SanctionsLookupWhat is OFAC? The US Agency Behind Economic Sanctions
OFAC, short for the Office of Foreign Assets Control, is a US Treasury agency that administers and enforces US economic sanctions. It designates individuals, companies, and countries subject to sanctions restrictions, and maintains the sanctions lists that businesses worldwide must screen against. Any business processing USD transactions or dealing with US persons is subject to OFAC's authority.
What is OFAC responsible for?
OFAC is responsible for administering and enforcing US economic and trade sanctions in support of US national security and foreign policy objectives. The purpose of OFAC is to protect US interests through economic pressure rather than military force, and its responsibilities span designation, enforcement, and licensing across over 30 active sanctions programs.
In practice this means three things:
- Designating individuals, companies, vessels, aircraft, and jurisdictions under specific sanctions programs and maintaining the official sanctions lists businesses must screen against
- Enforcing compliance through civil and criminal penalties, investigations, and negotiated settlements
- Licensing transactions that would otherwise be prohibited, providing a legal pathway for specific activities in sanctioned jurisdictions
OFAC derives its authority from the International Emergency Economic Powers Act (IEEPA), the Trading with the Enemy Act (TWEA), and Executive Orders issued under presidential emergency powers.
What are OFAC sanctions?
OFAC sanctions are legal restrictions that prohibit or limit transactions involving specific countries, individuals, companies, or economic sectors.
They are the primary tool the US government uses to advance foreign policy and national security objectives without military force.
Violating OFAC sanctions carries strict liability, intent is irrelevant. A single prohibited transaction can trigger a civil penalty of up to $377,700 per violation.
Sanctions fall into four types:
- Country-based: broad restrictions on entire jurisdictions. Comprehensive programs cover Iran, Cuba, North Korea, and Syria. Targeted programs cover Russia, Belarus, and Venezuela.
- List-based: specific named parties added to OFAC sanctions lists regardless of nationality or location.
- Sectoral: restrictions on specific transaction types within a country, such as debt financing or equity investments in the energy or defense sector.
- Secondary: deter non-US companies from dealing with sanctioned parties by threatening to cut off their access to the US financial system.
For a full breakdown of the lists OFAC maintains and what each requires, see our OFAC sanctions list guide.
What is OFAC in banking?
In banking, OFAC compliance is a core operational requirement built into daily transaction processing. Every wire transfer, ACH payment, and account opening is a potential OFAC touchpoint.
Banks are also responsible for screening foreign financial institutions they provide correspondent banking services to, which is how OFAC's reach extends globally through the dollar clearing system.
Banking regulators, including the FFIEC, expect OFAC compliance to be integrated with BSA and AML programs. Failures in OFAC controls are treated as safety and soundness issues, not just compliance infractions.
FAQ
What does OFAC stand for?
OFAC stands for Office of Foreign Assets Control, the US Treasury agency responsible for administering and enforcing US economic sanctions.
OFAC is a division of what agency?
OFAC is a division of the US Department of the Treasury, operating under the Office of Terrorism and Financial Intelligence since 2004.
When was OFAC established?
OFAC was formally created in December 1950, following China's entry into the Korean War, when President Truman declared a national emergency and blocked all Chinese and North Korean assets subject to US jurisdiction. It succeeded the Office of Foreign Funds Control, which was established during World War II in 1940.
What is the primary goal of OFAC sanctions?
The primary goal of OFAC sanctions is to advance US national security and foreign policy objectives through economic pressure rather than military force. Sanctions restrict access to the US financial system and cut off funding to threats including terrorist networks, weapons proliferators, corrupt regimes, and narcotics traffickers.
Is OFAC responsible for locating and capturing terrorists?
No. OFAC is a financial enforcement agency, not a law enforcement or intelligence agency. Its role is to designate terrorist organizations and individuals, freeze their assets, and prohibit US persons from transacting with them. Physical operations, arrests, and prosecutions are handled by the FBI, CIA, and Department of Justice.
Who oversees OFAC?
OFAC operates under the Office of Terrorism and Financial Intelligence within the US Department of the Treasury, headed by the Under Secretary for Terrorism and Financial Intelligence. It reports ultimately to the Treasury Secretary. Congressional oversight is exercised through the Senate Finance Committee and House Financial Services Committee.
Does OFAC apply to non-US companies?
Yes, in practice. Any non-US company that processes USD transactions, routes payments through US correspondent banks, serves US customers, or handles US-origin goods falls under OFAC's jurisdiction. The dollar is OFAC's primary enforcement lever, it does not need physical US presence to apply.
What is OFAC compliance?
OFAC compliance is the set of policies, controls, and procedures a business implements to avoid prohibited transactions under US sanctions law. It covers screening, blocking, reporting, recordkeeping, and maintaining a documented compliance program.
What is OFAC screening?
OFAC screening is the process of checking customers, counterparties, and transactions against OFAC sanctions lists before a transaction is processed. It is a core requirement for any business processing USD transactions or operating within the US financial system.
What is OFAC clearance?
OFAC clearance typically refers to one of two things: receiving an OFAC license that authorizes an otherwise prohibited transaction, or passing an OFAC screening check with no sanctions match. It is not a formal OFAC designation. The term is used informally in compliance and banking contexts.