According to reports coming out of the Cayman Islands and the Bahamas, some brokers, including TD Ameritrade, are no longer processing transactions with clients in the Cayman Islands and the Bahamas. The reports indicate that clients are being told that it is “to mitigate risk.”

Apparently, Cayman Finance, the local industry body, has stated that brokers contend these actions are a result of a directive from the United States Department of the Treasury Office of Foreign Assets Control (OFAC). This has been denied by the United States Department of the Treasury who have pointed out that they does not block transactions with jurisdictions, but targets specific parties.

Such a statement is the first indication that the stories surrounding this matter are false. It is ridiculous to suggest that OFAC would state they do not block transactions with jurisdictions; after all, OFAC’s most highly enforced sanctions program, the Iranian Transactions Regulations, is a country based sanctions program. In addition to that program, OFAC administers sanctions against both Cuba and Sudan.

Although I highly doubt that in the age of Wikileaks, OFAC would issue some sort of “secret” document to brokerage firms directing them to pull out of the Cayman Islands and the Bahamas, the fact that these brokerage firms are pulling out of those areas and shutting down accounts does show how the international business environment is being impacted by OFAC. This is part of the “Anaconda Effect” I have written about previously; the fact that by OFAC’s aggressive enforcement and broad extraterritorial jurisdiction the environment in which international transactions take place has become so risk adverse that many firms are completely pulling out of or shunning business in regions where they are susceptible to potential OFAC violations.

Although the environment has changed dramatically, OFAC is not a big bad monster to be feared. Rather, a proper compliance program and proper licensing are often times an effective way to combat concerns about OFAC. It is true that the laws are ambiguous and there are not a whole lot of attorneys out there familiar with what it takes to successfully stay on the right side of OFAC administered sanctions programs. However, it is possible to transact internationally and avoid OFAC’s wrath. However, as always, the first step is to retain counsel familiar with OFAC and the sanctions programs they administer.

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@ferrari-legal.com.