What Is OFAC and How It Affects Your Business

OFAC is the U.S. Treasury office that writes and enforces economic sanctions, and its rules apply to your business whether or not you trade internationally on purpose. The Office of Foreign Assets Control administers the lists of countries, companies, and people that U.S. persons are barred from dealing with — and liability for breaking those rules does not require that you meant to. If you sell, ship, pay, or get paid across borders, OFAC is part of your legal landscape.

What OFAC actually does

OFAC is a division of the U.S. Department of the Treasury. It administers and enforces economic and trade sanctions that carry out U.S. foreign policy and national security goals — targeting hostile governments, terrorists, narcotics traffickers, and those who threaten U.S. interests. The legal teeth come mostly from two statutes: the International Emergency Economic Powers Act (IEEPA) and the older Trading with the Enemy Act (TWEA).

Sanctions come in two broad shapes. Comprehensive programs effectively cut off an entire country or region. List-based (or targeted) programs block specific named people and companies wherever they operate. Most businesses encounter the list-based kind far more often than the country-wide kind.

The SDN List and the 50% Rule

OFAC’s central tool is the Specially Designated Nationals and Blocked Persons List (SDN List) — thousands of individuals and entities U.S. persons generally cannot transact with. When someone lands on the SDN List, their property and interests in property within U.S. reach are “blocked” (frozen).

The reach goes further than the list itself. Under OFAC’s 50 Percent Rule, any entity owned 50% or more — directly or indirectly, individually or in the aggregate — by one or more blocked persons is itself blocked, even if that entity’s own name never appears on the list. This is why screening a counterparty’s name alone is not enough; ownership matters.

Why “I didn’t know” is not a defense

OFAC sanctions are enforced on a strict liability basis for civil penalties. That means you can be held liable for a prohibited transaction even if you had no idea the other party was sanctioned. Inadvertent violations happen through indirect dealings — a sanctioned party hidden behind an intermediary, a freight forwarder, or a 50%-owned subsidiary.

That standard is what makes proactive screening a business necessity rather than a nicety. The question OFAC asks after the fact is not only “did you mean to?” but “what controls did you have in place?”

The penalties for getting it wrong

Penalties scale with the conduct, but the ceilings are high — and they apply per violation, not per case.

The civil cap is inflation-adjusted every January, so treat the dollar figure above as a current snapshot rather than a permanent number. The criminal exposure — a seven-figure fine and up to two decades in prison for willful violations — is set by statute and has held steady.

The 2024 extension of the statute of limitations from five to ten years is the change most businesses miss. OFAC can now reach back a full decade, and it has signaled that recordkeeping expectations are moving toward the same horizon. Keep your screening logs and transaction records accordingly.

Enforcement is real, not theoretical. The largest sanctions case on record remains BNP Paribas, which paid a combined $8.9 billion to U.S. authorities in 2014 for systematically stripping references to sanctioned parties out of transactions routed through the United States; OFAC’s portion was roughly $963 million.

What to do if you hold blocked property

If a transaction triggers a block — say, an incoming payment tied to an SDN — you do not simply return the money. You must:

1. Freeze it. Place the funds or property into a blocked, interest-bearing account; do not process, return, or release it.
2. Report it to OFAC within 10 business days of the property becoming blocked.
3. File an annual report of blocked property held as of the prior year, due by September 30 each year.

Rejecting a transaction (declining to process it) and blocking one (freezing it) are different actions with different reporting duties. Getting that distinction wrong is itself a compliance failure.

A workable OFAC compliance posture

OFAC’s published enforcement guidelines reward companies that have a risk-based program in place. For most importers and exporters that means a handful of durable habits rather than an enterprise overhaul: screen customers, vendors, and counterparties (including beneficial owners) against the SDN List before and during the relationship; run a periodic risk assessment tied to your products, customers, and geographies; document what you checked and when; and route anything ambiguous to counsel before the transaction closes. A short import/export compliance memo is often enough to establish that baseline.

These same fundamentals underpin the related questions of which sanctions actually apply to your business, how to handle blocked assets and SDNs, and why screening protects exporters.

Frequently asked questions

Does OFAC only apply to big companies or banks? No. OFAC rules bind all “U.S. persons” — citizens, permanent residents, companies organized in the U.S., and anyone physically in the U.S. A small exporter can violate sanctions just as a multinational bank can.

Can I be penalized if I didn’t know my customer was sanctioned? Yes. Civil liability is strict, meaning intent is not required. Having a screening program in place is the most effective way to reduce that risk and to show good faith if a problem arises.

What’s the difference between the SDN List and a comprehensive embargo? The SDN List targets specific named people and entities anywhere. A comprehensive embargo restricts nearly all dealings with an entire country or region. You can run afoul of either.

How long should I keep sanctions records? Plan for ten years. The 2024 extension of the statute of limitations means OFAC can reach back a decade, and recordkeeping expectations are trending the same way.

Worried about an OFAC exposure? Reidel Law Firm delivers a flat-fee import/export compliance memo that maps your actual sanctions risk and the controls you need — in plain English, with direct attorney access. Get an import/export compliance memo →