OFAC Masterclass 2022

In this class we review the fundamentals of the OFAC-administered sanctions architecture, identifying and discussing the relationships between sources of law (e.g. regulations and statutes) and auxiliary sources of information and authority (e.g. guidance and FAQs). The second part of the session focuses on the scope and application of the basic blocking prohibition, which appears in dozens of different OFAC sanctions programs and accounts for a substantial portion of the OFAC-administered sanctions architecture. With few exceptions, it is interpreted and applied consistently across programs, and mastery of the blocking prohibition aids with virtually all other types of OFAC-related questions. We first address the question of whether the blocking prohibition applies to a given transaction as a threshold question, breaking the analysis into a series of discrete questions:

• Question 1: Does the transaction involve a “U.S. person” or other person subject to OFAC’s jurisdiction?
• Question 2: Does the transaction involve one or more blocked persons? (E.g. SDNs, persons blocked pursuant the 50% rule, persons “controlled” by blocked governments).
• Question 3: Does the transaction entail a direct or indirect “dealing” in “property” in which a blocked person has an “interest”? (Or “facilitation” thereof?)
• Question 4: Does the transaction entail the provision/receipt of funds, goods or “services” to or from a blocked person? (Or “facilitation” thereof?)

In this class we build on the lessons learned in Class 1 and address the scope and operation of the standard, non-blocking IEEPA-based embargo programs (Iran, Syria, North Korea, Crimea).

• The determination of whether a non-blocked person is subject to an applicable prohibition (i.e. the question of whether an person is “in” or “ordinarily resident in” a sanctioned territory)
• The application of the cross-programmatic prohibitions on the “import” and “export” of “services” and “goods”; the “new investment” prohibition
• The peculiarities of the Syria program (e.g., no import prohibition, exports governed by Commerce)
• The peculiarities of the Cuba program (e.g., expansive jurisdiction; all nationals are “blocked”; prohibitions on dealing in Cuban-origin items)
• The peculiarities of the Iran program (e.g., expansive jurisdiction; prohibition on dealings in Iranian-origin goods and services)

We also address the most popular general licenses and exemptions that apply, in a similar fashion, across multiple embargo programs and generally exclude SDNs:

• The standard “noncommercial, personal remittances” GLs
• Issues involving the operation and maintenance of accounts for sanctioned individuals
• Exportation of communications-related services and goods
• The “publishing” GLs
• The mail and telecommunications GLs
• Agricultural/medical-related GLs
• GLs and exemptions for the “official business” of the U.S. government; United Nations and others
• The travel exemption
• The exemptions for personal communications and “information and informational materials”

• The securities-focused “Chinese Military Companies Sanctions” program
• The four Russia-related “sectoral sanctions” directives (e.g., “new debt” and “new equity”)
• The Russia-related “directives” imposing prohibitions on certain dealings in sovereign debt
• The irregular Venezuela-related prohibitions on Venezuelan government debt and equity (and related general licenses)

In the second part of the class, we discuss methodologies for, and questions related to, the addressing of ambiguous provisions. This lesson has broad applicability to all OFAC-related primary sanctions questions, and includes the following:

• Past and Parallel Practice: whether and under what circumstances it is advisable to presume that a standard provision will be interpreted harmoniously cross-programmatically
• The Use and Significance of On-Website Guidance: a discussion of the role of FAQs, “Interpretive Rulings,” “FAQs,” enforcement actions and other documents published and current on OFACs website that do not technically have the “force of law”
• The Use and Significance of Off-Website Guidance: a discussion of the role of published guidance removed from OFAC’s website, unpublished binding guidance letters, specific licenses, court filings and other “authoritative” interpretations of the law attributable to OFAC
• Considerations for Approaching OFAC: calling the “hotline,” requesting formal guidance, or neither

We also address the important legal distinctions between primary and secondary sanctions regimes. These include the distinction between “prohibited” and “sanctionable” conduct, as well as the difference between the “licensing” and “non-enforcement” methods for mitigating the unwanted effects of the breadth of sanctions provisions.

This second part focuses on U.S. sanctions provisions that can trigger the “sanctioning” of non-U.S. persons for activities that may not—and typically does not—have any nexus to the U.S.

We provide an overview of the active authorities and sets out an analytical framework for addressing “secondary sanctions” problems:

• Question 1: Is the transaction within the theoretical scope of a secondary sanctions or “derivative designation” provision?
  • What is the meaning of the term “significant transaction”
  • What is the meaning of the term “materially assists”
  • What does it mean to “operate in” a targeted sector of a given economy?
• Question 2: Does a statutory exemption or exclusion to the sanctions provision apply?
• Question 3: Would the transaction require a specific license if engaged in by a U.S. person?
• Question 4: How do we assess the risk that a theoretically sanctionable transaction carries a material designation risk?
• Question 5: Is it possible to seek comfort from OFAC or the State Department that theoretically sanctionable conduct will not result in the imposition of sanctions?

Estimated time investment: 1 hour