A Complete Guide to General and Specific Licenses
Operating a regional or global business across multiple jurisdictions requires a strong understanding of international law, sanctions, and other legal provisions. In the U.S, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) is the central body regulating economic and trade restrictions through sanctions. OFAC regulations define the legal boundaries when interacting with sanctioned individuals and entities in targeted countries.
Violating OFAC sanctions regulations can result in severe penalties and reputational damage for the parties involved. Fortunately, an OFAC license facilitates lawful transfer of assets and financial transactions that otherwise would be considered unlawful. However, you need to understand the different types of OFAC licenses available, the application process, and common mistakes to avoid.
What is an OFAC license?
OFAC licenses are official permissions that allow individuals and legal entities to conduct transactions or other actions that otherwise would be prohibited by U.S. sanctions law. These documents do not lift sanctions but create a legal exception to the rules for specific situations.
Obtaining OFAC authorization means protecting your company from accusations of circumventing restrictions and proving the legitimacy of your intentions. Without such a license, any operation involving the interests of sanctioned countries or parties will be considered illegal and will result in strict measures from the American regulator. That makes an OFAC authorization a critical step for continuing operations in complex jurisdictions.
When is an OFAC license required?
For many companies, international operations are the foundation of their activities. However, interaction with sanctioned foreign governments, individuals, and other entities is associated with serious legal risks.
Authorization from the US Treasury Department Office of Foreign Assets Control (OFAC) is mandatory in cases where a company’s activities intersect with sanction regimes. Typical scenarios requiring the issuance of an OFAC license include international money transfers, especially when denominated in US dollars or passing through American correspondent banks.
OFAC authorization is also necessary when entering into contracts with counterparties from countries under embargo or with individuals included in the SDN (Specially Designated Nationals) list. The supply of certain categories of goods, the provision of legal or consulting services, and even carrying out humanitarian missions often require prior approval from OFAC.
OFAC: who is obligated to comply with sanctions?
The opinion that U.S. sanctions apply exclusively to American companies is a dangerous misconception. In reality, OFAC’s jurisdiction extends to numerous foreign entities. First and foremost, all “U.S. persons” are required to comply with economic sanctions regulations, which include U.S. citizens, permanent residents (green card holders), American companies, and their foreign branches. However, the key aspect is that the rules also apply to foreign individuals if their activities have a connection to U.S. jurisdiction.
For example, any transaction in U.S. dollars, even between two non-American companies, passes through the U.S. financial system. This automatically brings the operation under OFAC oversight. Similarly, if a foreign company uses American goods, technologies, or services in a deal with a sanctioned entity, it also risks violating the law.
Classification of licenses: General and Specific
The OFAC licensing system provides two fundamental types of permits, the difference between which determines the entire process of interaction with the regulator. These are General Licenses and Specific Licenses. The main difference in OFAC licenses lies in the mechanism of their operation and obtaining.
A general license from OFAC is a public, pre-approved authorization that applies to an indefinite number of persons and allows certain types of operations without the need to submit an individual request. A specific license, on the other hand, is a personal document. It is issued to a specific applicant after a thorough review of their written application for conducting a unique transaction.
General License OFAC
OFAC general license functions as a general exception to the rules, published for public knowledge. It allows conducting standard and less risky operations that, in the opinion of the U.S. government, do not contradict the goals of sanctions policy. Examples may include licenses permitting the provision of humanitarian aid, conducting certain academic exchanges, or winding down current operations with a company that has just come under sanctions.
How to check if the General License is active?
To legally utilize a general license, start by thoroughly studying its applicability to your situation. The first step is to visit the official OFAC website, where all current general licenses are published in the section dedicated to a specific sanctions program (for example, “Russia-related Sanctions“). It is critically important to carefully read the text of the license itself.
The wording in these documents is also crucial. You must ensure that your company, the proposed transaction, and the counterparty fully comply with all the described criteria. Any deviation from the text may render the use of the license unlawful.
Restrictions and conditions for the use of General Licenses
Each OFAC general license is not carte blanche but has strictly defined boundaries. It contains specific conditions, restrictions, and often an expiration date. For example, a license may permit the export of medical equipment but prohibit the supply of accompanying software. Or it may require submitting a report to OFAC within 10 days after completing the transaction.
Violating even one seemingly insignificant condition completely nullifies the protection provided by the license. This turns a lawful operation into a sanctions regime violation with all the resulting consequences.
OFAC Specific License
Unlike a general one, an OFAC-specific license is an individual permit. It is issued in response to a written OFAC license request and addressed to a specific applicant for the execution of a particular, clearly described operation like the release of blocked funds. Obtaining such a document is a complex and lengthy process requiring convincing argumentation.
When and how to get a Specific License
A specific license is required when the proposed transaction is prohibited by economic and trade sanctions, but aligns with the US foreign policy objectives and national security concerns. These could include complex commercial transactions, the sale of assets in a sanctioned jurisdiction, or legal support for cases that go beyond standard permissions.
The process of obtaining a special license is a formalized and meticulous task that requires attention to detail. The applicant must convincingly prove to OFAC that the planned operation does not harm the interests of U.S. national security.
A specific license application process includes the following stages:
- A detailed description of the operation: At this stage, it is necessary to present detailed information on the underlying transaction as thoroughly and transparently as possible: who the participants are, what goods or services will be transferred, what the financial flows are, and what the ultimate goal is. The more relevant information you provide, the higher the chances of success;
- Collection of supporting documents: All relevant documents are attached to the application: draft contracts, invoices, business correspondence, founding documents of the participating companies, and a written justification for the necessity of the particular transaction. This package of documents must confirm every word in the description of the operation.
- Submission of an application through the OFAC online portal: The official and most preferred method of submission is through the special OFAC License Application Page portal. It allows tracking the status of the application and promptly receiving requests from the regulator.
- Waiting for a decision and communication with the agency: The review of an OFAC license application can take from two to six months, and in complex cases, even longer. During the review process, an OFAC officer may request additional documents or clarifying information.
Common mistakes when using licenses
Navigating the world of sanctions compliance is full of pitfalls, and mistakes can be very costly. One of the most common errors is using a general license without fully complying with its terms. A business may superficially review the authorization and assume it applies, missing critical details that render it inapplicable.
Another serious mistake is planning an urgent transaction based on the expectation of obtaining a specific license. Lengthy and unpredictable review timelines make this approach extremely risky. Finally, companies often overlook the dynamic nature of sanctions legislation, failing to monitor updates and license revocations, which can lead to unintentional violations of already amended rules.
Legal and financial risks associated with non-compliance with OFAC licensing requirements are enormous. They can not only halt a business but also destroy it. The consequences include:
- Administrative fines: Their amount can reach several million dollars for each violation.
- Freezing of assets: Any funds or property associated with an illegal transaction may be blocked.
- Reputational losses: Being included in the list of violators leads to a loss of trust from banks, partners, and clients worldwide.
- Criminal charges: In the case of intentional violation of the sanctions regime, individuals and company management may be held criminally liable in the USA, which threatens imprisonment.
When applying for licenses, applicants shouldn’t submit multiple applications using a single cover letter.
Where to track new licenses and changes?
OFAC compliance is a crucial step when transacting with foreign entities and individuals on the Specially Designated Nationals (SDN) list to avoid violations. The main and most reliable source of information is the official OFAC website.
All updates are published in the “Recent Actions” section, and on the pages of specific sanctions programs, you can find the current texts of general licenses. All official changes are also duplicated in the Federal Register of the United States (Federal Register).
For prompt receipt of information, OFAC offers a subscription to an email newsletter, which immediately notifies of all updates. Checking the status of licenses before each transaction should become a mandatory part of internal compliance control.
How to choose the right license and avoid mistakes?
OFAC licenses are the only legal way to ensure compliance when interacting with blocked persons, businesses, and jurisdictions under U.S. sanctions. The choice between a general and a specific license entirely depends on the nature, scale, and uniqueness of the planned operation. Each situation requires an individual assessment and deep immersion in legal texts.
The key takeaway is simple: amateurism in matters of sanctions compliance is unacceptable. The cost of a mistake is too high. In any doubtful situation, at the slightest uncertainty regarding the applicability of a general license or when it is necessary to prepare a request for a special license, consultation with qualified lawyers specializing in sanctions law is mandatory. This is an investment that protects against multimillion-dollar fines and secures the future of your business.
FAQ
What is OFAC license?
An OFAC license is an official authorization from the US Department of the Treasury’s Office of Foreign Assets Control that allows a legal entity or individual to engage in a transaction or activity that would otherwise be prohibited under the current sanctions regime. Essentially, it is a legal exception to the general prohibition rule. The license does not lift the sanctions but merely grants the right to perform a specific, clearly defined action.
How to apply for OFAC license?
Applying for an OFAC license generally refers to a request for a General or Specific License, which is issued for a particular, unique operation. The process is formalized and requires thorough preparation.
How to check OFAC license?
The verification of an OFAC license depends on its type. There are two main types of licenses, and the methods of their verification differ.
- General License: This is a public authorization that applies to an indefinite number of persons and allows standard types of operations. To verify the existence and terms of a general license, it is necessary to: Go to the official OFAC website in the “Sanctions Programs and Country Information” section. Select the sanctions program of interest (for example, related to Russia or Iran). On the program’s page, find the “General Licenses” section and review the PDF documents published there. The text of each license clearly specifies the permitted actions, conditions, restrictions, and validity periods.
- Specific License: This is an individual, non-public document issued to a specific applicant. It is impossible to verify someone else’s specific license, as this is confidential information. If you yourself applied, you can check its status on the OFAC Licensing Portal using the assigned Case ID. If a counterparty claims to have a specific license for a transaction with you, they must provide you with a copy of it. The authenticity of such a document can be indirectly confirmed by ensuring that it is issued on official letterhead and contains all necessary attributes.
What are two types of license used by OFAC?
OFAC uses two main types of licenses to create exceptions to sanctions regimes: general and specific. The distinction between them is fundamental for understanding the sanctions compliance system.
General License. This is a pre-issued, public authorization that allows an indefinite group of individuals to conduct certain categories of transactions without the need to contact OFAC for individual permission. General licenses are published on the OFAC website and are often used to permit standard operations, such as providing humanitarian aid, offering certain legal services, paying pensions, and establishing transition periods for winding down activities with companies that have just been sanctioned.
Specific License. This is a personal written authorization that OFAC issues to a specific individual or company in response to a written application. Such a license is required for conducting unique transactions that do not fall under any of the general licenses.
