OFAC’S New Guide: An Introduction to U.S. Sanctions
Introduction
It is no secret that sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) have become a key consideration in the way both U.S. and non-U.S. persons structure and conduct their commercial relationships. However, especially for non-U.S. persons, navigating OFAC sanctions is often far from straightforward. Indeed, for many individuals and entities, determining whether a particular sanctions regime has legal implications for them, the extent of such implications, and the measures that should be taken to ensure compliance often presents significant challenges.
To address these issues and provide clarity, OFAC published its Introduction to the Office of Foreign Assets Control Guide[1] (“Guide”) on 1 June 2026. The Guide aims to provide U.S. persons and non-U.S. persons with a basic understanding of OFAC sanctions. It sets out the fundamental principles governing the operation of U.S. sanctions programs, explains the procedures for applying for licenses and requesting removal from OFAC sanctions lists, and provides an overview of OFAC’s procedures for investigating sanctions violations and the enforcement measures available to it.
This study examines the key elements of the Guide and evaluates OFAC’s expectations regarding the approach that both U.S. persons and non-U.S. persons should adopt towards sanctions compliance. In this respect, it seeks to provide a useful starting point for enhancing the understanding of OFAC’s expectations and strengthening sanctions compliance programs.
The Key Questions Addressed in the Guide
What is OFAC?
OFAC was formally established in December 1950, following the entry of China into the Korean War, when President Truman declared a national emergency and blocked all Chinese and North Korean assets subject to U.S. jurisdiction.
Since then, OFAC has become the principal U.S. authority responsible for administering and enforcing economic and trade sanctions against foreign states, regimes, individuals, and entities determined to have engaged in activities contrary to the national security, foreign policy, or economic interests of the United States. In this context, OFAC sanctions have been imposed primarily on members of terrorist organizations and those supporting such organizations, major international narcotics traffickers, and persons contributing to the proliferation of weapons of mass destruction.
OFAC sanctions encompass a variety of sanctions tools, including country-based sanctions programs as well as measures targeting specific assets or resources, or designated individuals and entities. In practice, these sanctions most commonly take the form of restricting access to the U.S. financial system or prohibiting transactions with U.S. persons. By leveraging the central role of the U.S. economy and financial markets within the global financial system, sanctions have become one of the United States’ principal instruments for advancing its national security and foreign policy objectives.
What Are OFAC Sanctions and How Are They Implemented?
The sanctions programs administered by OFAC employ a range of sanctions tools, depending on the underlying policy objectives pursued by the relevant program. The principal sanctions tools include the following:
List-Based Sanctions
List-based sanctions primarily target specific individuals and entities. Such sanctions may take various forms, including the blocking of the property or interests in property of designated persons or the imposition of restrictions on certain transactions or activities involving such persons.
Individuals and entities may be designated based on engaging in certain activities or by virtue of holding a particular position or status or maintaining specified legal or commercial relationships.
In addition, many OFAC sanctions programs incorporate derivative designation criteria. Accordingly, persons and entities that are owned or controlled by designated persons, act on their behalf, or provide them with significant support may likewise become subject to sanctions.
Government or Regime Sanctions
Government or regime-based sanctions target specific foreign states or their governing regimes. Depending on the content of the relevant sanctions program, such sanctions may require the blocking of property or interests in property of the targeted state or regime that are located in the U.S. or are in the possession or control of a U.S. person, and may prohibit certain transactions or activities involving the targeted state or regime.
Broad Jurisdiction-Based Sanctions
Broad jurisdiction-based sanctions do not target specific individuals or entities; rather, they apply to an entire country or a particular geographic region. They generally restrict commercial relations and other dealings involving the targeted country or region, including the import and/or export of goods and services. The sanctions imposed against Cuba and North Korea are examples of such sanctions. Likewise, certain region-specific sanctions imposed against Russia also fall within this category.
Sectoral-Based Sanctions
Sectoral sanctions target specific sectors of a foreign country’s economy, such as the defense, energy, or financial sectors. Depending on the program, these sanctions may restrict dealings with persons operating in the targeted sector or prohibit certain activities associated with that sector.
Secondary Sanctions
Secondary sanctions primarily target non-U.S. individuals and entities, particularly foreign financial institutions, for engaging in certain transactions with sanctioned persons or participating in specified activities identified under U.S. sanctions programs. In other words, unlike the sanctions measures discussed above, secondary sanctions are not directed at U.S. persons.
Although secondary sanctions were initially applied primarily in connection with sanctions programs targeting Iran, their use has become increasingly widespread over time. In addition, many OFAC sanctions programs authorize the designation of non-U.S. individuals and entities that provide significant support to sanctioned persons. Consequently, even in the absence of an express secondary sanctions provision, non-U.S. persons that provide material support to sanctioned persons may also be exposed to sanctions risk.
How Do OFAC Sanctions Lists Work?
Under OFAC sanctions programs, OFAC publishes various publicly available sanctions lists identifying targeted states, regimes, individuals, and entities, as well as aircraft, vessels, and other assets determined to be owned by such persons. The most significant of these is the Specially Designated Nationals and Blocked Persons List (“SDN List”).
The SDN List identifies individuals and entities designated under OFAC sanctions programs due to their connections with particular countries, regions, or regimes, or their involvement in activities such as terrorism, narcotics trafficking, or human rights abuses.
As a rule, U.S. persons are prohibited from engaging in any transactions with persons included on the SDN List where such transactions are prohibited under the applicable sanctions program. In addition, U.S. persons are required to block all property and interests in property of SDN-listed persons that are in their possession or control.
In addition to the SDN List, OFAC maintains several non-blocking sanctions lists, collectively referred to as non-SDN lists. Unlike the SDN List, inclusion on a non-SDN list does not generally result in asset blocking. Instead, these lists impose specific restrictions, such as prohibiting the purchase or sale of certain publicly traded securities or restricting the opening and maintenance of correspondent or payable-through accounts for designated foreign financial institutions.
However, as highlighted in the Guide, not all sanctioned individuals and entities are expressly identified on OFAC’s sanctions lists. Certain sanctioned states and regimes are not designated through individual listings but are instead identified directly in the relevant sanctions regulations. For example, although the “Government of Iran” is subject to comprehensive blocking sanctions under Executive Order 13599, not every entity or instrumentality that falls within the definition of the “Government of Iran” is separately identified on the SDN List. Instead, the applicable executive order and implementing regulations define the scope of the Government of Iran, and U.S. persons are required to block the property and interests in property of all persons falling within that definition, regardless of whether they appear individually on the SDN List.
In addition, under OFAC’s 50 Percent Rule, entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are themselves considered blocked, even if they do not appear on the SDN List. Given the dynamic nature of OFAC sanctions programs and lists, conducting appropriate sanctions due diligence before entering into a business relationship is essential.
The dynamic nature of OFAC sanctions programs and sanctions lists is also reflected in the delisting process. OFAC periodically reassesses the relevant facts and circumstances and may remove individuals or entities from the SDN List. Delisting may occur for various reasons, including a change in the conduct that gave rise to the designation, the death of a designated individual, or the disappearance of the political circumstances that formed the basis for the sanctions designation.
Who Is Required to Comply with OFAC Sanctions?
As a rule, all U.S. persons must comply with OFAC sanctions. This includes U.S. citizens and permanent residents, entities organized under U.S. law, their foreign branches, and persons located within the United States.
Depending on the scope of the relevant sanctions program, certain obligations may also apply to non-U.S. individuals and/or entities. In particular, some sanctions programs impose restrictions on foreign entities owned or controlled by U.S. persons, while others may also affect foreign persons involved in transactions relating to U.S.-origin goods, technology, or services.
Importantly, non-U.S. persons may not engage in conduct that causes U.S. persons to violate U.S. sanctions, nor may they participate in schemes designed to circumvent applicable sanctions restrictions. For example, if a non-U.S. shipping company conceals a vessel’s previous port calls or provides incomplete or inaccurate shipping documentation to prevent a U.S. counterparty from identifying a sanctions nexus, and a U.S. person consequently provides financial or other services that would otherwise be prohibited, the non-U.S. company may be regarded as causing a violation of U.S. sanctions or participating in sanctions evasion.
What Does an Effective Sanctions Compliance Program Look Like?
The Guide makes clear that there is no “one-size-fits-all” approach to sanctions compliance. Instead, organizations should develop risk-based compliance programs tailored to their specific activities and exposure.
Nevertheless, the Guide emphasizes that every effective sanctions compliance program should include five core components: (i) management commitment, (ii) risk assessment, (iii) internal controls, (iv) testing and auditing, and (v) training.
Legal Nature of OFAC Licenses and the Circumstances in Which They Are Required
Under the applicable sanctions regulations, OFAC may authorize certain activities that would otherwise be prohibited through various authorization mechanisms. The principal mechanisms are as follows:
General Licenses
General licenses are broad authorizations permitting all persons who satisfy the prescribed conditions to engage in specified transactions or activities without submitting a separate application to OFAC. Accordingly, they apply automatically and directly once the relevant sanctions measures and licenses enter into force.
Specific Licenses
Specific licenses are individual authorizations issued by OFAC upon application. They permit the persons or entities identified in the license to engage in specified transactions or activities.
Interpretive Guidance
Interpretive guidance consists of explanatory statements issued by OFAC in relation to particular transactions, with a view to clarifying how the applicable sanctions regulations should be applied to specific circumstances.
What Are the Risks of Non-Compliance?
Violations of OFAC sanctions may result in significant civil and criminal penalties. It should be noted, however, that primary sanctions apply only to U.S. persons as an exercise of U.S. jurisdiction. By contrast, while secondary sanctions do not, as a matter of law, impose direct legal obligations on non-U.S. individuals and entities, they may nonetheless give rise to significant commercial and economic consequences.
In addition to imposing civil monetary penalties, OFAC may respond to potential violations through a range of enforcement measures, including: (i) requests for information or administrative subpoenas, (ii) cautionary letters, (iii) findings of violation, (iv) settlement agreements, and (v) referrals to other government agencies for criminal investigation or prosecution.
Conclusion
To conclude, the Guide published by OFAC on 1 June 2026 serves as a valuable starting point for organizations seeking to understand how OFAC sanctions operate and how sanctions risks can be effectively managed. As illustrated throughout the Guide, OFAC sanctions may extend beyond U.S. persons and, in certain circumstances, affect non-U.S. persons as well. Accordingly, organizations should adopt a proactive and risk-based approach to sanctions compliance and regularly review their compliance frameworks in light of evolving sanctions risks.
- U.S. Department of the Treasury’s Office of Foreign Assets Control, “Introduction to the Office of Foreign Assets Control”, https://ofac.treasury.gov/media/935656/download?inline.
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