Secondary Sanctions are the third tool in OFAC’s sanctions arsenal, which also include the traditional country-based and list-based sanctions. They serve as supplemental sanctions to support diplomatic, law enforcement, economic, and national security goals more directly addressed in the other two sanction methods. Secondary Sanctions often seek to close the loopholes that listed entities may use to circumvent trade and financial prohibitions via enlisting a non-sanctioned third party to act on their behalf. For example, a non-listed bank in a non-sanctioned country may find itself subject to Secondary Sanctions if OFAC deems that the entity is facilitating economic activity for a listed entity or country (either intentionally or by negligence).
Companies maintain impetus to screen against Secondary Sanctions violators (de facto and official) because:
- Regulations compel them to do so; and
- It is a corporate responsibility imperative to prevent money laundering and terrorist financing.
Companies can assist in the development and enforcement of Secondary Sanctions through maintaining effective transaction monitoring and screening programs, as well as implementing “know-your-customer’s-customer” (KYCC) principles where high-risk correspondent relationships exist.
Indeed, last summer, European capitals were reminded of the harsh reality that, through secondary sanctions, Washington can use access to the US markets as a source of immense political power. As the US is one of Europe’s largest trade and financial partners, it is hard to find any European business that does not have direct or indirect exposure to these markets and systems. Given its extensive power to investigate and fine European actors – and to cut them off from the US market – the US Treasury’s influence prevails when US and EU regulations and foreign policy diverge. As such, the mere threat of US secondary sanctions on European entities has led to an exodus of EU companies from Iran and undercut a nuclear deal that once stood as a signal achievement of European foreign policy.