What is the Office of Foreign Assets Control (OFAC)?

The Office of Foreign Assets Control (OFAC) is a division of the U.S. Department of the Treasury. The main responsibility of this division of Treasury is to implement and enforce economic and trade sanctions to support U.S. national security and foreign policy objectives. OFAC acts against individuals, entities, and regimes that pose a threat to the United States by imposing measures such as asset freezes, trade embargoes, and restrictions on financial transactions.

The purpose of these sanctions is to dismantle financial flows supporting terrorism, human rights violations, drug trafficking, and the proliferation of weapons of mass destruction.

How OFAC Enforces Sanctions

OFAC administers a range of sanction programs under authorities conferred by congressional legislation and executive orders. These programs usually target specific countries, terrorist organizations, drug traffickers, proliferators of weapons, or others whose activities threaten U.S. interests.

Key mechanisms of enforcement include:

• Blocking of assets within U.S. jurisdiction
• Prohibiting transactions with designated parties
• Imposing civil and criminal penalties for non-compliance

OFAC Sanctions Lists

OFAC maintains several sanctions lists to help financial institutions and businesses identify and avoid dealings with prohibited parties. These lists can be broadly categorised in two types as follows:

1. Specially Designated Nationals (SDN) List

The SDN List includes individuals, entities, and vessels identified as involved in terrorism, transnational crime, narcotics trafficking, or other threats. U.S. persons are generally prohibited from dealing with SDNs, and their assets under U.S. jurisdiction are frozen. These are also known as full blocking sanctions

2. Non-SDN Sanctions Lists

All other sanctions which do not fall in full blocking sanctions are categorized as Non-SDN lists. Different lists in this category impose different type of restrictive measures. Some of the Non-SDN lists include:

• Sectoral Sanctions Identifications (SSI): Targets some critical sectors of the Russian economy; restricts dealings in specific debt or equity instruments.
• Foreign Sanctions Evaders (FSE): Includes persons who violate or evade U.S. sanctions by dealing with designated individuals and entities.

Although less restrictive than the SDN list, these lists also prohibit certain types of transactions and are vital for a comprehensive sanctions screening strategy.

Why OFAC Matters in National Security and Global Compliance

OFAC plays a pivotal role in advancing U.S. diplomatic and security goals through disrupting financial access for bad actors. Financial institutions, through which most of the cross-border transactions take place, are the frontline enforcers of OFAC rules and must adopt rigorous measures to prevent prohibited transactions.

OFAC’s influence extends globally. Even non-U.S. entities can be penalized under so-called secondary sanctions if they engage with sanctioned parties or jurisdictions, especially sanctions that target countries like Iran, North Korea and Russia.

OFAC Compliance for Financial Institutions

Financial institutions should screen customers, counterparties, and transactions against OFAC’s lists before onboarding or processing payments. This includes:

• Sanctions Compliance should be part of broader AML compliance programs
• Automated screening systems to detect potential matches
• Enhanced due diligence for high-risk customers
• Blocking or rejecting prohibited transactions and reporting them to OFAC within 10 business days

Non-compliance can lead to severe penalties. In one 2019 case, a U.S. bank was fined over $50 million for processing transactions involving SDNs.

What OFAC Means for Non-Regulated Businesses in the USA

Even businesses not explicitly subject to AML regulations—such as tech firms, manufacturers, and retailers—are obliged to comply with OFAC sanctions. These entities are prohibited from:

• Doing business with any entity or person on OFAC’s SDN list.
• Facilitating transactions that violate sanctions, even indirectly.

For example, exporting software to a sanctioned country (like Iran, North Korea or Russia) or person can constitute a violation. These businesses, especially those dealing in cross-border trade of goods or services, should implement basic due diligence and screening procedures to avoid unintentional breaches.

When Are OFAC Checks Mandatory?

Performing OFAC checks is a legal obligation for U.S. persons and entities engaged in financial transactions. This ensures that businesses do not unintentionally facilitate money laundering, terrorist financing, or other prohibited activities.

OFAC compliance is required:

• Before forming new partnerships or client relationships
• During ongoing monitoring of transactions
• Whenever new sanctions or designations are issued

OFAC frequently updates its sanctions lists—sometimes multiple times per week. For effective compliance, businesses should use screening tools that keep pace with these updates.

Conclusion

OFAC is a cornerstone of the U.S. sanctions and AML framework. Adhering to its regulations not only defends national security but also protects financial institutions from reputational and financial damage. Given the complexity of sanctions regimes, maintaining updated, automated, and accurate screening tools is essential.