What are secondary sanctions?
Secondary sanctions do not prohibit a non-US firm's conduct. They put a choice in front of it: keep dealing with the target, or keep access to the US financial system. They reach non-US persons for conduct occurring entirely outside US jurisdiction.
Primary sanctions bind persons within the issuing jurisdiction. Secondary sanctions extend influence to everyone else by threatening designation or loss of dollar access, and they are most visible in the Iran, Russia and North Korea programmes. The common misunderstanding is that they make the underlying transaction illegal for a European firm. Usually they do not, which is exactly why EU blocking legislation exists and why this ends as a commercial and legal risk assessment rather than a screening outcome.
What this workflow covers
SCOPE- Screening flags the counterparty and the programme; the firm then sizes its own exposure through currency, correspondent banks, US shareholders and US-origin goods.
- OFAC has warned that significant transactions with certain listed parties can expose a foreign financial institution to correspondent-account restrictions or to designation itself.
- EU operators can face a conflict with the EU Blocking Statute, which restricts compliance with certain listed extraterritorial measures. Legal advice and a documented decision are the practical answer.
- A secondary-sanctions flag is not an asset freeze, and not a criminal prohibition under your own law.
Compliance glossary
TERMS- Primary sanctions
- Prohibitions that bind persons within the issuing jurisdiction, such as US persons under OFAC regulations or EU operators under Council regulations.
- EU Blocking Statute
- EU legislation restricting compliance by EU operators with specified extraterritorial measures of third countries.
Authoritative references
SOURCES- 01OFAC Frequently Asked Questions
U.S. Department of the Treasury — OFAC
- 02List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (CAPTA List)
U.S. Department of the Treasury — OFAC
Frequently asked questions
Q&A- Who actually gets hit by these?
- Non-US persons anywhere: banks, traders, shipping companies, technology suppliers. The trigger is normally a significant transaction with, or material support for, a target of the underlying programme, which is why exposure is assessed by activity rather than by address.
- What is the worst outcome if we are caught by one?
- Addition to the SDN List, which blocks US-jurisdiction property and cuts the party off from US persons. Lesser outcomes include correspondent-account restrictions through the CAPTA List, or menu-based measures.
- Does the EU do the same thing?
- The EU has traditionally avoided extraterritorial designation of this kind and has legislated against giving effect to certain foreign extraterritorial measures. It does apply anti-circumvention provisions that reach conduct designed to defeat its own measures, which is a narrower tool.