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Thursday, February 6, 2014

The role of OFAC in the global economy

OFAC administers trade sanctions
Office of Foreign Assets Control
By Britni Zandbergen

The Office of Foreign Assets Control (OFAC) is an agency of the United States government that operates within the Department of the Treasury.

OFAC administers and enforces economic and trade sanctions set forth by U.S. foreign policy in an effort to achieve national security goals against foreign states, organizations and individuals identified as targets.

Understanding OFAC’s role in the global economy and the development and maintenance of interests between the United States and other countries will help paint a clearer picture of how the world does business.

The history and creation of OFAC

The United States Department of the Treasury has been in the business of enforcing sanctions since the earliest years of the country. Prior to the War of 1812, the Secretary of the Treasury administered sanctions against Great Britain for harassing American sailors. During the Civil War, Congress prohibited outside nations from completing transactions with the Confederacy and created a licensing regime under the rules and regulations administered by the Treasury Department.

OFAC grew out of the Office of Foreign Funds Control (FFC), which was created during World War II following the German invasion of Norway. Its purpose was to prevent Nazi use of the occupied countries’ holdings of foreign exchange and securities and played a vital role in blocking the Axis powers from doing business after the U.S. formally entered the war. OFAC was established in 1950 following the entry of China into the Korean War when President Truman sought to block all Chinese and North Korean assets subject to U.S. jurisdiction.

OFAC authority and activities

The Office of Foreign Assets Control derives its authority from the Trading with the Enemy Act (1917), various national emergencies currently in effect and U.S. federal laws relating to embargoes and economic sanctions. It works to prevent prohibited transactions under these embargoes and sanctions by blocking assets under U.S. jurisdiction. In an effort to accomplish foreign policy and national security goals, it administers these regulations against countries, businesses or groups of individuals. OFAC also has the authority to grant exemptions to the prohibitions on transactions, either by issuing a general license for certain types of transactions or by granting a specific license to a group on a case-by-case basis.

Under the International Emergency Economic Powers Act, the President of the United States is empowered to block the removal of foreign assets during a national emergency. When this happens, OFAC issues regulations and mandates that financial institutions must follow. A high-profile example of what OFAC does can be seen in the Cuban embargo, which restricts travel and trade with the island country. Between 1994 and 2003, OFAC collected over $8 million in violations relating to the embargo.

Importance of compliance for businesses

In business, it is important to ensure that those you are completing transactions with are legitimate. OFAC has a published list of individuals and organizations with which U.S. citizens and permanent residents are prohibited from doing business. Identity verification systems will help you remain compliant with these regulations and sanctions and also help you clear legitimate customers so you can process more transactions and expand your business. This also helps deter fraud and protect customer information so you can avoid fines and other legal troubles.

About the author: Britni Zandbergen is Senior Director of Marketing at Idology.  Britni has years of experience in identity management as well as dynamic SaaS solutions.

Image license: AgnosticPreachersKid, CC BY-SA 3.0