Iraq Sanctions: Blocked Persons, Export Controls, and Penalties

U.S. sanctions on Iraq are targeted rather than comprehensive. The broad trade embargo that followed Iraq’s 1990 invasion of Kuwait was largely lifted in 2003, and what remains today restricts dealings with specific individuals and entities, controls certain exports, and forbids trafficking in Iraqi cultural property removed since August 6, 1990. The program is administered by the Treasury Department’s Office of Foreign Assets Control (OFAC) under the Iraq Stabilization and Insurgency Sanctions Regulations at 31 CFR Part 576, with parallel export controls run by the Bureau of Industry and Security (BIS).¹

What Is and Isn’t Restricted Today

Ordinary commerce with Iraq is not banned. The near-total UN embargo imposed after the 1990 invasion of Kuwait was terminated by Security Council Resolution 1483 in May 2003, which reopened Iraq to global trade and kept only an arms embargo and a handful of targeted measures.² If you are shipping non-controlled goods to a non-blocked buyer in Iraq for a civilian purpose, no U.S. sanctions license is required.

What is restricted is narrower and specific. You cannot deal with people or companies designated under the Iraq program. You cannot export certain controlled items without a BIS license. You cannot buy, sell, or transfer Iraqi cultural property removed from the country since August 6, 1990, a prohibition that covers archaeological artifacts, historical objects, rare scientific materials, and religious items, including pieces taken from the Iraq National Museum and the National Library.³ And senior officials of the former Iraqi regime, their immediate family, and entities they control remain subject to asset freezes worldwide under the UN framework.²

Who Has to Comply

The rules bind every “U.S. person,” which OFAC defines broadly: U.S. citizens and permanent residents wherever they live, any entity organized under U.S. law (including foreign branches of American companies), and anyone physically present in the United States. If you fit any of those categories, every prohibition below applies to you directly.

Foreign companies can also come within U.S. jurisdiction when they use U.S. financial systems, U.S.-origin goods, or U.S. dollar-denominated transactions, even if no American is directly involved. That is where many international businesses run into trouble.

Dealings With Blocked Persons

The central prohibition is that U.S. persons cannot engage in any transaction with a party designated under the Iraq program. Designated individuals and entities appear on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List). If a name appears under the Iraq program, you cannot do business with them, send them money, provide them services, or facilitate anyone else doing so.¹

Anyone can check names against the SDN List for free at sanctionssearch.ofac.treas.gov before entering a transaction. A bank that receives a wire transfer destined for a blocked party cannot process it; the funds sit frozen until OFAC authorizes their release.

The 50 Percent Rule

The blocking requirement reaches beyond the names actually printed on the SDN List. Any entity in which one or more blocked persons own a 50 percent or greater interest, in the aggregate, is itself blocked, even if the entity’s name never appears on the list. OFAC adds up the stakes of all blocked persons across all its programs when making this calculation, so if two different blocked individuals each own 25 percent of a company, that company is blocked.⁴ A name-only screen is not enough. You have to understand the ownership structure of the entities you deal with.

Export Controls Through BIS

Separate from OFAC’s financial sanctions, BIS restricts certain exports and reexports to Iraq under Section 746.3 of the Export Administration Regulations. A BIS license is required for:

Anything subject to the EAR that you know or should know will go to a military end-use or military end-user in Iraq, with exceptions for U.S. government personnel and the Government of Iraq.
Items on the Commerce Control List controlled for national security, missile technology, nuclear nonproliferation, chemical and biological weapons, regional stability, crime control, encryption, and related reasons.
Anything on the Commerce Control List controlled for United Nations embargo reasons.

Several license exceptions cover lower-risk exports, including civil end-users, temporary exports, replacement parts, government end-users, gift parcels, technology and software updates, baggage, aircraft and vessels, and encryption items.⁵ Whether a specific shipment qualifies depends on the item’s classification and intended use, so work through the analysis carefully before shipping.

Penalties

Willful violations carry criminal penalties under IEEPA of up to $1,000,000 in fines and, for individuals, up to 20 years’ imprisonment.⁶

Civil penalties apply even without proof that anyone intended to break the rules. As of the January 2025 inflation adjustment, the maximum civil penalty is $377,700 per violation, adjusted annually for inflation.⁷ Each transaction can count as a separate violation, so exposure adds up quickly: ten prohibited wire transfers are ten violations, not one. OFAC can impose penalties on a strict liability basis in some cases, meaning ignorance of the law is not a reliable defense, though the strength of a compliance program weighs heavily in how OFAC exercises its enforcement discretion.

Blocking, Reporting, and Recordkeeping

When a U.S. person discovers they hold property belonging to a blocked party, they must freeze it immediately and file an initial report with OFAC within 10 business days. Anyone still holding blocked property as of June 30 each year must file an annual report by September 30.⁸

All records related to any transaction covered by the sanctions regulations must be kept for at least 10 years. For blocked property specifically, records must be maintained for the entire time the property remains blocked plus 10 years after it is unblocked.⁹

Licenses and Exceptions

Some otherwise prohibited activities are pre-authorized through general licenses published in the Code of Federal Regulations. If a transaction fits squarely within a general license, you can proceed without applying to OFAC; you just have to confirm every element of the transaction meets the license conditions.¹

One general license authorizes providing food, medicine, and medical devices to individuals whose property is blocked under the Iraq program, in quantities consistent with personal, non-commercial use. A separate general license covers humanitarian activities by nongovernmental organizations that directly benefit the civilian population, including food distribution and health services.¹⁰

When no general license fits, you need a specific license, a written authorization from OFAC granted case by case. Common situations include providing legal services to a blocked person, releasing frozen funds under unusual circumstances, or engaging in a transaction that involves a blocked party but serves a legitimate purpose OFAC may authorize. Applications go through OFAC’s online licensing portal, and applicants select the request type (typically “Release of Blocked Funds” or “Transactional” for Iraq matters) and describe the parties, the transaction, and why authorization is warranted. OFAC does not publish a guaranteed processing timeline, so plan for significant lead time and do not commit to any transaction that depends on license approval before it is granted.

Building a Compliance Program

OFAC encourages every organization within U.S. jurisdiction to maintain a risk-based sanctions compliance program, and its published framework identifies five essential components:¹¹

Management commitment, with senior leadership allocating adequate resources and treating compliance as an organizational priority.
Risk assessment that identifies the organization’s specific exposure based on its customers, products, geography, and transaction types.
Internal controls, including policies and procedures for screening transactions, escalating potential matches, and blocking prohibited activity, supported by screening software and interdiction filters.
Testing and auditing through regular independent reviews, including testing whether screening software is properly calibrated and current.
Training that keeps employees who handle transactions, customer onboarding, or trade compliance up to date.

A failure OFAC has flagged repeatedly is organizations that install screening software but never update it to reflect new SDN List additions or alternative name spellings. Software that isn’t maintained is barely better than no software at all. OFAC’s enforcement actions consistently treat a functioning compliance program as a significant mitigating factor when assessing penalties, so building one directly affects financial exposure if something goes wrong.

1
eCFR. 31 CFR Part 576 – Iraq Stabilization and Insurgency Sanctions Regulations
2
United Nations Security Council. S/RES/1483 (2003)
3
eCFR. 31 CFR 576.208 – Prohibited Transactions Related to Certain Iraqi Cultural Property
4
Office of Foreign Assets Control. Entities Owned by Blocked Persons (50% Rule)
5
eCFR. 15 CFR 746.3 – Iraq
6
Office of the Law Revision Counsel. 50 USC 1705 – Penalties
7
Federal Register. Inflation Adjustment of Civil Monetary Penalties
8
eCFR. 31 CFR Part 501 – Reporting, Procedures and Penalties Regulations
9
eCFR. 31 CFR 501.601 – Records and Recordkeeping Requirements
10
Federal Register. Addition of General Licenses to OFAC Sanctions Regulations for Certain Transactions of Nongovernmental Organizations and Related to Agricultural Commodities, Medicine, Medical Devices, Replacement Parts and Components, or Software Updates for Medical Devices
11
U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). A Framework for OFAC Compliance Commitments