What are OFAC secondary sanctions and how do they work
- Understanding US Sanctions Policy
- Review Your Secondary Sanctions Exposure
- Primary sanctions: the foundation of sanctions policy
- What Is a “US Nexus” and Why Secondary Sanctions Don’t Need One
- Secondary sanctions OFAC: expansion of jurisdiction
- The mechanism of action of secondary sanctions
- Consequences of Sanctionable Conduct for Non-U.S. Companies
- Primary vs Secondary Sanctions at a Glance
- Which U.S. Programs Carry Secondary Sanctions in 2026?
- Grounds for the application of secondary sanctions
- Areas of application for secondary sanctions
- Examples of the application of secondary sanctions
- Strategies for protecting business from the risks of secondary sanctions
- FAQ
OFAC (Office of Foreign Assets Control) imposes sanctions aimed at restricting the activities of certain entities. Primary sanctions prohibit actions by US citizens and companies.
Secondary sanctions are U.S. measures aimed at non-U.S. companies, banks and individuals that deal with a sanctioned country, sector or person — even when the deal has no connection to the United States. Instead of fining the foreign party, the U.S. threatens to cut it off: designation on a sanctions list, loss of U.S. correspondent banking, a ban on U.S. contracts or exports. Primary sanctions, by contrast, bind U.S. persons and transactions that touch the United States.
This guide explains how they work and how international companies can manage the risk.
Understanding US Sanctions Policy
Understanding US sanctions policy requires an analysis of OFAC’s activities and its impact on international relations. Sanctions policy is an important tool of US foreign policy. OFAC (Office of Foreign Assets Control) was established in 1950 to implement economic sanctions in support of US foreign policy. OFAC is authorized to introduce and maintain various sanction programs.
The activities of OFAC are based on various legislative acts, including the International Emergency Economic Powers Act (IEEPA) and other federal laws. These acts grant OFAC the authority to impose and manage sanctions.
U.S. policy has shifted from country-wide embargoes toward list-based and sectoral measures that target specific persons and activities. The mechanism is based on the threat of disconnection from the American market and financial system, which makes it a powerful tool of influence.
Review Your Secondary Sanctions Exposure
If your foreign company conducted a transaction with a sanctioned person or jurisdiction outside the United States, examine whether secondary sanctions may apply even without a US nexus. Discuss the transaction to identify relevant risks, including possible restrictions on access to US financial markets.
Primary sanctions: the foundation of sanctions policy
Primary sanctions represent direct restrictions imposed by the US government on specific countries, organizations, and individuals.
Legislative acts regulating sanctions
Legislative acts, such as the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act, form the basis for the introduction and implementation of primary sanctions.
Prohibitions on transactions with sanctioned persons
Primary sanctions prohibit financial transactions and business operations with individuals included in sanction lists. This prohibition extends to all types of activities, including direct and indirect transactions.
Violation of primary sanctions can lead to significant fines, penalties, and even criminal prosecution. Companies and individuals are required to comply with sanction regimes to avoid such consequences.
Understanding primary sanctions and their relationship with secondary sanctions is critically important for companies conducting international business. Secondary sanctions, which we will discuss later, extend US jurisdiction, affecting the actions of non-American entities.
What Is a “US Nexus” and Why Secondary Sanctions Don’t Need One
The dividing line between primary and secondary sanctions comes down to a single legal concept: the US nexus. A transaction has a US nexus when it involves a US person, US-origin goods or technology, US currency clearing, or any other touchpoint that brings the activity within US jurisdiction. Where a US nexus exists, primary sanctions apply directly — the transaction is simply prohibited under US law.
Secondary sanctions exist precisely for the opposite situation: transactions between two non-US parties, conducted entirely outside US jurisdiction, with no US nexus at all. Because OFAC cannot prosecute a foreign company for a transaction it has no direct jurisdiction over, secondary sanctions work differently — instead of prohibiting the transaction itself, OFAC threatens to cut the foreign party’s own access to the US financial system and US markets if it proceeds. This is what allows Washington to influence conduct between, for example, a Chinese refinery and an Iranian oil exporter, even though neither company nor the transaction ever touches the United States.
Secondary sanctions OFAC: expansion of jurisdiction
Secondary sanctions by OFAC represent a powerful tool of US foreign policy, allowing significant influence on international companies and transactions.
Secondary sanctions by OFAC differ from primary sanctions in that they are applied to individuals and organizations outside the USA that conduct business with sanctioned jurisdictions or persons. This means that companies worldwide must be cautious in their dealings to avoid falling under secondary sanctions.
The legislation of the USA, in particular the International Emergency Economic Powers Act (IEEPA), allows the application of secondary sanctions to foreign individuals and organizations. These laws grant OFAC the authority to pursue those who assist or support sanctioned persons or jurisdictions.
The application of OFAC secondary sanctions has a significant impact on the global economy and business. Companies around the world must take these sanctions into account, because the consequence is not a fine but loss of access to U.S. banks, markets and partners. As a result, OFAC secondary sanctions have become an important factor in international trade and commerce.
The mechanism of action of secondary sanctions
The mechanism of secondary sanctions is a key element of the US sanctions policy. Secondary sanctions are a powerful tool that allows influencing the behavior of foreign companies and governments.
The US Dollar plays a dominant role in international transactions, making it a key element in the mechanism of secondary sanctions. Most global trade operations are conducted in dollars, and companies involved in these operations must use dollar transactions through American banks or their foreign branches.
Foreign companies that engage in sanctionable conduct may be designated or lose access to U.S. correspondent banking; fines arise only where there is a U.S. nexus.
OFAC uses various methods to identify sanctionable conduct, including the analysis of financial transactions, monitoring of trade operations, and cooperation with international partners. Non-U.S. companies may be designated, and those that cause a violation through a U.S. nexus can also be fined; see who must comply with OFAC rules.
Overall, the mechanism of secondary sanctions is an effective tool for achieving the foreign policy goals of the United States.
Consequences of Sanctionable Conduct for Non-U.S. Companies
Sanctionable conduct can have serious consequences for non-U.S. companies and financial institutions. Two kinds of exposure need to be kept apart: civil and criminal penalties apply where a transaction has a U.S. nexus (primary sanctions), while a purely foreign transaction leads to designation and the measures described below.
It is important to understand that OFAC sanctions operate as a strict liability regime. This means that for civil enforcement purposes, OFAC does not need to prove intent or even knowledge of a violation — the fact that a prohibited transaction occurred is generally sufficient to trigger liability, though OFAC does weigh fault and intent when determining the size of a penalty. Criminal liability is treated differently: it applies only to willful violations, attempts to violate, or conspiracies to violate a sanctions program, and can carry substantial fines and imprisonment under the International Emergency Economic Powers Act (IEEPA), codified in relevant part at 50 U.S.C. § 1705. This distinction — automatic civil exposure versus intent-based criminal exposure — is one of the main reasons companies cannot rely on “we didn’t know” as a defense and need documented compliance procedures instead.
Being added to the OFAC blacklist means that a company or individual is recognized as a violator of US sanctions policy. This leads to the blocking of all assets and interests within US jurisdiction. Companies that have been blacklisted face significant difficulties in conducting international operations, as their assets are frozen and counterparties are wary of interacting with them due to the risk of secondary sanctions.
A prohibition on opening or maintaining U.S. correspondent or payable-through accounts (CAPTA List) is another measure applied to foreign banks that engage in sanctionable conduct. This means that the bank loses the ability to conduct operations through its network of correspondent accounts in the US, which could lead to the paralysis of its international operations.
Blocking of property in U.S. jurisdiction is one of the harshest measures that can follow a designation. Any assets or property located in the USA or under the control of American companies are blocked (frozen) once the company is designated; confiscation requires separate forfeiture proceedings. This may include not only financial assets but also property, such as real estate or equipment.
Primary vs Secondary Sanctions at a Glance
| Primary sanctions | Secondary sanctions | |
|---|---|---|
| Who is bound | U.S. persons and anyone acting within U.S. jurisdiction | Non-U.S. persons, including foreign banks |
| Need a U.S. nexus? | Yes — U.S. person, U.S. territory, U.S. dollar clearing or U.S.-origin goods | No — the deal can be entirely outside the United States |
| What happens if breached | Civil penalties up to the greater of $377,700 per violation or twice the transaction value (IEEPA, 2025 adjustment) and criminal liability for willful violations | Designation (SDN or menu-based lists), loss of U.S. correspondent accounts, bans on U.S. contracts, exports or investment |
| Typical trigger | Any prohibited dealing | A “significant” transaction or support for a sanctioned target |
Which U.S. Programs Carry Secondary Sanctions in 2026?
Secondary sanctions are not automatic: each one has to be written into a specific statute or executive order. The main authorities in force in 2026:
| Program | Main legal basis | Who is at risk |
|---|---|---|
| Iran | Iran Sanctions Act (1996), CISADA (2010), NDAA FY2012 §1245, IFCA (2012), E.O. 13846 (2018) | Buyers of Iranian oil and petrochemicals, shipping, insurance and banks dealing with designated Iranian persons |
| Russia | CAATSA (2017), E.O. 14024 as amended by E.O. 14114 (2023) | Foreign banks handling significant transactions for Russia’s military-industrial base; defense and intelligence-sector deals |
| North Korea | E.O. 13810 (2017) | Foreign banks and trading partners dealing with North Korea |
| Cuba | E.O. 14404 (2026) | Foreign companies in Cuba’s energy, defense, mining, financial and security sectors; foreign banks — see new Cuba sanctions |
| Hizballah | Hizballah International Financing Prevention Act (2015) | Foreign banks facilitating significant transactions for Hizballah |
| Hong Kong | Hong Kong Autonomy Act (2020) | Foreign banks doing significant business with listed persons |
Many of these measures are “menu-based”: the U.S. picks restrictions from a statutory list instead of blocking all property, and the targets appear on the Non-SDN Menu-Based Sanctions List. Country-specific risk is covered in our guides to Iran-related secondary sanctions and Russia secondary sanctions. The Caesar Act’s secondary sanctions on Syria were repealed at the end of 2025. Several of these authorities (ISA, CAATSA §231, the Hong Kong Autonomy Act) are administered wholly or partly by the State Department, not OFAC.
Grounds for the application of secondary sanctions
The grounds for the application of OFAC secondary sanctions are determined by the severity of violations and their impact on US national security. Secondary sanctions are applied to individuals and organizations not under US jurisdiction but involved in significant transactions with entities under sanctions.
OFAC uses a comprehensive approach to determine a “significant transaction”. The key factors are the volume of the transaction, its significance for the sanctions target, as well as the degree of involvement of third parties and organizations. Significant financial transactions, deliveries of critically important goods or services, as well as actions aimed at circumventing sanctions, may be qualified as significant.
Schemes for circumventing sanctions may include the use of shell companies, complex chains of intermediaries, and document manipulation. OFAC identifies such schemes through the analysis of financial statements, monitoring of transactions, and obtaining intelligence information. For example, the use of offshore companies to conceal the true owner or ultimate recipient of goods and services may be regarded as an attempt to circumvent sanctions.
OFAC tracks chains of intermediaries through thorough analysis of transactions, identification of connections between companies and individuals, as well as monitoring changes in ownership and management structures. This allows determining whether intermediaries are involved in sanction evasion schemes or contribute to the violation of the sanctions regime.
Overall, the application of secondary sanctions requires a deep understanding of the mechanisms of international transactions and business operations. Companies must be aware of the risks associated with violating sanction policies and take measures to ensure their activities comply with OFAC requirements.
Areas of application for secondary sanctions
Key areas of application for secondary sanctions cover various aspects of international trade and finance. These sanctions have a significant impact on the global economy, affecting various sectors. Secondary OFAC sanctions significantly affect international payments. Financial institutions worldwide are forced to thoroughly check transactions to avoid violating the sanctions regime. This leads to delays and increased costs for conducting international payments. Banks and other financial organizations are strengthening control over transactions, which may lead to the freezing of funds and other precautionary measures. This creates additional difficulties for companies conducting international business.
The oil and gas industry is one of the key sectors subject to the impact of secondary sanctions. Companies operating in this sector must be particularly cautious when interacting with counterparties from countries under sanctions. Restrictions on the supply of equipment and technologies, as well as on investments in energy projects in countries under sanctions, may significantly affect global energy markets.
Secondary sanctions also have a significant impact on maritime and air transportation. Companies engaged in cargo transportation must carefully check their operations to avoid interaction with shipping and aviation companies under sanctions. This may lead to increased costs and delays in cargo delivery, which in turn affects global supply chains.
Examples of the application of secondary sanctions
Secondary OFAC sanctions have become an important tool of US foreign policy, influencing business decisions of companies worldwide. They are applied not only to American companies but also to international corporations operating in the global market.
Case of European companies that left the Iranian market
One of the striking examples of the application of secondary sanctions is the case when European companies were forced to leave the Iranian market after the US withdrawal from the nuclear deal in 2018. Companies such as Total and Siemens curtailed their operations in Iran to avoid sanctions.
This decision was made despite the efforts of European countries to preserve the nuclear deal and continue cooperation with Iran. As a result, the Iranian economy faced serious difficulties due to the loss of foreign investments and access to international financial systems.
Secondary sanctions have a significant impact on the energy and financial sectors. For example, companies involved in transporting oil from Iran have faced the risk of sanctions from the USA. This led to a sharp fall in Iranian oil exports to many buyers. Financial institutions also became more cautious about conducting transactions with Iranian banks, fearing secondary sanctions.
Peculiarities of applying sanctions to different countries
The application of secondary sanctions varies significantly depending on the country and the specific legal authority OFAC is using. Russia offers the clearest recent example of how far this authority now reaches.
Since June 12, 2024, OFAC treats every person blocked under E.O. 14024 as part of Russia’s military-industrial base, so a significant transaction or service for any of them exposes a foreign bank. In December 2023, Executive Order 14114 amended the existing Russia sanctions framework under Executive Order 14024, expanding OFAC’s authority to impose secondary sanctions on foreign financial institutions (FFIs) — banks located outside the United States — found to have conducted or facilitated a “significant transaction” involving a person blocked for operating in Russia’s military-industrial base, a category OFAC defines broadly to include the technology, defense, construction, aerospace, and manufacturing sectors. A foreign bank does not need any US nexus to fall under this authority; simply processing a qualifying transaction for a sanctioned Russian counterparty is enough to put the bank’s own correspondent account access in the United States at risk (see how correspondent accounts function as the mechanism for freezing dollar assets abroad).
Separately, OFAC used E.O. 14071 to bar U.S. persons from exporting IT consultancy, design and certain enterprise-software services to Russia from September 12, 2024 — a primary prohibition that sits alongside the FFI secondary-sanctions risk. Together, these measures show how secondary sanctions programs are increasingly layered — combining restrictions on specific services with open-ended, transaction-based liability for foreign banks — rather than relying on a single, static list of prohibited counterparties.
Strategies for protecting business from the risks of secondary sanctions
Protecting a business from risks associated with secondary OFAC sanctions requires a comprehensive approach. Companies must understand the difference between primary and secondary sanctions, as well as the mechanisms of their application. To minimize risks, businesses need to implement effective compliance procedures, conduct regular audits, and train employees. Adapting to changing sanctions regimes is also crucial.
Companies operating in the international market must be aware of the potential risks of secondary sanctions and take preventive measures to protect their interests. Understanding primary and secondary sanctions, as well as their application, is key to successful operations under sanction pressure. Using these strategies, companies can not only minimize risks associated with OFAC secondary sanctions but also ensure sustainable development in conditions of global uncertainty.
FAQ
What are OFAC secondary sanctions?
Secondary sanctions are U.S. measures against non-U.S. persons — companies, banks, vessels, individuals — that engage in certain dealings with a sanctioned country, sector or person, even when the dealing has no U.S. nexus. The consequence is not a fine but designation and restrictions on access to the U.S. financial system and market.
What is the difference between primary sanctions and secondary sanctions?
Primary sanctions prohibit U.S. persons, and transactions that touch U.S. jurisdiction, from dealing with sanctioned targets; violations lead to civil and criminal penalties. Secondary sanctions target foreign persons for conduct outside U.S. jurisdiction and work through the threat of being cut off from the United States.
Can a non-U.S. company be fined for secondary sanctions?
Not for a purely foreign transaction: there OFAC’s tool is designation, correspondent-account restrictions or other menu-based measures. A non-U.S. company can be fined when it causes a U.S. person to violate sanctions — for example by routing a prohibited payment through a U.S. bank in U.S. dollars.
What is a “significant transaction” for secondary sanctions?
There is no fixed threshold. OFAC looks at the size, number and frequency of transactions, their nature, management’s awareness, the link to a blocked person, the impact on the sanctions program and whether deceptive practices were used.
How does OFAC identify violators of secondary sanctions?
Through financial intelligence, review of trade and shipping data, information from U.S. banks and foreign partners, and analysis of intermediary chains and ownership changes designed to hide a sanctioned party.
How can companies minimize risks associated with secondary sanctions?
Map exposure to sanctioned countries and sectors, screen counterparties and their owners, add sanctions clauses to contracts, check which programs carry secondary sanctions for the jurisdictions involved, and get legal advice before entering sensitive sectors such as energy, shipping or defense.
