Global Sanctions Regime: What Falls Under OFAC, EU, and UN Rules

Sanctions may look the same on paper. But when OFAC, the EU, and the UN take action, the impact and the target can be worlds apart.

Consider a fictional case where Alexei, Javier, and Omar, from different regions, are sanctioned by different institutions

Each of them is involved in illegal activities that ultimately place them on the radar of powerful sanctioning bodies: the U.S. Office of Foreign Assets Control (OFAC), the European Union (EU), and the United Nations (UN).

But who falls under which radar- let’s find out.

• First, we have Alexei, sanctioned by OFAC’s Global Magnitsky Act for human rights violations and money laundering. Why? He is a Russian oligarch with deep ties to cyber warfare and arms trafficking.
• Second up, we have Javier, sanctioned under the EU- his bank accounts in Paris and Rome froze. Why? He is a businessman in South America who finances a cartel that floods Europe with Narcotics.
• Last up, we have Omar, who is sanctioned by the UN. Why? He is a militia leader in an African conflict zone who profits from illegal gold mining. His actions destabilize an entire region thus raising concerns by UNSC.

Three different crimes. Three different sanctioning bodies.

However, one common consequence is global financial and economic isolation. This is the way international regulatory bodies handle real-life illicit cases.

In this blog, we discuss how OFAC, EU, and UN sanctions operate and the similarities and differences among them. So let’s get started.

Explaining The Three Sanctions: A Quick Snapshot

In this section, we’ll break down the OFAC, EU, and UN sanctions one by one, explain why they matter, and show you how they shape AML compliance and accountability across various contexts.

1. What are OFAC sanctions? (U.S.)

The Office of Foreign Assets Control is a financial intelligence and enforcement agency of the United States Treasury Department that enforces sanctions targeting individuals, entities, and regimes that threaten U.S. national security. These include economic restrictions, asset freezes, and trade prohibitions.

OFAC sanctions lists have two types of sanctions:

• Primary Sanctions: These apply directly to individuals and enterprises in the United States. Through these actions, the United States government restricts its residents, businesses, and organizations from engaging in business activities with individuals, groups, or nations on the sanctions list.
• Secondary Sanctions: These sanctions apply to individuals and companies operating outside the United States. Instead of stating that “U.S. persons cannot do business with them,” the government asserts, “If a non-U.S. person or company does business with individuals or countries on the sanctions list, they will be prohibited from conducting business in the United States.”

In short, primary sanctions focus on what Americans (and businesses subject to US jurisdiction) can and cannot do.

Secondary sanctions, on the other hand, are concerned with what non-US persons or corporations can and cannot do if they want to keep their doors open to the U.S. market.

A notable case of OFAC’s secondary sanctions is the 2018 sanctions on Russian oligarch Oleg Deripaska for alleged ties to election interference and money laundering.

Although OFAC’s sanctions are unilateral, they are highly influential due to the dominance of the U.S. dollar, but will the BRICS dominance change that? Only time will tell.

2. What are EU Sanctions?

EU sanctions are a means applied by the Common Foreign and Security Policy (CFSP) to safeguard international law, prevent international crises, coordinate conflict resolution, combat terrorism, and tackle the proliferation of weapons.

The European Union imposes sanctions in line with all its member states. These sanctions target:

• Human rights violators
• Terrorist groups
• Entities violating economic rules
• Entities threatening global stability (as in the case of Russia)

In 2022, the EU sanctioned Russian banks and energy firms following the invasion of Ukraine. This cut off their access to SWIFT and severely restricted economic ties with European businesses.

However, the EU does not have objective criteria when it comes to sanctioning countries; political affiliations play a huge role.

3. What are UN Sanctions?

The United Nations Security Council (UNSC) enforces sanctions through resolutions agreed upon by its member states. These sanctions typically address

• Threats to international peace
• Nuclear proliferation
• War crimes

Unlike OFAC or the EU, UN sanctions require global cooperation for full effectiveness.

North Korea comes under the UN Sanctions list of countries due to its nuclear weapons program, restricting its access to international banking and trade.

However, the power of the Veto countries often limits the power of the United Nations’ sanctions list decisions and hinders its ability to ensure global peace and prosperity.

Primary Differences in the Global Sanctions Regime

Primary differences revolve around the following:

• Who enforces the sanctions?
• How are decisions made?
• What is their scope of application?

While OFAC acts unilaterally in the interest of U.S. national security, the EU requires consensus among its 27 member states, and the UN sanctions depend on the approval of the Security Council.

Secondary Differences: How are Sanctions Implemented?

Secondary differences focus on how sanctions are implemented, their effectiveness, and their legal implications. OFAC’s extraterritorial reach makes it the most aggressive in enforcement, while the EU prioritizes diplomatic measures.

UN sanctions, though intended to be global, often suffer from inconsistent enforcement due to the political and economic interests of member states.

Here are some additional differences between the three.

1. Domains of Sanctions

Each entity has different types of sanctions. Here is a breakdown.

• OFAC sanctions: The OFAC sanctions, whether primary or secondary, are placed to ensure the National Security of the US and to influence the foreign behavior of citizens and countries.
• EU sanctions: These are similar in structure but place a stronger emphasis on diplomatic and human rights measures, such as travel bans, asset freezes, and arms embargoes.
• UN sanctions: These may also impose asset freezes and arms embargoes. However, they primarily target conflict zones, rogue regimes, and countries engaged in weapons of mass destruction (WMD) proliferation.

2. Legal Implications & Compliance

Compliance with these sanctions regimes varies widely. Here is a breakdown.

• OFAC Sanctions: The sanctions posed by OFAC are highly extraterritorial. So, businesses worldwide often need to comply to avoid any violations.
• EU Sanctions: These primarily impact European businesses and require financial institutions and corporations operating within the EU to comply with restrictions.
• UN Sanctions: These are intended to be universally enforced. However, many member states often resist or partially comply, thus making the sanctions null and void. For example, as a veto member, rather than enforcing sanctions, Russia often helps North Korea curb the effects of economic sanctions.

A Unified Front: Similarities That Bind OFAC, EU, and UN Approaches

OFAC, EU, and UN sanctions have one primary purpose, a purpose that unites them all. All three sanctions aim to stop illegal activities such as money laundering, terrorist financing, and human rights violations. Here are some additional common aspects among the three.

Sanctions and AML Compliance: Navigating Political Minefields

When discussing AML compliance, EU Blocking statute also comes into play when it comes to compliance. Formally known as Council Regulation (EC) No 2271/96, the EU Blocking Statute was originally introduced in the 1990s to protect European companies from the extraterritorial reach of U.S. sanctions on Cuba, Iran, and Libya. But why does that matter?

Sometimes, one country’s sanctions can apply to non-U.S. individuals or businesses. The EU generally opposes the idea that U.S. sanctions should apply to EU companies outside U.S. territory.

The Blocking Statute aims to shield EU companies from having to follow non-EU laws that the EU considers invalid within its borders.

The geo-dynamic nature of sanctions also adds a layer of complexity for businesses. This is especially true when it comes to Anti-Money Laundering (AML) compliance. So, how do businesses operating in multiple jurisdictions comply?

For instance, a business based in the U.S. may find itself bound by OFAC’s sanctions list. But, operating in the EU means adhering to EU sanctions that could be slightly different in scope or timing.

This makes matters worse for businesses, especially when it involves dealing with entities or countries that are caught between competing political interests.

A financial institution might face the dilemma of being penalized under U.S. sanctions for doing business with a party that is still operational under EU or UN regulations.

To manage all the risks and avoid fines, businesses need outstanding AML compliance programs that can be customized to cater to the risk appetite of the business. These should not just track sanction lists but also consider the political nuances that can influence enforcement.

Given the complex nature of multiple sanctions, where OFAC has secondary sanctions, the EU has a blocking statute, and UN sanctions are often universal, it becomes very difficult for businesses to ensure effective AML compliance.

Investing in advanced AML software such as AML Watcher provides access to national and international sanction screening ensuring you stay updated with real-time alerts and regular updates.

How AML Watcher Ensures Compliance with EU, UN, and OFAC Sanctions

AML Watcher provides complete AML screening with more than 100000 databases, which includes 230+ sanctions regimes, 3500+ watchlists, 2.6m PEP data, and 50,000 adverse media monitoring.

It assures compliance with EU, UN, and OFAC rules with a global sanctions check, which reduces risk and improves due diligence.

It offers:

1. Comprehensive Sanctions Screening

AML Watcher regularly monitors global sanction lists and watchlists, including EU, UN, and OFAC sanctions, to ensure ongoing compliance.

2. Real-Time Updates

AML Watcher incorporates real-time updates from regulatory bodies to ensure organizations remain compliant with changing sanctions regimes.

3. Automated Risk Detection

The system searches persons and companies against local and international sanction lists to reduce false positives and rapidly detect high-risk connections.

4. Customizable Screening Parameters

Businesses may modify screening criteria to satisfy the unique needs of EU, UN, and OFAC legislation, resulting in fewer needless alerts.

5. Secondary Sanction VS EU Statute

AML Watcher facilitates compliance with secondary sanctions by checking companies against OFAC prohibitions, allowing firms to avoid fines for doing business with sanctioned parties.

It also complies with the EU Blocking Statute, allowing EU enterprises to avoid US secondary sanctions while remaining compliant with EU legislation.