If your company imports or exports, you might hear the word Sanctions thrown around. You might even feel like Jan Brady and wonder why Marcia gets all the attention or, in this case, Sanctions.
What are Sanctions?
The word Sanction has several meanings and can be used as a noun or a verb, but in trade compliance, it is an economic measure used against other nations, companies, or individuals who have violated international law.
It is also a way to accomplish foreign policy or national security goals. Sanctions are used by imposing trade restrictions or blocking assets. When sanctions are issued, it is to cut off any financial ability to help aid the “bad” people, companies, or countries.
When were Sanctions introduced?
Sanctions have been around before the War of 1812 and were created and administered by the Secretary of the Treasury.
During this initial implementation of Sanctions, it was used to help prevent Great Britain from harassing American soldiers. Congress also approved a Civil War law prohibiting transactions with the Confederate States.
In the 1940s and during World War II, the Office of Foreign Funds Control administered any sanctions.
At the time, it was the FCC’s purpose to prevent the Nazis from using money or security funds from any country they occupied.
The Office of Foreign Assets Control (OFAC), as we know it today, was created in December 1950.
Why are Sanctions so important?
Sanctions are essential because they are a way to help deter bad behavior (like putting your child in timeout).
They are used in the hopes of changing the behavior and enforcing economic punishment on the targeted person, company, or country.
Sanctions are also crucial because they help to advance foreign policy goals, such as counterterrorism, counternarcotics, nonproliferation, democracy and human rights promotion, and in the most recent years, cybersecurity.
Who must comply with OFAC regulations?
Any U.S. person must comply with the OFAC regulations. This includes permanent resident aliens, all people or companies with the United States, all U.S. incorporated companies, and their foreign branches.
In certain programs, foreign subsidiaries owned or controlled by a U.S. company as well as foreign persons in possession of U.S. origin goods, must comply with the OFAC regulations.
Where is the information on the Sanctions Programs located?
All the current Sanctions Programs and Country information can be found on the U.S. Department of the Treasury website under Policy Issues.
From there, any OFAC information is under Financial Sanctions. The SDN list, Sanctions list, OFAC Recent Actions, and OFAC Civil Penalties and Enforcement, among other resources, can be found there.
How much are the fines/penalties for violating the OFAC regulations?
Fines for violating OFAC regulations can be quite substantial. They can assess civil and criminal penalties, and sometimes these can exceed several million dollars.
The penalties are adjusted annually under the Federal Civil Penalty Inflation Adjust Act Improvements Act of 2015.
Recently, numerous companies (3M, Binance Holdings, Ltd.) have been fined an exuberant amount, definitely a penalty I wouldn’t want to pay.
So just as Jan hated the fact that Marsha was so famous and important, there are reasons that Sanctions need to be regarded and just as popular as Marsha was.
You don’t want to end up being the reason your company violates any OFAC regulations and have them be subject to substantial fines/penalties and their name being in the headlines.
Shawna Karajic is a Senior Consultant for Export Solutions -- a full-service consulting firm specializing in U.S. import and export regulations.