Maybe it’s because I will be discussing it at this week’s American Conference Institute 2012 OFAC Boot Camp, but the concept of facilitation in economic sanctions administered by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has been on my mind a lot lately. When dealing with facilitation, a discussion regarding how foreign subsidiaries impact facilitation by a U.S. parent company always comes up. One of the primary questions that arises is what actions of a U.S. parent company in relation to their foreign subsidiary triggers facilitation. A secondary question, however, is to what extent the foreign subsidiary may be eligible to operate under an OFAC general license or to apply for a specific license to engage in certain activity.

It is important to note that if certain activity is authorized by an OFAC general license if engaged in by a U.S. person, it would not be prohibited for a foreign subsidiary to engage in the transaction, provided that it satisfies all the conditions and requirements of the exemption or general license. Similarly, if the transaction is one for which a U.S. person might apply for a specific license — for example, the exportation of medical devices to Iran — a foreign subsidiary or its U.S. parent may apply for a specific license for the foreign subsidiary to engage in the transaction.

Keep in mind that the short and simple definition of facilitation is that a U.S. person can not undertake an act which allows for two foreign persons to engage in a transaction that would be prohibited were the U.S. person directly involved. As such, if a transaction is licensed either by an OFAC general or specific license, then there should be no concerns regarding facilitation by a U.S. parent company, unless the U.S. parent company acts outside of the scope of the activities authorized in such license. Therefore, facilitation prohibitions are often violated for non-licensed or non-licensable transactions, for example, when the U.S. parent company provides business referrals or back office/administrative support to their foreign subsidiary. Of course, facilitation covers much more than just transactions between U.S. parent companies and their foreign subsidiaries. However, due to the connections between U.S. parents and foreign subsidiaries, the subsidiary relationship can make a U.S. company especially vulnerable to facilitation.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.