For exporters, OFAC compliance is non-negotiable: If you’re shipping to one of the people or companies identified by OFAC, you must be aware of the associated sanctions for every single shipment.
Unfortunately, this isn’t as simple as checking one list one time. OFAC lists may change at any time based on current events or changes in the political landscape.
And there isn’t just one single list that needs to be checked. The Federal Register compiles at least 125 relevant lists every day, and it’s up to you to keep up with them. Fortunately, there are best practices that can help you stay compliant with regulations. Read about them below.
What are OFAC regulations?
The Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals. The OFAC is charged with creating sanctions against the following:
- Targeted foreign countries and regimes.
- International narcotics traffickers.
- Those engaged in activities related to the proliferation of weapons of mass destruction and other threats to the national security, foreign policy or economy of the United States.
As I discuss in our article What Are the OFAC regulations?, regulations can also be directed at people, companies, charities and groups considered enemies of the U.S. or threats to national security.
OFAC sanctions lists include the following:
- Specially Designated Nationals (SDN) list
- Consolidated Sanctions List
- Cuba Sanctions
- Iran Sanctions
- Ukraine-/Russia-Related Sanctions
- Syria Sanctions
- Counter Terrorism Sanctions
- Counter Narcotics Trafficking Sanctions
A complete list of sanctions programs is available on the OFAC website.
Consequences for Noncompliance
Noncompliance with OFAC regulations may significantly impact your ability to conduct future transactions, as you could be subject to a steep monetary penalty and potentially even jail time. And compliance isn’t something only for bigger companies—small- and medium-sized exporters are liable, too.
With compliance, there’s no such thing as “too small to be noticed.” All companies must exercise due diligence to meet export-control responsibilities.
OFAC Compliance Screening Best Practices
OFAC screening isn’t as simple as checking a name against a file you have saved on your computer. The best practices that follow are important to ensuring compliance.
1. Review Specially Designated Nationals
OFAC sanctions include a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries, called the Specially Designated Nationals (SDN) List. This list also includes individuals, groups and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. The assets of SDNs are blocked, and U.S. persons are generally prohibited from dealing with them.
The EAR require a license for exports or reexports to any party in any entry on this list that contains any of the suffixes SDGT, SDT, FTO, IRAQ2 or NPWMD. The Specially Designated Nationals list should be reviewed for every export shipment.
2. Understand the 50 Percent Rule
OFAC’s 50 Percent Rule blocks property and interests of entities owned 50% or more by parties sanctioned by the Treasury Department, even if they are not sanctioned by name on the list. The most recent evolution of the 50 Percent Rule now means the rule applies when an entity is owned by more than one person under the SDN list if the combined total is more than 50%—for example, two people on the list each own 25% of a company.
This means your customer as an entity may not be blocked, but you could be in violation if your customer is owned, in aggregate, directly or indirectly by a blocked party or parties with a 50% or more ownership stake.
The 50 Percent Rule means that OFAC compliance screening requires more than simply looking up names of people or companies on a list—it requires making determinations about ownership.
3. Track Entities That Control Less Than 50 Percent
Even if they don’t qualify yet, at some point, companies or persons may own or control more of a company, thus qualifying under the 50 Percent Rule. This is something exporters should stay aware of! The last time I checked, there were more than 200 entities covered by this rule that don’t appear specifically on the SND List.
4. Use Restricted Party Screening Software
Using Restricted Party Screening software is the best way to ensure you’re following the best practices for OFAC compliance every single time you export.
Shipping Solutions’ Restricted Party Screening Wizard is OFAC compliance software that specifically addresses the issues above. Rather than check each list individually, our Restricted Party Screening Wizard makes it easy for you to check more than 150 lists at once, right from your computer desktop. And because this information is stored online on our secure web server, you can be sure that you are accessing the most current information available.
Of course, tools are great, and they make our lives much easier (especially as exporters)—but they’re still just tools. The final, most important part of the export compliance puzzle is you. It is your responsibility to do your due diligence—including screening potential customers against OFAC sanctions lists and documenting the entire process in your export compliance program.