The Office of Foreign Assets Control (OFAC) within the U.S. Department of Treasury is tasked, in part, with ensuring that money from U.S. persons and entities does not fall into the hands of terrorist groups. An array of sanction laws have been enacted that make it a crime for money to go to certain countries (for example, Iran and Syria) and certain organizations (for example, Hamas and al-Qaeda). OFAC has the authority both to enforce these laws, by freezing the assets of any U.S. group or individual who violates them, and to provide exceptions to these laws through licenses.
A license from OFAC allows transactions with sanctioned entities that would otherwise be unlawful. Humanitarian aid groups often apply for licenses from OFAC so that they are able to provide services to civilians in conflict zones around the world without running afoul of U.S. sanctions law.
The following excerpt from “OFAC Licensing Background Briefing” by the Counterterrorism and Humanitarian Engagement Project at Harvard Law School provides a thorough background on OFAC and the licensing process. The full article can be found here.
OFAC administers and enforces economic sanctions against countries and individuals, including those persons and entities designated as terrorists. These sanctions programs are designed to enable the United States to accomplish its national security and foreign policy goals.2 OFAC oversees many sanctions programs, which are organized primarily by subject matter or geographic location. Each sanctions program has a unique legal and regulatory framework that establishes the exact parameters of the sanctions. For instance, counterterrorism sanctions are authorized by diverse legal authorities, including Executive Order 13224, the Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA), and various sections of the Code of Federal Regulations (CFR).3
Sanctions programs may be either comprehensive or selective. Examples of comprehensive sanctions programs include Burma (Myanmar), Cuba, Iran, Sudan, and Syria.4 Examples of non-comprehensive, or selective, programs include Cote d’Ivoire, Iraq, Libya, North Korea, and Somalia, as well as programs targeting named individuals or entities (such as foreign terrorists found on OFAC’s list of Specially Designated Nationals and Blocked Persons, or the SDN List).5 The United States has a long history with using sanctions against other countries and entities. For example, the U.S. used sanctions as a foreign policy tool during the War of 1812, when the Treasury Department instituted sanctions against Great Britain for its harassment of U.S. soldiers. The United States continued to employ sanctions against other countries and entities during the Civil War and throughout World War II, when the Office of Foreign Funds Control, the immediate predecessor to OFAC, was created. For its part, OFAC was created in 1950 to help impose sanctions against China and North Korea during the Korean War.
All U.S. persons (including all U.S. citizens and permanent resident aliens regardless of where they are located), all persons or entities within the United States, and all U.S. incorporated entities and their foreign branches must comply with OFAC regulations. With certain sanctions programs, such as those programs targeting Cuba and North Korea, all foreign subsidiaries owned or controlled by U.S. companies must also comply with OFAC regulations. Individuals or entities that violate OFAC regulations may incur civil or criminal penalties, including fines of $50,000 to $10 million, as well as ten to thirty years’ imprisonment for any “willful violations.”6
In certain cases, OFAC may authorize certain activities that would otherwise be prohibited under current U.S. sanctions. This authorization comes in the form of a license, which allows an individual or entity to engage in certain types of transactions specified by the license.7 According to OFAC, “[a] license is an authorization from OFAC to engage in a transaction that otherwise would be prohibited.”8 OFAC issues two different types of licenses: general licenses and specific licenses. A general license authorizes “a particular type of transaction for a class of persons without the need to apply for a license.”9 A specific license “is a written document issued by OFAC to a particular person or entity, authorizing a particular transaction in response to a written license application.”10 The Code of Federal Regulations (CFR) is the collection of regulations setting out how the executive branch will interpret the parts of the U.S. Code that Congress charged it with enforcing. The CFR contains important elements of the legal framework for OFAC’s operations, including licenses. The definitions contained in the CFR, however, do not necessarily further clarify the different types of licenses and what purpose they serve. For instance, 31 CFR §595.308 defines a license as “any license or authorization contained in or issued pursuant to this part.” Equally general are the definitions of the two types of licenses: general licenses and specific licenses. For example, 31 CFR § 595.305 defines a general license as “any license or authorization the terms of which are set forth in this part.” Specific licenses, defined in 31 CFR § 595.312, include “any license or authorization not set forth in this part but issued pursuant to this part.” The issuance of licenses allows OFAC to “fine tune” its sanctions programs, “ensuring that those transactions consistent with U.S. policy are permitted.”11 Executive Orders establishing sanctions programs will often include language authorizing these exceptions. For instance, characteristic language might state: “Except to the extent . . . provided in . . . licenses that may be issued pursuant to this order . . . all property and interests in property of the following persons . . . are blocked . . . .”12
Persons or entities seeking to engage in an otherwise prohibited activity may submit an application for a license to OFAC. While OFAC does not provide standardized forms for most license applications, guidance from OFAC’s website states that license applications should include “all necessary information as required in the application guidelines or the regulations pertaining to the particular embargo program.”13 According to 31 CFR § 501.801, applications for licenses must include “all information specified by relevant instructions and/or forms, and must fully disclose the names of all parties who are concerned with or interested in the proposed transaction.” Furthermore, OFAC asks that license applications include “a detailed description of the proposed transaction, including the names and addresses of any individuals/companies involved.”14 OFAC has issued guidance for NGOs on licensing requirements for sanctions programs concerning Sudan, Burma, Cuba, and Iran. That guidance provides additional information on the respective license application requirements for those sanctions programs.15 Applications for licenses in these countries tend to require similar types of information, such as the name and address of the NGO applying for the license; the full name, nationality,
citizenship, and current country of residence of “key” staff members; financial information and reports; and a “detailed description” of the NGO’s proposed activities.16 According to 31 CFR § 501.801, license applications must be submitted by mail or courier. Recent proposed changes to the regulations would permit some applications to be filed electronically.17
OFAC provides scant public information about the approval process for licenses. OFAC broadly states that its licensing determinations are “guided by U.S. foreign policy and national security concerns” and may involve coordination with other federal agencies, including the U.S. Department of State and the U.S. Department of Commerce.18 One reason that other agencies may be brought in to deliberate a license application involves the content of the application: for instance, if the proposed license involves exports, the Commerce Department may participate in the approval process.19 If the proposed license implicates State Department regulations, such as arms trafficking, then the State Department may also review the license application.20 In its guidance on the Traveler, Carrier, and Remittance Forwarding Service Provider Program (TCRFSP Program), OFAC provides some additional information on the factors it may consider when granting service provider licenses in the context of its Cuban sanctions program. While not necessarily indicative of the considerations OFAC may weigh with respect to other types of applicants or sanctions programs, the TCRFSP Program guidance provides some insight into the types of considerations that OFAC and other federal agencies may weigh during the review process. For instance, OFAC states that it may conduct background investigations of “each owner, significant shareholder, director, manager, and other key employee [sic] that will be directly involved in the applicant’s Cuba-related business.”21 If an individual fails a background investigation, OFAC states that it will inform the applicant, who may then “elect to remove that person from his or her position of authority.”22
Additionally, OFAC states that it may consider “OFAC related conduct, including, for example, past compliance with rules and regulations.”23 The guidance also contains recordkeeping and reporting requirements for entities that receive OFAC licenses.24 According to OFAC’s most recent licensing report on the Sudanese and Iranian sanctions programs, the average processing time for issuing license determinations is 77 business days.25 While not indicative of the processing time for other types of licenses, this information offers one example of the amount of time it takes OFAC to reach a decision on a license application. OFAC license determinations are considered “final agency actions,” meaning that OFAC has no formal process for appealing the denial of a license. Rather, OFAC states that it will reconsider its licensing decisions only “for good cause,” defined as situations “where the applicant can demonstrate changed circumstances or submit additional relevant information not previously made available to OFAC.”26 The only challenge a person or entity could make to OFAC’s denial of a license would be through the judicial process: here, the party challenging the decision would have to prove that OFAC acted arbitrarily and capriciously in denying the license application. The “arbitrary and capricious” standard, established by the Administrative Procedure Act, represents a high evidentiary bar in U.S. courts that may prove difficult for an applicant to overcome.
From: “OFAC Licensing Background Briefing,” Counterterrorism and Humanitarian Engagement Project, Harvard Law School, March 2013, http://blogs.law.harvard.edu/cheproject/files/2012/10/CHE-Project-OFAC-Licensing.pdf