Have you ever thought of how government sanctions indirectly or directly influence your business or even the economy of the whole world?
Risk comes from not knowing, said billionaire investor Warren Buffett. With regard to OFAC secondary sanctions, it is important to understand them clearly.
OFAC secondary sanctions are intended not only for directly sanctioned companies but also for every person who has any sort of dealings with them.
The impacts influence supply chains, funds, and markets around the globe. It’s important to keep abreast with these sanctions, whether your business is big or small.
OFAC Secondary Sanctions
OFAC secondary sanctions refer to measures the US government employs in its attempt to influence the entities with whom other individuals, as well as companies globally, can transact.
These secondary sanctions do not only cover the core categories of the sanction or the specific persons that fall under that sanction. They also act on any other business or person associated with those groups of people that have been banned.
With this, there is a chain effect, and even organizations that are not directly affected can feel the pinch. So, it is important to understand the secondary sanctions meaning to avoid all these risks.
According to OFAC statistics, more than 20 countries and over 300 companies have been targeted by secondary sanctions in 2024.
Bonus: Visit our finance site to ensure your company is up to date with changes to OFAC secondary sanctions.
Impact on International Organisations
The moment EU secondary sanctions are applied, it becomes a crunch for worldwide organizations.
Organizations might suddenly lose access the important markets, suppliers, or even financial services that they used to. Sometimes, the supply chains are cut short. It gets confusing as to who one is legally allowed to hire.
This level of uncertainty and loss of business affects corporate sales, regardless of size, greatly, significantly decreasing the company’s revenues.
There are more than 90 entities that the US hit with secondary sanctions in 2023. Therefore, this is a significant risk to international entities.
Navigate Risky Compliance
It is difficult for global businesses to adhere to all of the various secondary sanctions rules laid down by OFAC.
Sanctions exist as constantly developing lists of entities that you have to be aware of and appropriately implement laws and regulations regarding your business activities and counterparties.
One slip-up can cost you a lot of money, or you may even see your business blocked from the American financial market.
As with other critical aspects of a firm’s operations, updated compliance is another area that needs resources and experienced attention.
International Supply Chains or Consequences
OFAC secondary sanctions can get seriously messed up in the global supply chains. When a firm in your supply chain faces these sanctions, it will distort the availability of material, parts, or products that you require.
Because businesses depend on their suppliers, they must closely monitor them to make sure they are not associated with any sanctioned businesses.
You may be cut out from your suppliers or sometimes denied supply contacts. The supply chain chain may be negatively impacted, and expenses and delays may result.
In 2024, over 999 entities have been sanctioned by OFAC, highlighting the global impact on supply chains.
Financial Risks and Liabilities
OFAC secondary sanctions also include important financial risks and responsibilities. If it’s discovered that your organization has been engaging in trade with a sanctioned entity, you may end up paying a very hefty fine or get shut out of the U.S financial system.
The U.S. levied penalties of more than $3 billion in 2023 for secondary sanctions breaches. It can cause loss-making in clients, imbalance in earnings, and inharmonious cash flow investment to banks and other financial counterparts.
To avoid all these mistakes, one must exercise caution when assessing the risks and obligations that one is willing to be exposed to in financial transactions.
Ways to Minimise Secondary Sanctions Risk
To avoid the effects of OFAC secondary sanctions, your business requires strong measures on the ground. Be vigilant in screening for secondary sanctions list, checking the companies you deal with, and having strong compliance measures.
Sometimes, you will find that they will need to change their supply chains, how they conduct transactions, and even business models to avoid dealing with sanctioned entities.
The U.S. Treasury applied secondary sanctions to more than a thousand companies worldwide in 2024, indicating the rising use of those restrictions.
New Rules and Enforcement Trends
OFAC secondary sanction rules are always dynamic. The U.S. government is in the process of amending, modifying, and adding to its lists and policies on sanctions. They’re also increasing measures towards penalizing companies for failure to adhere to those rules.
Sanctions for infringements of regulations are growing in size. Companies cannot afford to be remiss on all of the newest requirements, rules, regulations, and enforcement actions and decisions. A lack of something or the other could put your company at risk.
Get in touch with us to avoid OFAC secondary sanctions risks for your business and to save your firms from fines. No matter your business size, it is crucial to follow how the OFAC secondary sanctions work and how they affect your business around the global market.