From last week’s post (https://thesanctionsgeek.com/oh-the-myriad-ways-ofac-can-blacklist-you/), if you happen to find yourself or a business partner triggering a blacklist screen alert, there might be different reasons for the trigger that merit inquiry. It could be due to mistaken identity or changed circumstances, and there is potential to request delisting.
I. Mistaken Identity Delisting
In my last Fortune 200 company job, I travelled to Mexico City with one of our internal auditors (who was fully bilingual in both Spanish and English). The problem was that his named triggered a “specially designated national” (SDN) match which also translated into a “Do Not Fly” prohibition. Fortunately, this was not the first time my former work colleague had encountered this issue, and he produced an electronic file with key documentation indicating his full name, place and date of birth as well as his current residence address. All of these were distinguishing facts that helped clear his name. We boarded our flight without further ado.
There is an Office of Foreign Asset Control (OFAC) procedure under 31 CFR § 501.806 to petition to unblock funds that have been frozen due to mistaken identity. Under subsection (d), a request to release funds should include the following information, where known, concerning the transaction:
(1) The name of the financial institution in which the funds are blocked;
(2) The amount blocked;
(3) The date of the blocking;
(4) The identity of the original remitter of the funds and any intermediary financial institutions;
(5) The intended beneficiary of the blocked transfer;
(6) A description of the underlying transaction including copies of related documents (e.g., invoices, bills of lading, promissory notes, etc.);
(7) The nature of the applicant’s interest in the funds; and
(8) A statement of the reasons why the applicant believes the funds were blocked due to mistaken identity.
This can happen more often than not if the financial institution uses screening software with fuzzy logic that picks up potential aliases. Indeed, many banks have received harsh OFAC penalties and tend to err on the side of caution. A well documented request can ensure release of overzealous fund blocking in relatively short order.
II. Changed Circumstances Delisting
It is also possible that one is being blocked as a result of a true SDN match. There is also a procedure to request reconsideration based on changed circumstances. 31 CFR § 501.807 governs Requests for delisting from the SDN and Blocked Persons List.
This regulation provides a procedure for submitting arguments or evidence that might establish that insufficient basis exists for the SDN designation. The blocked person also may propose remedial steps, such as corporate reorganization, resignation of persons from positions in a blocked entity, or similar steps, which the person believes would negate the basis for designation.
As another example, the regulation explains a person owning a majority interest in a blocked vessel may propose the sale of the vessel, with the proceeds to be placed into a blocked interest-bearing account after deducting the costs incurred while the vessel was blocked and the costs of the sale. Taking such action could provide grounds for delisting as an SDN.
III. It is Advisable to Request a Meeting with OFAC on Delisting
§ 501.807(c) permits a blocked person to request a meeting with the OFAC decision makers; however, the regulation states such meetings are not required and that OFAC may, at its discretion, decline to conduct such a meeting.
With experienced counsel, it is highly advisable to request such a meeting. The value of establishing credibility in-person cannot be understated with so much at stake in such proceedings. When making the initial request, it will be necessary to inquire about the in-person meeting opportunity at the same time. To have the best hope of having a meeting request granted, one should present a proposed agenda along with a list of supporting documents, visual aids and third party certifications and verifications.
Following last week’s post on the importance of screening (https://thesanctionsgeek.com/3-key-steps-in-ofac-compliance-screen-screen-and-screen/), it is mission critical to know OFAC has more than one way to blacklist a bad actor.
I. Specially Designated Nationals and Blocked Persons Blacklist (SDNs)
The SDNs comprise a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. Their assets are blocked and U.S. persons are generally prohibited from dealing with them. (Please see: https://home.treasury.gov/policy-issues/financial-sanctions/specially-designated-nationals-and-blocked-persons-list-sdn-human-readable-lists).
II. Other Non-Blocking OFAC Blacklists
OFAC also generates these other sanctions blacklists (where blocking is not required but other prohibitions and investment restrictions apply). (Please see: https://home.treasury.gov/policy-issues/financial-sanctions/consolidated-sanctions-list-data-files):
Foreign Sanctions Evaders List – a list of foreign individuals and entities determined to have violated, attempted to violate, conspired to violate, or caused a violation of U.S. sanctions on Syria or Iran pursuant to Executive Order 13608. It also lists foreign persons who have facilitated deceptive transactions for or on behalf of persons subject to U.S. sanctions.
Non-SDN Palestinian Legislative Council List – section (b) of General License 4, issued pursuant to the Global Terrorism Sanctions Regulations (31 C.F.R. Part 594), the Terrorism Sanctions Regulations (31 C.F.R. Part 595), and the Foreign Terrorist Organizations Sanctions Regulations (31 C.F.R. Part 597), authorizes U.S. financial institutions to reject transactions with members of the Palestinian Legislative Council (PLC) who were elected to the PLC on the party slate of Hamas, or any other Foreign Terrorist Organization (FTO), Specially Designated Terrorist (SDT), or Specially Designated Global Terrorist (SDGT).
Non-SDN Iranian Sanctions List – under Section 6 of the Iran Sanctions Act or under the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, as amended, the President, the Secretary of State, or the Secretary of the Treasury imposes non-blocking sanctions on a person.
Non-SDN Menu-Based Sanctions List (NS-MBS List) – this list is designed as a reference tool that identifies persons subject to certain non-blocking menu-based sanctions that have been imposed under statutory or other authorities, including certain sanctions described in Section 235 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), as implemented by Executive Order 13849, and the Ukraine Freedom Support Act of 2014, as amended by CAATSA. The NS-MBS List also will specify the type of sanction or sanctions imposed on the listed person and the legal authority under which the person is sanctioned.
III. Distinguish Treasury’s OFAC from Commerce Blacklists
It is important to distinguish these Treasury OFAC lists from Commerce’s Bureau of Industry and Security (BIS) Denied Persons and Entity Lists. (https://home.treasury.gov/policy-issues/financial-sanctions/faqs/56).
The Denied Persons List consists of individuals and companies that have been denied export and reexport privileges by BIS. The Entity List consists of foreign end users who pose an unacceptable risk of diverting U.S. exports and the technology they contain to alternate destinations for the development of weapons of mass destruction.
Accordingly, U.S. exports to those entities may require a license. Authority for the Denied Persons List and the Entity List can be found in Title 15, Part 764, Supplement No. 2 and Title 15, Part 744, Supplement No.4 of the U.S. Code of Federal Regulations, respectively.
I occasionally receive questions over how best to cover the bases when OFAC can easily add new specially designated nationals on a daily basis. The three key steps are to screen, screen and screen!
I. Screen Intervention Points
The intervention points for screening include:
At the onboarding stage for business partners;
At the order in-take stage in a given transaction; and
At the time of shipment should there be a lag between the date of order intake versus shipment date.
It will also be necessary to batch screen on a periodic basis to make sure previously on-boarded business partners are still in the clear. That is, there are certainly instances where a customer or supplier will clear the initial screening only to turn into a bad apple at a later date.
II. URL Screen
If the company provides technical support on-line, it will even be necessary to screen for embargoed country URL addresses to avoid inadvertently undertaking business with prohibited parties. This scenario arises more frequently than not as third parties in benign countries can resell to parties in one of the embargoed countries (currently, those countries and regions include: Crimea, Cuba, Iran, North Korea and Syria).
III. Alias Screen
There is also the need to be able to pick up close spellings and aliases. This screening functionality is known as “fuzzy” logic. In fact, OFAC just upgraded its own free screening tool with this capability as reported last month (please see: https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20210125). The URL for OFAC’s screening tool is: https://sanctionssearch.ofac.treas.gov/
IV. Key Lists To Screen Against
Moreover, if a company is globally deployed, it will be necessary to ensure other key lists are screened above and beyond the U.S. lists. At a minimum, screening should take place against these lists:
CAATSA Section 231(d) Defense and Intelligence Sectors of the Government of the Russian Federation
US Dept. of Treasury
List of Foreign Financial Institutions
US Dept. of State
SDN, Western Balkans (OFAC)
US Dept. of Treasury
Correspondent Account or Payable-Through Account Sanctions (OFAC)
US Dept. of Treasury
Chemical Biological Weapons Concerns (DOS)
US Dept. of State
Non-SDN Communist Chinese Military Companies List
US Dept. of Treasury
Cuba Prohibited Accommodations List (DOS)
US Dept. of State
Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA) – Section 224 (OFAC)
US Dept. of Treasury
Malicious Cyber-Enabled Activities (OFAC)
US Dept. of Treasury
Department of State Debarred Parties (DOS)
US Dept. of State
Department of State, China
US Dept. of State
Foreign Interference in a United States Election (OFAC)
US Dept. of Treasury
Designated Terrorist Organization (DOS/OFAC)
US Dept. of State
Department of State Cuba Restricted List
US Dept. of State
End-User Requiring License – Entity List
US Dept. of Commerce
European Union Sanctions List
European Union
US Presidential Executive Order List
White House
Foreign Sanctions Evaders List (OFAC)
US Dept. of Treasury
Money Laundering Concerns (FINCEN)
US Dept. of Treasury
German Proliferation Concerns (Concern List Only)
German Government (BAFA)
Human Rights Information Technology (OFAC)
US Dept. of Treasury
Blocking Property of Certain Persons Associated with the International Criminal Court
US Dept. of Treasury
Iran Sanctions Act (DOS)
US Dept. of State
Iran, North Korea and Syria Non-proliferation Act
US Dept. of State
Japanese Proliferation Concerns (METI)
Japanese Ministry of Economy, Trade and Industry (METI)
Transfer of Lethal Military Equipment (DOS)
US Dept. of State
Military End User List, Commerce
US Dept. of Commerce
Missile Technology Concerns (DOS)
US Dept. of State
Merchant Vessel, Cuba (OFAC)
US Dept. of Treasury
Weapons of Mass Destruction Proliferators and Their Supporters
US Dept. of Treasury
Non-SDN Menu-Based Sanctions List (CAATSA RUSSIA) (OFAC)
US Dept. of Treasury
Non-SDN Palestinian Legislative Council (OFAC)
US Dept. of Treasury
Red Flag Concerns (BIS)
US Dept. of Commerce
Specially Designated Global Terrorist-SDGT (OFAC)
US Dept. of Treasury
Specially Designated Terrorists – SDME (OFAC)
US Dept. of Treasury
Specially Designated Nationals, Belarus (OFAC)
US Dept. of Treasury
Specially Designated Nationals, Burundi
US Dept. of Treasury
Specially Designated Nationals, Cuba (OFAC)
US Dept. of Treasury
Specially Designated Nationals, Central African Republic
US Dept. of Treasury
Specially Designated Nationals, Congo (OFAC)
US Dept. of Treasury
Specially Designated National, Hong Kong (OFAC)
US Dept. of Treasury
Specially Designated Nationals, Iraq (OFAC)
US Dept. of Treasury
Specially Designated Nationals, Iran (OFAC)
US Dept. of Treasury
Specially Designated Nationals, N. Korea (OFAC)
US Dept. of Treasury
Specially Designated Nationals, Libya (OFAC)
US Dept. of Treasury
Specially Designated Nationals, Lebanon
US Dept. of Treasury
Specially Designated Nationals, Mali
US Dept. of Treasury
Specially Designated Nationals, Nicaragua (OFAC)
US Dept. of Treasury
Specially Designated Nationals, Sudan (OFAC)
US Dept. of Treasury
Specially Designated Nationals, South Sudan (OFAC)
US Dept. of Treasury
Specially Designated Nationals, Sergei Magnitsky (OFAC)
One of the tricky aspects of being an attorney licensed in a U.S. state and specialized in OFAC sanctions law is this: the potential to go too far in inadvertently facilitating a bad actor through the provision of legal services. This is because a U.S. person is prohibited from exporting services to, as well as from importing services from, a blocked person or specially designated national (SDN).
A. The OFAC Prohibition
As OFAC itself states the prohibition (at: https://home.treasury.gov/system/files/126/compliance_services_guidance.pdf):
“U.S. persons, wherever located, may not otherwise approve, finance, facilitate, or guarantee any transaction by a foreign person [. . . ] where the transaction by that foreign person would be prohibited by 31 C.F.R. chapter V if performed by a U.S. person or within the United States.”
B. OFAC FAQs on What is Permissible
OFAC FAQs provide examples of what would be permissible at: https://home.treasury.gov/policy-issues/financial-sanctions/faqs/topic/1526.
FAQ 497 gives an example where a U.S. person may opine on the legality of a transaction under U.S. sanctions laws (though not to an SDN). This can include providing a legal opinion, certification, or other clearance as to the legality of such transaction, where it would be prohibited for a U.S. person to engage in the transaction. This suggests that being provided a set of facts or hypothetical facts would present a permissible opportunity to counsel the client on the legality of the circumstances.
FAQ 498 elaborates that U.S. persons may conduct research to determine the legality of transactions under U.S. sanctions laws. Using the internet, including searches of commercial databases, as well as published reference materials are all permissible. In addition, U.S. persons may solicit information regarding a transaction from non-blocked (non-SDN) persons. This can include, for example, the currency involved; any involvement of U.S. persons, directly or indirectly; and the identity of the counterparty.
C. OFAC FAQ on What is Not Permissible
However, FAQ 497 (second part), by contrast, warns that U.S. persons could not vote on a transaction (e.g., as a board member), or execute transaction documents (other than as to the legality of the transaction), where the transaction would be prohibited if performed by a U.S. person or within the United States. This would seem to suggest, in providing legal services, that offering alternative hypothetical scenarios that would be permissible for a foreign person, but not so for a U.S. person, would be going too far.
D. Is It OFAC Sanction Avoidance vs Evasion at the Crux of the Matter?
In short, an attorney licensed in a U.S. state (or who is otherwise a U.S. person/compliance advisor) must be careful not to cross the line. The line is akin to tax evasion versus tax avoidance (the former is illegal while the latter is legal). Put another way, the above examples authorize an attorney licensed in a U.S. state to provide counsel to non-blocked (non-SDN) persons on legitimately minimizing sanctions exposure; what is prohibited is aiding and abetting a foreign person in undertaking action that would otherwise be prohibited of a U.S. person or, put another way, in facilitating outright evasion of OFAC sanctions.
Please leave your thoughts below on whether this discussion is helpful.
