FREQUENTLY ASKED QUESTIONS

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) administers and enforces the nation’s economic sanctions programs, based on various statutes and executive orders, including against entire countries, their governments, geographic regions, and groups of individuals or entities. The sanctions can include the full blocking of the sanctioned target’s assets and/or various trade restrictions.

U.S. export controls are primarily administered and enforced by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of State’s Directorate of Defense Trade Controls (DDTC). 

BIS administers the Export Administration Regulations (EAR), which regulate the export, reexport, and transfer (in-country) of most commercial items of U.S.-origin (“dual-use” items), wherever located, and imposes licensing requirements depending on their intended end-user, end-use, and/or destination. The EAR’s jurisdiction and licensing requirements can also extend to foreign-made items depending on the involvement or incorporation of U.S.-origin goods, technology, and software, as well as their intended end-user, end-use, and/or destination.

DDTC administers the International Traffic in Arms Regulations (ITAR), which regulates the export, reexport, and transfer of primarily defense articles and defense services. 

In general, OFAC administered sanctions programs prohibit persons subject to U.S. jurisdiction from engaging in virtually any transactions or dealings with a sanctioned target, unless exempt by statute or authorized by an OFAC issued license.

Depending on the respective sanctions authority, exemptions generally include transactions ordinarily incident to travel or the exchange of informational materials, and several others. However, the applicability of such exemptions ultimately depends on the relevant OFAC administered sanctions laws and regulations.

For any transactions that are prohibited and not otherwise exempt, an OFAC general or specific license would be required in order to proceed. 

A general license authorizes a particular type of transaction for a class of persons that would otherwise be prohibited under applicable OFAC administered sanctions laws and regulations, without the need to apply to the agency for a license to engage in the transaction. 

For any other activity that would be prohibited and that is not covered by a general license or otherwise statutorily exempt, the concerned person can submit a written application to OFAC requesting specific license authorization. If after reviewing the application OFAC decides to grant the requested authorization, it will issue to the particular individual or entity a specific license. 

OFAC does not maintain an official or otherwise specific list of countries that persons subject to U.S. jurisdiction are prohibited from doing business with. OFAC’s various sanctions programs, and the  laws and regulations that comprise them, vary in scope. While some countries or geographic regions are indeed subject to a comprehensive embargo (e.g., Iran, Cuba, North Korea, Syria, and the Crimea region of Ukraine), a majority of OFAC’s sanctions programs target specific individuals and entities—who can be located anywhere in the world—with sanctions. 

Sanctioned individuals and entities  may be identified on various OFAC administered sanctions lists. However, entities that they own directly or indirectly, 50 percent or more, whether individually or in the aggregate with other sanctioned persons, can also be subject to applicable sanctions authorities under OFAC’s 50 Percent Rule. 

There are also several OFAC sanctions programs targeting specific countries that are unique in nature, including Russia and Venezuela for example. Although they do not amount to a comprehensive embargo, these sanctions programs do greatly restrict persons subject to U.S. jurisdiction from engaging in various specified transactions involving their economies and/or governments, as well as numerous individuals and entities identified on OFAC’s sanctions lists.

Several OFAC sanctions programs, premised on the laws and regulations that comprise them, prohibit persons subject to U.S. jurisdiction from engaging in virtually any transactions or dealings with certain countries or geographic regions, unless authorized by an OFAC license or statutorily exempt. Examples of such comprehensively sanctioned countries/regions include Iran, Cuba, North Korea, Syria, and the Crimea region of Ukraine. The broad scope of these prohibitions include direct or indirect transactions related to investments, and the export or import of goods and services. 

The U.S. Department of Commerce’s Bureau of Industry and Security’s (BIS) Export Administration Regulations (EAR) have imposed stringent licensing requirements on the export, reexport, and transfer (in-country) of numerous ordinary consumer goods to or within Russia and Belarus — i.e., items that are “EAR99” as opposed to being controlled for more sophisticated dual-use purposes with an “ECCN.” These licensing requirements apply to hundreds of “luxury” and “industrial” items that are considered subject to the EAR (because of their U.S.-nexus), including for example: clothing, perfumes, fountain pens, pianos, printer ink, paints and varnishes, bakery ovens, and sewing machines. Furthermore, pursuant to the U.S. Department of the Treasury’s Office of Foreign Assets Control’s (OFAC) Russia/Belarus-related sanctions programs, numerous persons have been targeted by sanctions, and persons subject to U.S. jurisdiction are prohibited from engaging in virtually any transactions with such designated persons, including exports of any goods or services.

If your company’s goods were exported to Russia or Belarus, to intermediaries in third-countries who continued to forward them to those destinations, or even to third-countries where such intermediaries may have illicitly diverted the goods without your knowledge (especially those considered to be at risk of diversion), your bank may be seeking assurances that the transactions were not prohibited under the EAR and/or OFAC administered sanctions programs. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has enlisted financial institutions to be vigilant and report suspicious activity related to efforts by individuals or entities to evade U.S. export controls and sanctions. 

Check out our blog post on this topic for more information. 

The Iranian Transactions and Sanctions Regulations (ITSR) prohibit U.S. persons–a broadly defined category–from engaging in virtually any transactions or dealings with Iran or the Government of Iran, unless statutorily exempt or authorized under a license issued by OFAC. A general license is available for certain types of real and personal property transactions. For any other real or personal property transactions related to Iran and that are not covered by the general license, a specific license from OFAC would be necessary.

Whether the ITSR’s general license covers any intended real or personal property transactions related to Iran requires a fact specific assessment. Check out our blog post for more information. 

Whether your intended shipment of an item (commodity, software, or technology) from the United States requires a license from OFAC, BIS, and/or DDTC, it primarily depends on: (1) the end-user, end-use, and destination; and (2) the classification of the item against the Export Administration Regulations’ (EAR) Commerce Control List (CCL) or the International Traffic in Arms Regulations’ (ITAR) United States Munitions List (USML). 

All U.S.-origin items are subject to the EAR, but a majority are designated as EAR99 which generally consist of low-technology or consumer goods, and generally don’t require a license unless they are being shipped to an embargoed or sanctioned destination, or a restricted end-user or end-use. If an item is of a more dual-use nature, because it can be used for both civilian and military applications, it may be identified on the CCL with an Export Control Classification Number (ECCN), which may require a BIS license.

Items of a primarily defense/military nature are likely to be identified on the USML and may require a license from DDTC for their export.

Whether the intended shipment of an item (commodity, software, or technology) from outside of the United States to a third country requires a license from the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), depends on if the item is subject to the Export Administration Regulations (EAR). If the item is subject to the EAR, the intended end-user, end-use, and/or destination may invoke the EAR’s licensing requirements for its reexport (i.e. shipment from outside of the United States to a third country). 

All U.S. origin items, wherever located, are subject to the EAR. However, foreign-made items that incorporate or involve certain controlled U.S. origin content, or that are produced involving certain specified U.S. technology or software, may also be subject to the EAR depending on their intended end-user, end-use, or destination.

OFAC administered sanctions programs on comprehensively or extensively sanctioned countries or regions, such as Iran, North Korea, Syria, Cuba, Venezuela, Russia and certain regions of Ukraine, incorporate various general licenses related to the commercial sale, exportation, or reexportation of certain agricultural commodities, medicine, and medical devices. There are also certain statutory exemptions available, depending on the program, for donations of articles such as food, clothing, and medicine, intended to be used to relieve human suffering. 

However, these general license authorizations are limited in their scope and terms, and persons making use of them should ensure full compliance. In addition, BIS’s Export Administration Regulations (EAR) also impose certain simultaneous embargo controls on all such countries and regions, and although they also contain various exclusions and exceptions for food, medicine, and/or medical devices, they have their own respective scope and limitations that must be considered. 

No, an entity that is controlled but not owned 50 percent or more by one or more blocked persons, including persons identified on the SDN List, is not considered automatically blocked under OFAC’s 50 Percent Rule. However, caution should be exercised in dealing with such an entity to avoid dealings with the blocked person. 

In addition, certain OFAC sanctions programs impose full blocking sanctions on persons without an OFAC designation or under the 50 Percent Rule, including entities that meet the definition of a government that is blocked pursuant to applicable sanctions authorities (e.g., the governments of Cuba, Iran, North Korea, Syria, Venezuela, and the sanctioned regions of Ukraine).

U.S. law does not mandate organizations to have their own sanctions or export controls-related compliance program. However, businesses subject to U.S. jurisdiction under relevant OFAC administered sanctions laws and regulations, wherever located, must comply. In addition, businesses dealing in items (i.e., commodities, software, and technology) subject to BIS’s Export Administration Regulations (EAR) and/or DDTC’s International Traffic in Arms Regulations (ITAR) must comply with the respective regulations, wherever located. Therefore, businesses should take a risk-based approach to compliance based on a variety of factors, including their respective size, sophistication, products and services, customers and counter-parties, geographic locations, and other operational idiosyncrasies. 

An organization’s sanctions and/or export compliance program, including applicable procedures and controls, will be designed and updated based on its respective risk profile. The existence and adequacy (or lack thereof) of such compliance programs can act as a mitigating or aggravating factor in the event of an enforcement response for any potential violations of relevant laws and regulations. 

Yes. The U.S. Department of Commerce’s Bureau of Industry and Security’s (BIS) Export Administration Regulations (EAR) have an administrative process in place for any entity listed on the Entity List to request removal or modification of its listing. To initiate the process, requests are submitted in writing to the End-User Review Committee (composed of representatives from various U.S. government agencies), which reviews them in accordance with certain regulatory procedures in arriving at its final decision. Check out our blog post for more information on How to Go About Removal from the BIS Entity List. 

Yes. Persons identified on any sanctions lists administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), including the SDN List, can petition the agency for removal from the corresponding list(s). OFAC’s regulations have procedures in place governing delisting requests. In general, persons seeking rescission of their designation must either evidence that an insufficient basis exists for the designation, and/or propose remedial measures that would negate the basis for the designation. While each petition case is unique, according to OFAC each year it removes hundreds of individuals and entities from the SDN List. 

No, not only does the Uyghur Forced Labor Prevention Act (UFLPA) apply a presumption that imports of all goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region (Xinjiang) of China are presumed to be made with forced labor and prohibited from entry into the United States, but the presumption also covers goods involving entities identified by the U.S. government on the UFLPA Entity List, as well as goods made in, or shipped through China and other countries that include inputs made in Xinjiang.  

For any exports, reexports, or transfers (in-country) of items subject to BIS’s Export Administration Regulations (EAR) involving persons on the Unverified List (UVL), the following restrictions and requirements apply in addition to any other licensing requirements under the EAR: 

• Obtain a UVL statement from the listed person consistent with 15 C.F.R. § 744.15(b); 
• No BIS License Exceptions may be used; and
• Electronic Export Information (EEI) must be filed to the U.S. Census Bureau’s Automated Export Systems (AES), regardless of the underlying transactional value or destination of the export/reexport. 

Check out our related blog post for more information on the regulatory removal process from the UVL.