"We're Not American": The Dangerous Myth of Immunity from US Sanctions

It is the most common objection in trade compliance: "We are a British company. We follow UK sanctions. We have no offices in the US, so why should we care about the OFAC list?"

This assumption—that jurisdiction stops at the border—is the single largest source of accidental sanctions violations for international businesses. The reality is that the US Treasury’s Office of Foreign Assets Control (OFAC) has aggressively extraterritorial reach, and they do not hesitate to penalize foreign entities that interact with the US financial system.

The US Dollar Trap: "Causing a Violation"

The primary hook for US jurisdiction over foreign companies is the US dollar itself. Most international trade is denominated in USD. When a company in Singapore pays a supplier in Dubai in US dollars, that money does not fly directly from one bank to another. It almost invariably clears through a correspondent bank in New York.

This momentary passage through a computer server in New York is all OFAC needs.

Under the legal theory of "causing a violation," a non-US person cannot be penalized directly for trading with a sanctioned country (unless secondary sanctions apply). However, if that non-US person initiates a USD payment that causes a US bank to process funds related to a sanctioned entity, the non-US person has "caused" the US bank to violate sanctions.

This was the exact mechanism used against Toll Holdings. The Australian logistics giant used US banks to process payments for shipments involving North Korean, Iranian, and Syrian entities. Even though Toll was not a US person, their use of the US financial system to facilitate this trade was the violation.

Secondary Sanctions: The "Death Penalty"

Beyond the clearing mechanism, there is the even more severe threat of "secondary sanctions." These are specifically designed to target non-US persons entirely outside of US jurisdiction.

If a foreign company engages in "significant transactions" with certain sanctioned sectors (notably in Russia, Iran, or North Korea), the US government can cut that foreign company off from the US financial system entirely.

This means:

• Your company can no longer hold US dollar accounts.
• Your banks may be forced to drop you as a client to protect their own US correspondent relationships.
• You may be added to the SDN list yourself, making you "radioactive" to global commerce.

Executive Order 14024 (as amended in late 2023) significantly expanded this power regarding Russia, authorizing sanctions on foreign financial institutions that facilitate significant transactions for Russia's military-industrial base. This has led banks in Turkey, the UAE, and China to scrutinize payments with extreme caution.

The Supply Chain Risk: The 50% Rule

Another area where non-US companies fail is the "50% Rule." OFAC regulations state that any entity owned 50% or more, directly or indirectly, by one or more blocked persons is itself blocked—even if it does not appear on any list.

A European manufacturer might check a supplier's name against the SDN list and find no match. But if that supplier is 51% owned by a Russian oligarch who is on the list, the supplier is sanctioned by extension.

If you pay that supplier in USD, you are causing a violation. If you receive goods from them that contain US-origin parts, you may be violating export controls. The "clean" name on the invoice is not a defense if the ownership structure is tainted.

Why Your Local Bank Care About OFAC

You might think, "My bank is in London/Paris/Singapore. They follow local laws."

While true, your local bank almost certainly relies on US correspondent banks to process international wire transfers. If your local bank processes a payment that gets flagged in New York, the US correspondent bank will freeze the funds and demand an explanation. If your local bank cannot provide a satisfactory one, they risk losing their own ability to transact in dollars.

To prevent this, local banks globally have adopted OFAC screening as a standard "best practice," often applying US standards even to transactions that have no obvious US nexus, just to be safe. If you are not screening against OFAC lists, you are failing to meet the compliance expectations of your own banking partners.

The Practical Solution

For non-US companies, the strategy is simple: treat the OFAC SDN list as a global "Do Not Trade" list, regardless of your physical location.

• Screen all counterparties: Customers, suppliers, and freight forwarders.
• Screen all currencies: Do not assume Euro or local currency transactions are safe from secondary sanctions.
• Check ownership: Be aware of who owns the companies you trade with.