Sanctions compliance requires a clear understanding of how the US government exercises economic leverage globally. The Department of the Treasury’s Office of Foreign Assets Control (OFAC) manages two distinct enforcement channels: Primary Sanctions and Secondary Sanctions.
Primary Sanctions
Primary sanctions apply when a transaction involves a specific link to the United States. They are legally binding on all US citizens, permanent residents, entities incorporated under US law, and any transaction passing physically through the US financial system.
  • The US Dollar Trigger: If a transaction uses US dollars, it clears through a correspondent bank in New York. This physical contact gives OFAC jurisdiction, forcing the transaction to comply fully with primary US sanctions.

Secondary Sanctions
Secondary sanctions target non-US companies and individuals who engage in significant economic activity with sanctioned regimes or entities, even if the transaction has no physical connection to the United States.
[Non-US Firm Deals with Sanctioned Target] ---> OFAC Evaluates Secondary Sanctions
                                                               |
                               v-------------------------------+-------------------------------v
                 [Option A: Pay Fine and Stop]                  [Option B: Total System Exclusion]
                 - Cancel transactions with target              - Cut off from US correspondent accounts
                 - Comply with OFAC demands                     - Total loss of access to US Dollar clearing

The US government uses secondary sanctions to force international companies to choose between trading with a sanctioned target or maintaining access to the US marketplace and US dollar clearing network.
 
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