How Does the U.S. Handle Sanctions Against Other Countries?

A Dubai-based logistics company wired €180,000 to a European supplier in February 2026. The payment never arrived—a U.S. correspondent bank flagged the recipient as sharing a beneficial owner with a Specially Designated National. The company had 30 days to submit a blocking report to OFAC or face civil penalties, even though neither party was American.

The United States handles sanctions against other countries through the Office of Foreign Assets Control (OFAC), a bureau within the U.S. Department of the Treasury. OFAC administers country-specific and individual-targeted sanctions programmes, enforcing restrictions on financial transactions, trade, and travel involving sanctioned jurisdictions and persons. Here’s what makes OFAC’s reach unusual: these measures bind not only U.S. citizens and entities, but through the dollar-clearing system, reach foreign companies worldwide—even when neither side of a transaction is American.

OFAC sanctions are economic restrictions imposed by the U.S. government, prohibiting transactions with designated countries, regimes, individuals, or entities deemed threats to U.S. national security, foreign policy, or economic interests. Sanctions may be comprehensive (blocking nearly all dealings with a country) or targeted (restricting specific persons or economic sectors).

Key Takeaways

• OFAC administers over 40 active sanctions programmes targeting countries, regimes, terrorists, narcotics traffickers, and weapons proliferators.
• Primary sanctions bind U.S. persons—citizens, permanent residents, anyone within U.S. territory, and U.S.-incorporated entities wherever they operate.
• Secondary sanctions reach non-U.S. persons by threatening loss of access to U.S. markets or the dollar-clearing system if they transact with sanctioned parties.
• When assets are blocked, you have 10 business days to report them to OFAC. Until then, the money sits frozen—typically in an interest-bearing account, but indefinitely, unless OFAC issues a license or the sanctions programme is lifted.
• Violations carry civil penalties up to the greater of $356,579 per violation or twice the transaction value. Criminal prosecution is also possible.

Why Does the U.S. Use Sanctions as a Foreign Policy Tool?

Economic sanctions function as a middle option between diplomacy and military intervention. The U.S. government deploys them against terrorism, narcotics trafficking, weapons proliferation, human rights abuses, and threats to democratic institutions. OFAC targets “foreign jurisdictions and regimes” and certain persons engaged in harmful activity—responding, in theory, to genuine threats to national security, foreign policy, or the U.S. economy.

Sanctions work because they disrupt access to the international financial system. The U.S. dollar dominates global trade settlement. Most cross-border payments route through U.S. correspondent banks. A sanctioned entity denied banking services by one institution faces denial worldwide, because financial institutions fear losing their own access to dollar clearing if they’re caught transacting with a blocked party.

Congress grants the President authority to declare national emergencies under the International Emergency Economic Powers Act (IEEPA). These emergency declarations, renewed annually, form the legal foundation for most current programmes—some dating back decades. The Trading with the Enemy Act (TWEA), an older statute, still governs the Cuba embargo. Here’s the practical consequence: programmes intended as temporary emergency measures often persist for years or decades, creating permanent compliance obligations.

What Types of Sanctions Does OFAC Administer?

OFAC maintains three broad categories of restrictions, each with different geographic and legal scope.

Comprehensive country sanctions prohibit nearly all transactions with a target jurisdiction. Cuba, Iran, North Korea, Syria, and specified regions of Ukraine (Crimea, Donetsk, Luhansk) remain under comprehensive programmes as of 2026. U.S. persons cannot export goods or services, import products, or engage in financial dealings without an OFAC licence. Even humanitarian trade—food, medicine, medical devices—requires careful structuring under general licences or specific authorisations. If you miss the exemption criteria, the transaction becomes a violation, regardless of intent.

Targeted (list-based) sanctions focus on individuals, companies, vessels, and aircraft designated as threats. The Specially Designated Nationals and Blocked Persons List (SDN List) names over 10,000 entries. Any U.S. person must block assets and reject transactions involving an SDN, regardless of the person’s location. The list includes terrorists, narcotics kingpins, proliferators of weapons of mass destruction, human rights abusers, corrupt officials, and entities they own or control.

Sectoral sanctions restrict specific industries within a country without imposing a blanket prohibition. Russia’s energy, defence, and financial sectors faced these restrictions following Ukraine actions. Sectoral sanctions often permit existing contracts but ban new debt or equity with specified maturities, creating complex compliance challenges for multinational firms—and expensive legal bills determining whether a contract modification counts as “new.”

Understanding the three types of OFAC sanctions is essential for any business engaged in international trade, particularly those transacting in U.S. dollars or dealing with parties in high-risk jurisdictions.

How Do Primary Sanctions Work?

Primary sanctions bind U.S. persons wherever they are located. OFAC defines U.S. persons as:

• U.S. citizens and permanent residents, regardless of where they live or work
• Any individual physically present in the United States, including foreign nationals
• Entities organised under U.S. law, including their foreign branches (but not separately incorporated foreign subsidiaries)

A U.S. person may not engage in prohibited transactions, directly or indirectly. This includes causing a non-U.S. person to violate sanctions—a principle known as “facilitation.” A U.S. manager working abroad for a foreign company cannot approve a contract with Iran, even if the company itself is not subject to primary sanctions. The manager personally violates OFAC law.

Foreign subsidiaries incorporated under foreign law sit in a grey zone. They are not automatically U.S. persons. But OFAC enforces strict rules to prevent U.S. parent companies from circumventing sanctions through their foreign subsidiaries. Any involvement by U.S. personnel—approval, financing, technical support—can trigger a violation. The compliance burden falls on the parent to police its own decisions.

The 50 Percent Rule extends blocking obligations beyond named SDNs. If one or more SDNs collectively own, directly or indirectly, 50 percent or more of an entity, that entity is automatically blocked, even if it does not appear on the SDN List. Calculating indirect ownership through chains of holding companies requires detailed due diligence. Many compliance failures stem from missing these derivative designations.

How Do Secondary Sanctions Extend U.S. Reach?

Secondary sanctions target non-U.S. persons who engage in specified activities with sanctioned countries or persons. Rather than directly prohibiting the conduct (which would exceed U.S. jurisdictional authority), secondary sanctions threaten penalties: blocking assets, denying U.S. visas, cutting off access to U.S. financial markets, or correspondent banking relationships.

Secondary sanctions programmes apply most prominently to Iran and, to a narrower extent, Russia, Venezuela, and North Korea. The Countering America’s Adversaries Through Sanctions Act (CAATSA) and subsequent legislation impose secondary sanctions on non-U.S. persons who:

• Conduct significant transactions with sanctioned Iranian financial institutions or persons
• Facilitate exports of Iranian petroleum or petrochemicals
• Transact with Russia’s defence or intelligence sectors
• Support Venezuela’s oil sector or the Maduro regime

Non-U.S. companies risk designation if they conduct substantial business in these areas. Once designated, their assets subject to U.S. jurisdiction are blocked. They lose access to U.S. banks. U.S. persons may no longer deal with them. For most multinational firms, losing dollar-clearing capacity is commercially untenable, so they voluntarily comply with U.S. secondary restrictions—even when OFAC technically lacks direct authority over them.

Secondary sanctions and how they work create extraterritorial effects that compel non-U.S. companies to choose between sanctioned markets and access to the U.S. economy.

Which Countries Are Currently Subject to U.S. Sanctions?

OFAC administers more than 40 sanctions programmes. The most restrictive as of 2026 are:

Takeaway: Comprehensive programmes prohibit nearly all dealings unless specifically licensed. Sectoral programmes require careful legal analysis to identify permissible and prohibited transactions. For a current list, consult OFAC sanctions programs directly or engage legal counsel for transaction-specific guidance.

What Happens When Assets Are Blocked?

When a U.S. financial institution identifies a payment involving a sanctioned party, it must block (freeze) the funds rather than process or return them. Blocking is mandatory, not discretionary.

The institution must:

1. Reject the transaction and freeze the associated property in an interest-bearing account
2. File a blocking report with OFAC within 10 business days, providing transaction details and the basis for blocking
3. Hold the assets indefinitely until OFAC issues a licence authorising release or the underlying sanctions programme is amended or lifted

Blocked assets remain the property of the sanctioned person but are rendered inaccessible. Interest accrues, but the funds cannot be withdrawn, transferred, or used. In some cases, assets remain blocked for decades—Cuba-related blocked accounts dating to the 1960s still exist in U.S. banks.

Non-U.S. persons whose funds are blocked by mistake (for example, a name match with an SDN) may petition OFAC for release. This requires demonstrating that the blocking was in error—submitting corporate documents, ownership charts, and identity verification. Here’s the practical catch: OFAC processing times vary wildly. Simple false-positive cases may resolve within weeks, while complex ownership inquiries can take months or longer, meaning your cash stays frozen throughout review, even if you ultimately win.

Understanding how U.S. sanctions freeze assets abroad clarifies why even non-U.S. companies holding dollar-denominated accounts face exposure when transacting with sanctioned parties.

How Are Sanctions Violations Enforced?

OFAC enforces sanctions through civil and criminal penalties. The agency investigates apparent violations, often prompted by voluntary self-disclosures from companies conducting internal audits or reports from financial institutions filing suspicious activity reports.

Civil penalties apply to both wilful and non-wilful violations. As of 2026, the maximum statutory civil penalty per violation is $356,579 or twice the value of the underlying transaction, whichever is greater. OFAC’s Economic Sanctions Enforcement Guidelines establish a framework for calculating penalties based on the violation’s seriousness, the party’s cooperation, remedial measures, and compliance programme quality.

Violations worsen when:

• conduct was wilful or reckless
• senior management knew about it
• the company had repeat violations or defective compliance systems
• assets were concealed or investigators obstructed

That said, self-reporting and comprehensive remediation can reduce penalties substantially. In practice, settlements often drop the initial demand by 50% or more for companies that disclose violations early and invest visibly in compliance overhaul.

Criminal penalties target wilful violations. The Department of Justice prosecutes these cases, which can result in fines up to $1 million per violation for corporations and up to 20 years’ imprisonment for individuals. Criminal prosecution typically targets conduct involving deception, false documentation, or deliberate schemes to evade sanctions.

Enforcement has shifted. Recent cases show OFAC and DOJ targeting non-U.S. companies and individuals who facilitate sanctions evasion, even when conducted entirely outside the United States. Jurisdiction is asserted through the use of U.S. correspondent banks, dollar-denominated transactions, or U.S.-origin goods or technology.

For businesses navigating these rules, learning how to comply with OFAC sanctions through robust due diligence, screening, and internal controls is no longer optional—it is a core risk-management imperative.

What Licences Does OFAC Issue?

OFAC issues two types of licences authorising otherwise prohibited transactions:

General licences are published regulations that authorise categories of transactions without requiring case-by-case approval. They cover activities such as:

• Personal remittances to family members in Cuba (up to specified dollar limits per quarter)
• Humanitarian exports of food, medicine, and medical devices to Iran, Syria, and other sanctioned countries (subject to detailed reporting)
• Wind-down periods for existing contracts following new designations
• Official business of international organisations and diplomatic missions

Read general licences carefully. They often contain conditions—reporting requirements, dollar caps, prohibited end-users—that, if violated, void the authorisation and result in an unlicenced transaction.

Specific licences are case-by-case authorisations issued in response to written applications. Applicants must demonstrate that the proposed transaction serves U.S. foreign policy or national security interests or falls within established licensing policy. OFAC typically grants these when:

• Legal fees and costs are needed to defend against enforcement actions
• The blocked person was misidentified (genuine case of mistaken identity)
• Humanitarian assistance falls outside general licence scope
• Commercial transactions align with stated U.S. policy (for example, civil aviation safety)

Processing speed remains opaque. OFAC does not publish average timelines, and experiences vary widely. Simple cases—correcting mistaken blocks—may conclude in weeks. Complex commercial requests often take months or longer, especially where interagency coordination is required. Applicants should submit comprehensive supporting documentation, articulate a clear policy rationale, and propose transaction structures that mitigate sanctions-evasion risk. Follow-up correspondence and phone calls can expedite review but provide no guarantee.

What Compliance Obligations Do Non-U.S. Companies Face?

Non-U.S. companies with no U.S. presence are not subject to primary sanctions. Except—they face significant indirect pressure:

Correspondent banking exposure: Most international banks maintain correspondent accounts with U.S. banks to clear dollar transactions. OFAC holds U.S. banks responsible for screening payments that transit their systems. As a result, foreign banks worldwide impose their own OFAC screening to avoid being cut off by U.S. correspondents. A rejected payment can damage commercial relationships, trigger costly investigations, and jeopardise future access to dollar clearing.

Secondary sanctions risk: Non-U.S. companies engaging in specified activities—particularly with Iran, North Korea, Russia’s defence sector, or Venezuela’s oil industry—risk designation under secondary sanctions authorities. Designation blocks U.S.-situs assets and severs access to the U.S. financial system.

Supply chain liability: U.S.-origin goods and technology remain subject to U.S. jurisdiction even after export. Re-exporting controlled items to sanctioned countries without authorisation violates the Export Administration Regulations (EAR) and can trigger parallel OFAC enforcement if payments are involved.

Reputational and commercial pressure: Major multinational corporations adopt compliance standards that exceed legal requirements, refusing to deal with any counterparty in sanctioned jurisdictions or flagged by third-party screening tools. Even lawful transactions can be commercially untenable if counterparties impose blanket prohibitions.

“Because the U.S. dollar dominates global trade settlement and most cross-border payments route through U.S. correspondent banks, OFAC’s authority extends far beyond American borders.”

How Can Individuals and Entities Challenge Sanctions Designations?

Persons and entities designated as SDNs or subject to blocking may petition OFAC for administrative reconsideration. The process is entirely administrative; there is no hearing, and OFAC’s decisions receive substantial deference in U.S. courts.

A reconsideration request must identify the specific designation or blocking action, provide detailed factual and legal grounds demonstrating that the designation was in error or that circumstances have changed, and submit supporting evidence—corporate records, government documents, third-party certifications—authenticated and translated where necessary. OFAC publishes minimal procedural guidance. Submissions are reviewed by the office that issued the original designation, then escalated to senior officials if appropriate. The agency rarely explains its reasons for denial.

Successful challenges typically rest on one of these grounds:

• Mistaken identity—the designated person is not the sanctions target
• Changed circumstances—the sanctioned conduct has ceased, or the person has severed ties with sanctioned actors
• Disproportionate designation—the person’s role was minor or inadvertent

Processing is unpredictable. Simple mistaken-identity cases may resolve in months; complex policy-driven cases can take years. OFAC issues no interim relief during review—assets remain blocked and transactions prohibited unless a specific licence is granted.

Judicial review is limited. U.S. courts defer to the Executive Branch on national security and foreign policy questions. Successful challenges typically rely on procedural grounds (inadequate evidence, failure to follow statutory criteria) rather than substantive disagreements with OFAC’s policy judgements.

For non-U.S. persons, engaging experienced sanctions counsel familiar with OFAC’s internal processes, submission standards, and informal negotiation strategies significantly improves the likelihood of a favourable outcome.

This article is published by an independent law firm for informational purposes only and does not represent or claim affiliation with any government body, international organization, or official authority.