation
Trading With the Enemy Act (TWEA), 50 U.S.C. App. §§ 5, 16
Antiterrorism and Effective Death Penalty Act of 1996, 8 U.S.C. § 1189
Cuban Democracy Act of 1992 (CDA), 22 U.S.C. §§
Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996, 22 U.S.C. §§
Relevant regulation
31 CFR Part Cuban Assets Control Regulations
Applicable general licenses
None

26. Cuba The United States has imposed a full trade embargo against Cuba
In general, “persons subject to US jurisdiction” cannot be involved in any transaction involving property belonging to a Cuban individual or entity (31 CFR )
“Persons subject to US jurisdiction” include the foreign subsidiaries of US companies, as well as US persons in general (31 CFR )
Because the sanctions apply to property belonging to Cuban persons or entities, this ban extends to foreign subsidiaries of Cuban companies or foreign companies owned by Cubans
Exceptions to the embargo include
Informational materials (31 CFR )
Telecommunications (31 CFR )
Food and medicine licensed by the Commerce Department (there are special provisions for such licenses) (
Persons subject to US jurisdiction are required to freeze any property in which a Cuban has an interest
All Cuban nationals are essentially treated as SDNs
There is an exception for Cuban nationals who have established permanent residence outside of Cuba, but only with respect to property that was not blocked as of 28 January 2011
The ability of US nationals to travel to Cuba is restricted (31 CFR )

27. Blocking Statutes
The US embargo against Cuba also applies to foreign subsidiaries of US companies
The US has enforced this prohibition, but against the US parent rather than the foreign subsidiary
In response, Canada and the EU, among others, have passed blocking legislation prohibiting companies registered in them from complying with the US boycott of Cuba
In fact, the EU has never enforced its blocking statute

28. Iran: Relevant Laws
Statutes: Iran sanctions are set forth under IEEPA and a number of specific statutes
Regulations
31 CFR Part 535 - Iranian Assets Control Regulations
31 CFR Part 560 - Iranian Transactions and Sanctions Regulations
31 CFR Part 561 - Iranian Financial Sanctions Regulations
31 CFR Part 562 - Iranian Human Rights Abuses Sanctions Regulations
A large number of Executive Orders and General Licenses apply to Iran

29. Major Iran Sanctions Statutes
Iran Sanctions Act: Authorizes application of sanctions to non-US persons (“secondary” sanctions)
Investing in the Iranian oil and gas industry
Selling goods or services to the Iranian oil industry for the production of refined petroleum products
Selling refined petroleum products to Iran
CISADA: Imposes additional secondary sanctions on Iran
Allows imposition of sanctions on foreign financial institutions undertaking certain transactions supporting Iran’s nuclear weapons program or Iran’s support of terrorism
Iran Threat Reduction and Syrian Human Rights Act of 2012: Makes US parents liable for violations of US sanctions against Iran by non-US subsidiaries
Defense Authorization Act of 2012: Imposes secondary sanctions on persons purchasing petroleum or petroleum products from Iran (unless a Presidential waiver is in place)
Defense Authorization Act of 2013: applies secondary sanctions to persons
Providing significant goods or services to the Iranian energy, shipping, or shipbuilding sectors, including NIOC, the National Iranian Tanker Company, and IRISL
Supplying Iran with precious metals, or with various other materials and software used in the energy, shipping, or shipbuilding sectors

30. Iran
The United States prohibits US persons from engaging in most types of transactions involving
The Iranian government
Entities controlled by the Iranian government
Persons resident in Iran
Iranian entities
These prohibitions also apply foreign subsidiaries of US companies (31 CFR )
As US sanctions prohibit transactions involving Iran and the Iranian government, they do not generally apply to Iranian nationals residing outside of Iran (so long as they are not an agent of the Iranian government or an SDN)

31. Iran: Direct Sanctions
Under the Iran Transactions Regulations (31 CFR 560), US persons and their foreign subsidiaries may not
Export goods or services to Iran
Import goods or services from Iran (including shipping on Iranian ships or airplanes)
Make loans to or invest in Iran
Participate in transactions where goods are shipped through Iran
Trade in Iranian oil products (even if not imported into the US)
Participate in activities outside of Iran connected to the development of the petroleum sector in Iran
Generally, participate in any transaction with an Iranian element
Facilitate any of the above types of transactions by a non-US person (including processing payments with an Iranian element)

32. Iran: Direct Sanctions
US persons may reject rather than block Iranian transactions
However, a number of major Iranian entities have been designated as SDNs, including
Iranian government
Iran Revolutionary Guard Corps
National Iranian Oil Company
Islamic Republic of Iran Shipping Line

33. Iran: Exports of US-Origin Goods
Exports of US-origin goods by any person, regardless of nationality, are prohibited where the foreign person knew at the time of purchase that the goods would be exported to Iran (31 CFR )
There are exceptions where
The US-origin goods are incorporated into other products, and the US-origin goods account for less than 10% of the value of the finished product
US-origin goods are sold from general inventory, and the purchaser did not know at the time of purchase that it would sell the goods to Iran
Exports to third countries that are transshipped through Iran are also prohibited

34. Iran: Exemptions
The following categories of transactions are generally exempt from Iran sanctions:
Noncommercial family remittances
Food
Agricultural commodities
Medicine
Medical supplies
Some humanitarian articles (including food and medicine)
Informational materials
Personal communications
Travel
OFAC’s regulations (31 CFR 560), licenses, and guidance explain in some detail the exact scope of these exemptions
OFAC has released specific guidance stating that the sale of food, medicine, and medical devices to Iran by non-US persons do not violate US law
Non-US banks are allowed to handle such transactions

35. Iran: Secondary Sanctions
The US may impose sanctions against non-US persons who invest in or supply significant goods or services to
The Iranian petroleum (but not the gas) industry
The Iranian shipbuilding industry
The Iranian shipping industry
The Iranian automotive parts industry (temporarily suspended under the Joint Plan of Action
Iranian SDNs

36. Iran: Secondary Sanctions
The US may impose sanctions against non-US persons who export various goods and services to Iran for use in the energy, shipping, or shipbuilding industries or for development of weapons of mass destruction (WMDs)
Precious metals
Graphite
Various metals, including aluminum and steel
Coal
Software for integrating processes

37. Types of Secondary Sanctions
The President (not OFAC) decides whether to apply secondary sanctions
Secondary sanctions can include
Denial of foreign exchange in the US
Denial of loans from US banks
Denial of access to the US financial system
Denial of export privileges from the US
Freezing of property held in the US

38. Secondary Sanctions: FFIs
Foreign financial institutions (FFIs) are subject to specific sanctions if they
Facilitate transactions associated with the development of WMDs by Iran
Facilitate transactions for the Iranian Islamic Revolutionary Guard Corps
Launder money for Iran in connection with WMD-related activities
Facilitate other types of transactions subject to secondary sanctions
Sanctions against FFIs can include the imposition of strict conditions on or prohibition of correspondent or payable-through accounts with US financial institutions

39. The JCPOA
In 2015, the United States concluded a Joint Comprehensive Plan of Action (JCPOA) with Iran, the European Union, and other countries
Under the JCPOA, the United States has agreed
Not to impose secondary sanctions
To permit non-U.S. subsidiaries of U.S. companies to do business with Iran
These actions are contingent on the continuing compliance of the Iranian government with the terms of the JCPOA

40. North Korea: Relevant Laws
Sanctions against North Korea generally fall under IEEPA
Regulation: 31 CFR 510
General licenses: None
Exemptions: None

41. North Korea
The Government of North Korea and a number of North Korean entities and vessels have been designated as SDNs
Imports of goods or services from North Korea into the United States are prohibited without a license from OFAC (Executive Order 13570)
US persons may not have any dealings with North Korean vessels
Some US exports to North Korea, such as luxury goods, may require an export license from the Commerce Department

42. Sudan: Relevant Laws Statutes Regulations: General licenses IEEPA
Darfur Peace and Accountability Act of 2006 (DPAA), (50 U.S.C. § 1701 note) (ordered the freezing of assets of certain Sudanese government officials)
Regulations:
31 CFR Part 538 - Sudanese Sanctions Regulations
31 CFR Part 546 - Darfur Sanctions Regulations
General licenses
A general license authorizes basically all transactions with Sudan, including with the Sudanese government
This license, which was issued in January 2017, will be reviewed after one year
In the meantime, the Sudan sanctions regulations remain on the books

43. Syria: Relevant Laws Statutes Regulations: 31 CFR 542
IEEPA
Iran Threat Reduction and Syria Human Rights Act of 2012
Regulations: 31 CFR 542
General licenses are incorporated into the Syria Sanctions Regulations

44. Syria
The US has blocked all property belonging to the Government of Syria
US persons may not
Undertake new investment in Syria.
Export services from the United States, or services performed by a US person, to Syria
Import petroleum products of Syrian origin into the United States.
Participate in any transaction involving petroleum products of Syrian origin.
US goods may be exported to Syria, but require a license from the Commerce Department
The usual exemptions to these prohibitions for personal remittances, humanitarian relief, etc. apply
There are also exceptions for transactions involving the National Coalition of Syrian Revolutionary and Opposition Forces
The US has designated the Commercial Bank of Syria as an SDN
Given the role of CBS in the Syrian financial system, effectively makes most if not all financial transactions involving Syria impossible

45. Ukraine and Russia: Relevant Laws
Statutes: IEEPA
Regulations: 31 CFR 589
General licenses
Derivatives are exempted from sectoral sanctions

46. Ukraine and Russia
The US has designated a number of Ukrainian and Russian political figures as SDNs
The US has also designated a number of Russian oligarchs
The designation automatically applies to entities in which SDNs have an ownership interest of 50% or more
The US has imposed sanctions prohibiting US persons from
Providing credit to or dealing in debt or equity with a maturity of more than 90 days of designated Russian banks
Providing credit to or dealing in debt with a maturity of more than 90 days of designated Russian energy companies
The United States has identified energy, finance, defense, and metals as sectors potentially subject to sectoral sanctions

47. Belarus: Relevant Laws
Statutes: IEEPA
Regulations: 31 CFR 548
General licenses: none

48. Belarus
The US does not have a trade or investment embargo in place against Belarus
The US has designated a number of Belarusian officials and entities as SDNs
The Executive Order blocking certain Belarusan persons and entities states that entities owned or controlled by SDNs are also subject to the designation
OFAC has not explained what constitutes control, and appears generally to apply the 50% ownership criterion instead
The entities designated include Belneftekhim
The designation extends to entities in which Belneftekhim owns 50% or more
It is not always clear what Belneftekhim’s ownership share in a given entity is, so that the safest course is to reject transactions denominated in USD, or involving a US element, with entities reported to be part of the Belneftekhim “group”

49. Other Major Sanctions Programs
Narcotics trafficking
31 CFR Part 536 - Narcotics Trafficking Sanctions Regulations
31 CFR Part 598 - Foreign Narcotics Kingpin Sanctions Regulations
Terrorism
31 CFR Part 594 - Global Terrorism Sanctions Regulations
31 CFR Part 595 - Terrorism Sanctions Regulations
31 CFR Part 596 - Terrorism List Governments Sanctions Regulations
31 CFR Part 597 - Foreign Terrorist Organizations Sanctions Regulations
Weapons proliferation
31 CFR Part 539 - Weapons of Mass Destruction Trade Control Regulations
31 CFR Part 540 - Highly Enriched Uranium Assets Control Regulations
31 CFR Part 544 - Weapons of Mass Destruction Proliferators Sanctions Regulations 
Transnational criminal organizations: 31 CFR 590
Rough diamonds: 31 CFR 592

50. Reporting Requirements
US persons are required to report to OFAC
Transactions involving SDNs or other persons where property has been blocked (31 CFR )
Transactions that have been rejected for sanctions reasons (31 CFR ) (financial institutions only)
While non-US persons have no reporting requirements, they are allowed to make voluntary disclosures to OFAC

51. Penalties Penalties for violations of US sanctions can include
Civil: fines up to $250,000 or twice the value of the transaction
Criminal: fine up to $1 million and up to 20 years in prison
Administrative penalties, including loss of access to the US financial system
Although most sanctions are defined in terms of what US persons can or cannot do, OFAC has treated the routing of transactions through the United States by non-US persons as giving rise to sanctions liability