When OFAC Legal Services Facilitation Goes too Far
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.