A Mumbai-based trading company has supplied industrial components to a Russian buyer for fifteen years — a relationship that predates the current sanctions regime by a decade. In 2022, OFAC placed the Russian buyer on the SDN list. The Indian company continued shipments, transacted in euros through a European bank, and believed it was insulated from US jurisdiction. Three years later, OFAC's Global Magnitsky investigators contact the company's Swiss banking relationship. Secondary sanctions exposure is not hypothetical; it is a present commercial reality for India-based businesses with Russian, Iranian, North Korean, or Cuban counterparties.
The US Treasury's Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions based on US foreign policy and national security objectives. OFAC's jurisdiction reaches well beyond US territory — it extends to any person or entity that uses US financial infrastructure, engages in transactions denominated in US dollars, or employs US persons in connection with a sanctionable transaction.
SDN List — The Specially Designated Nationals and Blocked Persons List maintained by OFAC. Property of SDN-listed individuals and entities in US jurisdiction is blocked, and US persons (and non-US persons in connection with US transactions) are generally prohibited from dealing with SDNs. The SDN list includes individuals, companies, vessels, aircraft, and even digital wallet addresses.
Secondary Sanctions — Sanctions that apply to non-US persons who engage in specified conduct even if that conduct does not involve US persons, US territory, or US dollars. Key secondary sanctions regimes affecting India-Russia trade include CAATSA (Countering America's Adversaries Through Sanctions Act) and the executive orders targeting Russian energy, financial, and defence sectors.
How OFAC Reaches India-Based Companies
India is not subject to US sanctions — India itself is not a sanctioned country. But Indian companies can face OFAC liability through several channels:
- US Dollar Transactions: Dollar-denominated payments clear through correspondent US banks. If a payment involves a sanctioned party or sanctioned jurisdiction — even if both the payer and payee are non-US — the US correspondent bank is obligated to block the transaction and file a blocked asset report. This effectively terminates the relationship and can trigger an OFAC investigation.
- US Counterparties: US companies, US banks, and US investors are prohibited from dealing with SDN-listed parties. An Indian company on the SDN list will be effectively cut off from any counterparty with US nexus — including access to the SWIFT network through US-connected institutions.
- CAATSA Secondary Sanctions: Section 231 of CAATSA allows OFAC to sanction non-US entities that engage in "significant transactions" with designated Russian defence sector entities. This provision applies to Indian defence procurement from sanctioned Russian entities — a topic of ongoing US-India diplomatic engagement.
- Iran and Other Comprehensive Sanctions Programmes: Comprehensive sanctions on Iran, North Korea, Cuba, and Syria apply to non-US persons in certain circumstances. Indian oil importers purchasing Iranian crude face designation risk under the Iran Transactions and Sanctions Regulations.
Building an OFAC Compliance Programme for an India-Based Business
A defensible OFAC compliance programme for an India-based company with US-nexus transactions should address five core elements, consistent with OFAC's published Framework for Compliance Commitments:
- Management Commitment: Board-level designation of an OFAC compliance officer with authority, resources, and reporting lines. Sanctions compliance cannot be delegated entirely to operations staff.
- Risk Assessment: Map all counterparties, products, services, transactions, and geographies against OFAC sanctions programmes. Identify which programmes create the highest exposure given your industry and trade routes.
- Internal Controls: Implement SDN screening using an OFAC-licensed screening tool (or direct API to the OFAC database) for all counterparties, including beneficial owners. Screen at onboarding and continuously for changes to the SDN list. Implement controls for jurisdictional exposure — automated blocking of US dollar transactions with entities in Iran, Cuba, North Korea, and Syria.
- Testing and Auditing: Conduct annual compliance programme audits, including testing of screening tools and transaction monitoring. OFAC's enforcement decisions consistently cite lack of testing as an aggravating factor.
- Training: Annual training for all employees with trade finance, procurement, or counterparty relationship responsibilities. Document training completion.
OFAC Licensing: When Prohibited Transactions Can Be Authorised
Certain otherwise-prohibited transactions can be authorised by OFAC through either a general licence (published in the OFAC regulations, available to all qualifying persons without an application) or a specific licence (an individual authorisation granted by OFAC on application). Understanding the applicable licence framework is critical before concluding that a transaction is impossible.
Common general licences relevant to India-based companies include authorisations for personal remittances to individuals in sanctioned jurisdictions (e.g., for sending money to family in Iran), certain trade in agricultural commodities, medicine, and medical devices (available for most comprehensive sanctions programmes), and wind-down authorisations allowing unwinding of contracts that pre-dated a new designation.
OFAC's voluntary self-disclosure framework rewards companies that proactively disclose apparent violations. A voluntary disclosure, if timely, complete, and accompanied by a compliance programme commitment, can reduce penalties by up to 50%. For Indian companies with inadvertent sanctions exposure from historical trade, voluntary self-disclosure is typically the strategically superior path compared to waiting for enforcement action.
Frequently Asked Questions
Can an India-based company be sanctioned by OFAC even if it has no US offices?
Yes. OFAC can designate non-US companies on the SDN list if they engage in specified sanctionable conduct — such as providing material support to a sanctioned party or engaging in significant transactions under CAATSA. Designation has extraterritorial commercial effects: US persons and US-nexus transactions are blocked, effectively cutting off the company from dollar-denominated trade and US-connected financial institutions.
What is the OFAC 50 Percent Rule and how does it affect Indian companies?
Under OFAC's 50 Percent Rule, any entity in which one or more SDN-listed persons own (individually or collectively) a 50% or greater interest is treated as if it were on the SDN list itself — even if the entity is not directly designated. Indian companies that are majority-owned by a sanctioned group are caught by this rule and must be screened and treated as SDN-equivalent.
Does OFAC apply to Indian rupee transactions between two Indian parties?
Generally no — if a transaction involves no US persons, no US dollar clearing, and no other US nexus, OFAC primary sanctions do not apply. However, secondary sanctions under CAATSA or other executive orders can apply to non-US persons transacting with designated Russian, Iranian, or other sanctioned entities in significant amounts, regardless of currency.
What should an Indian company do if it discovers a past transaction with an SDN-listed counterparty?
Immediately consult sanctions counsel. Document all facts regarding the transaction — date, amount, parties, currency, and how the SDN status was missed. Evaluate whether voluntary self-disclosure to OFAC is appropriate; voluntary disclosure that is timely, complete, and accompanied by compliance programme commitments can reduce penalties by up to 50%. Do not attempt to conceal or destroy records — that constitutes obstruction.
This article is published by an independent law firm for informational purposes only and does not represent or claim affiliation with any government body, international organization, or official authority.