One of the questions I get from time to time is where do sanctions administered by the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) come from? How are the conceived and the implemented? How are they impacted or influenced by global affairs? Indeed, these are important questions, particularly for those that are seeking to understand whether or not a transaction is exempted, generally licensed, or eligible for specific licensing. The answers to these questions can often times make or kill a deal or offer a defense for mitigating a potential OFAC penalty. As such, I thought I would write a few words on how OFAC sanctions come to be and provide some tips on how to look at this lifecycle as a potential tool for navigating OFAC issues.

The first step in the process is the issuance of an executive order or legislative action coming from Congress. Once this occurs, OFAC will move swiftly to identifying sanctions targets consistent with criteria of underlying authority. However, this is not the end of the line, as some of the executive orders or congressional actions may impose sanctions which have a broader impact than just that which impacts transactions with the targeted parties.

Due to the highly political nature of OFAC administered sanctions, some programs may be implemented in response to a current and immediate foreign policy crisis. In such cases, OFAC may work in close coordination with foreign governments and the United Nations to coordinate and administer their sanctions programs.

In addition, OFAC is responsible for the administration and enforcement of OFAC sanctions. To assist in the administration of sanctions, OFAC carries out significant outreach, particularly to the governmental, financial, and trade sectors. Such outreach occurs on both a domestic and international level with OFAC officials being stationed all over the world.

Finally, there is the winding down of a sanctions program. In such winding down periods, many of the prohibitions of the sanctions program are gradually rescinded as OFAC considers the complete removal of the program. A recent example of this can be seen with the Libya sanctions program, which for the most part has been rescinded but still prohibits certain dealings and blocks the assets of certain individuals.

Understanding the steps in the implementation, administration, and rescission of a sanctions program can help practitioners develop an overall appreciation for the nature of the sanctions program they are navigating. This can help from a standpoint of developing in strategy because certain considerations and arguments may have a different impact depending on where in the cycle the sanctions program stands.

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.