Financial sanctions are legal restrictions that governments and international bodies use to cut specific people, companies, or whole countries off from the financial system. In the United States, the Treasury Department’s Office of Foreign Assets Control (OFAC) runs most of these programs, and violations can cost up to $377,700 per transaction (or twice the transaction’s value, whichever is greater) in civil penalties, plus up to 20 years in prison for willful conduct. Because sanctions touch nearly every cross-border wire, investment, and trade payment, anyone who moves money internationally needs a working grasp of how they operate.
Who Imposes Them
OFAC administers most U.S. sanctions under authority in 31 C.F.R. Chapter V and coordinates with Commerce and State to enforce them.1eCFR. 31 CFR Chapter V – Office of Foreign Assets Control, Department of the Treasury The president typically launches a program by declaring a national emergency under the International Emergency Economic Powers Act (IEEPA), which allows the government to block transactions, freeze assets, and prohibit dealings with foreign actors.2Office of the Law Revision Counsel. 50 USC 1702 – Presidential Authorities
Sanctions also come from outside the U.S. The UN Security Council can impose binding economic measures on all member states under Chapter VII of the UN Charter, with Article 41 specifically authorizing the “complete or partial interruption of economic relations.”3United Nations. UN Charter – Chapter VII: Action with Respect to Threats to the Peace, Breaches of the Peace, and Acts of Aggression The European Union maintains its own restrictive measures that apply across all member states.4European Commission. Sanctions (Restrictive Measures) A target hit by all three authorities is effectively locked out of legitimate global commerce.
What Sanctions Actually Do
Asset Freezes
The sharpest form of sanction is an asset freeze, which OFAC calls “blocking.” Any property or funds belonging to a sanctioned person that are in the United States, or in the hands of a U.S. person, must be frozen immediately. The owner keeps legal title but loses every practical right that comes with it. Nothing can be transferred, withdrawn, or dealt with without OFAC’s permission.5Office of Foreign Assets Control. Frequently Asked Questions 9 Blocked funds have to sit in an interest-bearing account at a federally insured U.S. bank or in Treasury bills held through a registered broker-dealer.6eCFR. 31 CFR 542.203 – Holding of Funds in Interest-Bearing Accounts
Alongside the freeze, U.S. persons are prohibited from providing financial services to sanctioned parties. Processing wires, extending credit, and facilitating payments are all off limits, and the prohibition reaches indirect support through intermediaries.
Sectoral Restrictions
Not every program is a full block. Sectoral sanctions prohibit U.S. persons from dealing in new debt or equity issued by entities in designated sectors of a target economy. OFAC publishes the entities and the applicable directives on its Sectoral Sanctions Identifications List.7U.S. Department of the Treasury. Additional Sanctions Lists Russia-related sectoral measures, for instance, limit new debt above specified maturity thresholds for firms in financial services, energy, and defense.8eCFR. 31 CFR Part 589 – Ukraine/Russia-Related Sanctions Regulations Comprehensive programs (North Korea is one) cover nearly all economic activity with the target country; sectoral programs are narrower by design, aiming at specific industries while trying to limit humanitarian spillover.
Secondary Sanctions
Secondary sanctions reach foreign persons and institutions that do business with sanctioned parties even when no U.S. person and no U.S. dollars are involved. The lever is access to the U.S. financial system: a foreign bank that handles payments for a sanctioned entity can be cut off from correspondent and payable-through accounts in the United States. OFAC publishes the CAPTA List to identify foreign banks subject to that restriction.7U.S. Department of the Treasury. Additional Sanctions Lists Because most international trade relies on dollar clearing, the threat alone changes behavior.
Who Ends Up Sanctioned
The Specially Designated Nationals and Blocked Persons List (the SDN List) is the best-known. It covers people and entities tied to terrorism, narcotics trafficking, weapons proliferation, cyberattacks, and hostile foreign governments.9Legal Information Institute. Specially Designated Nationals and Blocked Persons List OFAC also maintains the Sectoral Sanctions Identifications List, the CAPTA List, and other targeted lists, each with its own prohibitions. A Consolidated Sanctions List bundles the non-SDN lists for screening purposes.10Office of Foreign Assets Control. OFAC Consolidated and Other Sanctions Lists Page
A company does not have to appear on any list to be blocked. Under OFAC’s 50 Percent Rule, any entity owned 50 percent or more, in the aggregate, by one or more blocked persons is itself treated as blocked. The calculation is cumulative: if two sanctioned individuals each own 30 percent of a company, the company is blocked, even though neither owner holds a majority alone.11Office of Foreign Assets Control. Frequently Asked Questions 398
Control is a separate matter. The 50 Percent Rule addresses ownership only, so an entity controlled (but not majority-owned) by blocked persons is not automatically blocked. OFAC can still designate such an entity on its own, and it advises caution when sanctioned persons hold a significant minority stake or exert influence through other means, because designation may follow.11Office of Foreign Assets Control. Frequently Asked Questions 398
What Compliance Requires
Before opening an account or processing a transaction, a financial institution must collect identifying information from every customer: at minimum, legal name, date of birth for individuals, physical address, and a taxpayer identification number.12FFIEC BSA/AML InfoBase. FFIEC BSA/AML Examination Manual – Customer Identification Program That information is screened against the SDN List and the Consolidated List, and effective screening handles aliases, transliteration differences, and misspellings. Every party to a transaction gets checked, including beneficial owners, intermediaries, and agents.
When screening flags a potential match, compliance staff investigate before anything moves. Many organizations keep “false hit lists” to suppress alerts for customers they’ve already cleared, but OFAC warns that those suppression lists have to be reviewed regularly and refreshed whenever programs change, new names are added, or a customer’s ownership or activity shifts.13U.S. Department of the Treasury. False Hit Lists Guidance
OFAC expects every organization that touches international transactions to run a risk-based sanctions compliance program with five components: management commitment, risk assessment, internal controls, testing and auditing, and training.14U.S. Department of the Treasury. A Framework for OFAC Compliance Commitments Leadership has to commit real resources and real authority, not just a signature. Risk assessment maps the organization’s actual exposure (countries, customer types, products, intermediaries). Internal controls turn that map into procedures for stopping and escalating prohibited activity. Independent testing finds the gaps before OFAC does. Training should be annual at minimum and tailored to roles.
Licenses and Exemptions
Not every transaction involving a sanctioned country is prohibited. OFAC issues two kinds of authorization.
A general license is a blanket authorization published in the regulations or on OFAC’s website. It applies automatically to anyone whose transaction fits the stated criteria, with no application required.15eCFR. 31 CFR 551.310 – Licenses; General and Specific Humanitarian carve-outs are common examples. General License 6C, for instance, authorizes transactions involving agricultural commodities, medicine, and medical devices going to certain sanctioned jurisdictions, and it lets U.S. banks process the payments.16U.S. Department of the Treasury. Humanitarian Assistance and Food Security Fact Sheet
A specific license is a one-off authorization granted (or denied) after OFAC reviews an application through its online portal.17U.S. Department of the Treasury. OFAC License Application Page Review is case by case, humanitarian requests get priority, and recipients of a license may have to report the transactions carried out under it.
Reporting and Recordkeeping
Anyone holding blocked property files an Annual Report of Blocked Property with OFAC by September 30 each year on OFAC’s standardized form.18Office of Foreign Assets Control. Frequently Asked Questions 50 Rejected transactions, meaning transactions that were prohibited and not processed, must be reported within 10 business days.19eCFR. 31 CFR 501.604 – Reports of Rejected Transactions
Records of transactions subject to sanctions regulations have to be kept for at least 10 years. For blocked property the clock runs longer: records must be kept the entire time the property remains blocked, plus 10 years after it is unblocked.20eCFR. 31 CFR 501.601 – Records and Recordkeeping Requirements Some programs have run for decades, so the retention period can be long.
Penalties
Civil penalties under IEEPA reach $377,700 per violation or twice the transaction value, whichever is greater.21eCFR. 31 CFR 510.701 – Penalties The statutory base is $250,000, adjusted periodically for inflation.22Office of the Law Revision Counsel. 50 USC 1705 – Penalties Civil liability doesn’t require willful intent. An inadvertent breach can still produce a six-figure penalty if the controls behind it were weak.
Criminal prosecution is reserved for willful violations. Under IEEPA, a willful violator faces up to $1,000,000 in fines and up to 20 years in prison.22Office of the Law Revision Counsel. 50 USC 1705 – Penalties The Trading with the Enemy Act carries identical maximum penalties for willful violations of its provisions.23Office of the Law Revision Counsel. 50 USC 4315 – Offenses; Punishment; Forfeitures of Property Collateral consequences can include loss of operating licenses, exclusion from markets, and reputational harm no settlement erases.
Self-disclosing a violation significantly reduces exposure. When an organization voluntarily reports its own violation and the conduct is not egregious, the base civil penalty drops to half the transaction value, capped at $188,850 per violation.24eCFR. Appendix A to Part 501 – Economic Sanctions Enforcement Guidelines Even for egregious violations, self-disclosure cuts the base penalty to half the statutory maximum, and substantial cooperation can bring it lower.
Getting Off a Sanctions List
Designation is not necessarily permanent. A sanctioned person, or the majority owner of blocked property, can petition OFAC for removal by emailing OFAC.Reconsideration@treasury.gov with arguments and evidence that the designation was wrong or no longer applies.25eCFR. 31 CFR 501.807 – Procedures Governing Delisting
OFAC has pointed to several circumstances that can support removal: a demonstrated change in behavior, the death of the designated person, a finding of mistaken identity, or evidence that the conditions behind the original listing have fundamentally changed.26Office of Foreign Assets Control. Filing a Petition for Removal from an OFAC List Petitioners can also propose remedial steps, such as a corporate reorganization or the departure of sanctioned individuals from leadership. If a petition is denied, OFAC will consider a new one only if it brings new arguments, new evidence, or changed circumstances.
Red Flags for Evasion
Compliance teams are expected to watch for the warning signs OFAC publishes. In maritime trade, those include vessels disabling or manipulating their Automatic Identification System transponders to hide cargo origins, extended AIS gaps, abnormal voyage patterns, and misclassification of vessel types.27U.S. Department of the Treasury. OFAC Compliance Communique – October 2024
In financial transactions, red flags include last-minute changes to shipping instructions that deviate from normal practice, trade documentation modified to obscure a link to a sanctioned party, and refusals to answer standard due-diligence questions. Complex ownership structures with layered shell companies, intermediaries, and escrow agents often exist to hide beneficial ownership. When these appear, the right response is to stop the transaction, escalate to compliance, and consider whether a report to OFAC is warranted.