2024 Trends in Secondary Sanctions

Over the last year, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has continued to increase its use of secondary sanctions programs to impact the conduct of non-US persons. Secondary sanctions programs are applicable even in circumstances where there is no U.S. nexus to a transaction and generally involve the imposition of U.S. sanctions restrictions on non-U.S. persons, including designation as a Specially Designated National and Blocked Person (“SDN”). Although U.S. secondary sanctions are wholly extra-territorial, they are only triggered by certain specified activities such as operating in certain economic sectors; and/or knowingly facilitating “significant” or “material” transactions with an SDN. Today, secondary sanctions play a crucial part in OFAC’s Russia, Iran and Venezuela sanctions programs. This post analyzes trends in OFAC’s secondary sanctions actions over the last year. 

Designations by Sanctions Program

First, we collected data on the most commonly cited executive orders under which sanctions were implemented. The top three orders concerned Russia (E.O. 14024), Terrorism (E.O. 13224), and the Global Illicit Drug Trade (E.O. 14059), respectively. The chart below highlights these metrics.  

The Sanctioned Person

Next, we considered whether OFAC sanctioned an entity, or an individual, natural person. In the last year, it appears that approximately 66% of secondary sanctions were directed toward entities.

Sanctioned Conduct

Next, we analyzed OFAC’s stated reasons for making each secondary sanctions designation.  Secondary sanctions designations were made on several bases, including that the person designated under secondary sanctions authorities:  

1. materially assisted SDNs; 
2. acted for or on behalf of SDNs; 
3. is owned or controlled by SDNs;
4. is operating in a sanctioned industry sector of a country subject to sectoral sanctions;
5. other miscellaneous conduct (i.e., entering a significant transaction involving an SDN; or committed conduct that fell into multiple categories). 

The chart below highlights the breakdown of designations across these bases. 

1. Material Assistance: OFAC appeared to sanction individuals and entities that provided material assistance to SDNs 8% of the time.  Material assistance can include providing financial, material, or technological support for, or goods or services in support of, SDNs. It is worth noting this conduct usually includes high value transactions, activity either at the core of U.S. sanctions objectives, or demonstrates structured, deceptive or evasionary conduct. Examples of conduct that resulted in sanctions within this category, over the last year, include:
   1. Falsifying documents, or otherwise attempting to conceal the nature of the sanctioned activity;
   2. Laundering proceeds derived from dealings with SDNs; and
   3. Owning and operating significant assets (such as airplanes and yachts) used by SDNs.
       
2. Acted for or on Behalf of SDN: OFAC also appeared to sanction individuals and entities that acted for or on behalf of SDNs equally to the basis above (7%). Examples of conduct that resulted in sanctions within this category, over the last year, include:
   1. Individuals who were leaders or other officials of SDNs;
   2. Facilitating shipments or other business transactions to intentionally circumvent U.S. sanctions regulations;
   3. Directing SDN entities to conduct sanctioned conduct; and
   4. Captains of certain vessels used to deliver Iranian oil and gas to SDNs.
       
3. Owned or controlled by SDN: OFAC also sanctioned individual and entities that were owned or controlled by SDNs 5% of the time. Examples of conduct that resulted in sanctions within this category, over the last year, include:
   1. Front companies for SDNs that concealed the SDN’s role in sanctioned conduct;
   2. Handling the daily operations of the SDN;
   3. Helping the SDN set up shell companies; and
   4. Entities in which SDNs serve as directors.
       
4. Operating in Sanctioned Sectors: A majority of action (64%) concerned OFAC sanctioning individuals and entities that conducted business related to sanctioned industries sectors. Some of those industry sectors are described more thoroughly below.  Examples of conduct that resulted in sanctions within this category, over the last year, include:
   1. Front companies for SDNs, created to conceal the SDN’s role in supporting Russia’s invasion of Ukraine. 
   2. Producing a significant percentage of Iran’s total production for certain materials;
       
5. Other Miscellaneous Conduct:
   1. Significant Transactions:  OFAC sanctioned individuals or entities that conducted a single, significant transactions frequently.  It is worth noting that these transactions generally exceeded millions of dollars.  Examples of conduct that resulted in sanctions within this category, over the last year, include:
      1. Owning a vessel used to transport military technologies to Russia; and
      2. Purchasing Iranian oil in violation of sanctions programs. 
   2. Multiple Types of Conduct: This basis also includes individual and entities that were sanctioned based on conduct that fell into multiple categories described above.

Industry Sectors

Lastly, we analyzed the specific industries that the sanctioned individuals and entities participated in. We note that OFAC does not publish this information in every sanction related press release, and that this analysis was limited to releases that contained relevant information. 

In light of the numerous actions taken by OFAC to deter Russia’s invasion of Ukraine, it is no surprise that the top industry sector that sanctioned individuals and entities participated in was the military/weapons industry. 

Key Takeaways

OFAC’s designations over 2024 highlight the broad scope of OFAC’s secondary sanctions authority across numerous regions of interest. Accordingly, it is critical for non-US companies to maintain appropriate sanctions compliance policies in order to avoid risks under US secondary sanctions which can have significant impacts on international business and trade.

Herbert Smith Freehills LLP has a global platform specializing in compliance and investigations work and are ready to assist companies across all industries in designing and implementing a comprehensive sanctions compliance program. Please contact the authors or your usual Herbert Smith Freehills contacts for more information.