The world of economic sanctions is complex, highly regulated and most importantly, continuously evolving. The United States Treasury’s Office of Foreign Assets Control (OFAC), a federal enforcement body, manages an ever-changing list of affected jurisdictions with selective or comprehensive restrictions. This article provides background information about the importance of complying with OFAC as you utilize the Bill.com payments platform.
Bill.com complies with OFAC regulations and has a robust OFAC compliance program. Bill.com does not facilitate, directly or indirectly, payments or services to:
- OFAC sanctioned countries
- Specially Designated Nationals
- Countries or individuals associated with OFAC programs
- Countries or individuals based on licenses or exemptions.
We block funds and report any potential violations to OFAC.
- What are economic sanctions?
- Comprehensive country sanctions
- Specially Designated Nationals (SDNs)
- Blocking and reporting transactions to OFAC
- Important things to know about OFAC sanctions
- Significant fines for non-compliance
- OFAC Licenses
What are economic sanctions?
Economic sanctions are defined as the withdrawal of customary trade and financial relations for foreign- and security-policy purposes. Sanctions may be comprehensive, prohibiting commercial activity with regard to an entire country, like the long-standing U.S. embargo of Cuba and Iran, or they may be targeted, blocking transactions by and with particular businesses, groups, or individuals.
Some sanctioned jurisdictions have maintained a long-standing position on the sanctions list while others change more rapidly due to evolving political and social issues around the globe.
In a general sense, sanctions are meant to limit or cease trade and financial transactions with the named country or individual, largely for national security reasons. Failure to adhere to these regulations, even by accident, can result in heavy fines.
Comprehensive country sanctions
Sanctions can be comprehensive or specific to a country, individual, or entity (e.g., businesses). OFAC sanctions apply to U.S. citizens, residents, and entities, regardless of their location.
Comprehensive country sanctions are the most broad-based prohibitions and prohibit a U.S. Person (individual or entity) from dealing in various activities with a country such as import/export, trade, financial transactions, etc. Comprehensive country sanctions are imposed currently on:
- Crimea Region of Ukraine
- Donetsk People's Republic (DNR)
- Luhansk People's Republic (LNR)
- North Korea
Specially Designated Nationals (SDNs)
In addition to comprehensive sanctioned countries, and as part of its enforcement efforts, OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. Collectively, such individuals and companies are called “Specially Designated Nationals” or “SDNs.” U.S. persons, including individuals and entities such as Bill.com, are prohibited from dealing with SDNs including facilitating payments to or on behalf of SDNs.
Blocking and reporting transactions to OFAC
Bill.com blocks and reports assets attempted to be sent to sanctioned countries or to SDNs to OFAC.
Important things to know about OFAC sanctions
Sanctioned entities may include American companies and individuals. Non-US entities must also comply with OFAC sanctions, including foreign entities and individuals who conduct business in or through the US.
OFAC does allow exceptions through a licensing process, pending certain criteria. Intellectual property is one of the few areas that are generally granted general licenses that allow for transactions involving a sanctioned jurisdiction to be processed on a case by case basis (pending compliance with certain conditions).
Sanctions screening is not a “one and done” process. Sanctions lists are updated frequently, and, in many cases, daily. To ensure compliance, companies like Bill.com must screen all transactions and parties involved on an ongoing basis.
Companies are considered liable for direct or indirect payments involving sanctioned countries or entities. For example, a company would be held liable for processing a payment to China, with a final destination of the funds to North Korea. In this case, the company is used as an intermediary for a sanctioned transaction
Significant fines for non-compliance
Fines for violating OFAC regulations can be significant. The following are some recent examples:
In November 2019, OFAC fined Apple Inc. $466,912 for apparent violations of the Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part 598 (FNKSR). Apple appears to have violated § 598.203 of the FNKSR by dealing in the property or interests in property of SIS, d.o.o. (“SIS”), a Slovenian software company previously identified on OFAC’s List of Specially Designated Nationals and Blocked Persons as a significant foreign narcotics trafficker. Specifically, from on or about February 24, 2015, to on or about May 9, 2017, Apple hosted, sold, and facilitated the transfer of SIS’s software applications and associated content
In July 2020, OFAC fined Amazon Inc. $134,523 for apparent violations of multiple OFAC sanctions programs. Amazon provided goods and services to persons sanctioned by OFAC; to persons located in the sanctioned region or countries of Crimea, Iran, and Syria; and to individuals located in or employed by the foreign missions of countries sanctioned by OFAC.
In October 2020, OFAC fined Berkshire Hathaway (“Berkshire”), a multinational conglomerate holding company based in Omaha, Nebraska, and its foreign subsidiary, Iscar Kesici Takim Ticareti ve Imalati Limited Sirket (“Iscar Turkey”), $4,144,651 for exporting 144 shipments of cutting tools and related inserts, with a total value of $383,443, to two third-party Turkish distributors knowing that such goods would be shipped to a distributor in Iran for resale to Iranian end-users.
Bill.com understands that OFAC issues licenses to engage in specific approved transactions that would otherwise be prohibited. Regardless of a specific license being issued by OFAC, Bill.com is unable to facilitate payments involving sanctioned jurisdictions or any sanctions program.
The dynamic nature of sanctions means that the rules are always changing and transactions that have been released in the past aren’t guaranteed to be released in the future. In addition to the official U.S. sanctions list, there are other global watchlists published by the United Nations, European Union, and other authorities which are all frequently updated, sometimes on a daily basis.
Additionally, local regulations and those of other financial institutions can cause delays. To help Bill.com comply with OFAC regulations, we may ask customers for additional information, such as a government issued ID (e.g., passport), to verify that Bill.com is in compliance with OFAC.
The process for complying with economic sanctions is complicated, but its purpose is vital and a failure to comply, even unintentionally, can potentially result in significant reputational and regulatory consequences for an institution.
For more information on the OFAC, please visit their website.