OFAC (Office of Foreign Assets Control)

Definition

The Office of Foreign Assets Control (OFAC) is an office of the United States Department of the Treasury. It administers and enforces US economic and trade sanctions based on foreign policy and national security goals, targeting countries, regimes, and specific individuals, entities, vessels and aircraft.

When people say "the OFAC list" they usually mean the Specially Designated Nationals and Blocked Persons List (the SDN list). OFAC also publishes other lists with narrower restrictions, and some of its programmes restrict dealings with whole jurisdictions rather than named parties. So "OFAC sanctions" is wider than any single list: it covers named designations, country and regional programmes, and parties captured by ownership rules even though their names appear nowhere.

A designation under a blocking programme generally means that property and interests in property of the designated person that are in the United States, or in the possession or control of a US person, are blocked (frozen), and US persons are generally prohibited from dealing with them. Exactly what is prohibited depends on the programme under which the designation was made.

Why a regulated firm cares

OFAC obligations apply to US persons wherever they are located, and to activity with a sufficient US connection, such as payments cleared in US dollars through US banks. Firms outside the United States often find they are exposed through correspondent relationships, US dollar flows, US parent companies or US staff.

Civil liability for OFAC violations is generally strict liability. A firm can breach a prohibition without knowing it did so, which is why screening is treated as a baseline control rather than an optional extra. Beyond enforcement, a missed designation can lead to blocked funds, frozen correspondent activity and difficult conversations with banking partners.

How it is detected in practice

Firms screen customers, beneficial owners, counterparties and payment details against OFAC data at onboarding, on every relevant transaction, and again whenever the lists change. A few practical points shape how well that works:

• Use the full entry, not just the name. SDN entries can include aliases, dates of birth, nationalities, addresses, identity numbers and vessel identifiers. These are what let an analyst confirm or discount a potential match.
• Account for ownership. Under the OFAC 50 Percent Rule, an entity owned 50 percent or more, directly or indirectly, individually or in aggregate, by one or more blocked persons is itself treated as blocked, whether or not it is listed. Name screening alone will not find these parties; ownership information is needed.
• Watch geography. Some programmes restrict activity involving particular countries or regions. Addresses, IP locations, SWIFT fields and trade documents can all reveal a sanctioned nexus that a customer name never would.
• Refresh promptly. OFAC updates its lists frequently. A customer who was clear last month may not be clear today, so screening must be rerun against changes.

When a true match is confirmed, the response depends on the programme: property may need to be blocked, a transaction rejected, and a report filed with OFAC within its required timeframes.

Regulatory basis

OFAC's sanctions programmes rest on presidential emergency powers and specific statutes. The International Emergency Economic Powers Act (IEEPA) is the authority behind most programmes, with others based on legislation such as the Trading with the Enemy Act. The implementing regulations are published in Title 31 of the Code of Federal Regulations, Chapter V.

OFAC's 50 Percent Rule sets out how ownership by blocked persons extends blocking to entities that are not themselves designated. In 2019 OFAC published "A Framework for OFAC Compliance Commitments", which describes five essential components of a sanctions compliance programme: management commitment, risk assessment, internal controls, testing and auditing, and training. OFAC's Economic Sanctions Enforcement Guidelines explain how it weighs factors such as wilfulness, awareness and the existence of a compliance programme when deciding on enforcement.

This is a summary, not legal advice. Firms should confirm which OFAC programmes and reporting duties apply to them, and how local sanctions law interacts with them, in their own jurisdiction.

Worked example

A hypothetical payments firm onboards a business customer, Northwind Harbour Supplies Ltd. The company name does not match any SDN entry, and the firm's initial screen comes back clear.

During ownership collection, the firm learns the company is held 30 percent by one shareholder and 25 percent by another. Screening those shareholders produces a strong match for each: both appear on the SDN list, and the dates of birth and nationalities in the entries agree with the documents supplied.

Neither shareholder owns 50 percent alone, but together they own 55 percent. Under the 50 Percent Rule the company is treated as blocked. The firm does not open the account, escalates to its sanctions officer, records how the ownership was established, and considers its blocking and reporting obligations. The lesson is that the clear result on the company name was accurate and still incomplete.

Related terms

• Watchlist
• Sanctions Evasion
• Beneficial Owner
• UBO (Ultimate Beneficial Owner)
• False Positive
• Ongoing Monitoring