CSS Secondary Sanctions & Extraterritorial Reach 1 — Questions and Answers
Question 1: What is the primary purpose of secondary sanctions in U.S. foreign policy?
- To penalize U.S. persons who violate primary sanctions
- To deter non-U.S. persons from conducting business with sanctioned parties by threatening their access to U.S. markets (Correct answer)
- To freeze assets held in U.S. financial institutions
- To impose travel bans on foreign nationals
Correct answer: To deter non-U.S. persons from conducting business with sanctioned parties by threatening their access to U.S. markets
Secondary sanctions deter third-country actors by threatening to cut off their access to U.S. markets and financial systems if they conduct business with sanctioned parties.
Question 2: Which of the following best describes the difference between primary and secondary sanctions?
- Primary sanctions apply to state-sponsored actors; secondary sanctions apply to individuals
- Primary sanctions prohibit U.S. persons from engaging with sanctioned parties; secondary sanctions threaten non-U.S. persons for doing the same (Correct answer)
- Primary sanctions are civil in nature; secondary sanctions are criminal
- Primary sanctions are issued by Congress; secondary sanctions are issued by the President
Correct answer: Primary sanctions prohibit U.S. persons from engaging with sanctioned parties; secondary sanctions threaten non-U.S. persons for doing the same
Primary sanctions bind U.S. persons and entities, while secondary sanctions extend U.S. reach extraterritorially to non-U.S. persons who deal with sanctioned parties.
Question 3: The Countering America's Adversaries Through Sanctions Act (CAATSA) primarily targets which three countries?
- China, Syria, and Libya
- Russia, Iran, and North Korea (Correct answer)
- Cuba, Venezuela, and Belarus
- Sudan, Somalia, and Zimbabwe
Correct answer: Russia, Iran, and North Korea
CAATSA, enacted in 2017, established mandatory and discretionary secondary sanctions targeting Russia, Iran, and North Korea.
Question 4: Under CAATSA Section 231, a foreign person may face sanctions if they knowingly engage in a 'significant transaction' with which sector?
- Any foreign government ministry
- Russia's defense or intelligence sectors (Correct answer)
- Any FATF non-compliant jurisdiction
- Foreign state-owned central banks
Correct answer: Russia's defense or intelligence sectors
CAATSA Section 231 authorizes the President to impose sanctions on foreign persons who knowingly engage in significant transactions with Russia's defense or intelligence sectors.
Question 5: Which of the following would most likely trigger a secondary sanctions designation for a non-U.S. financial institution?
- Holding accounts for U.S. persons operating in a foreign country
- Providing significant financial services to an OFAC-designated party (Correct answer)
- Failing to implement anti-money laundering controls
- Investing in U.S. Treasury securities on behalf of clients
Correct answer: Providing significant financial services to an OFAC-designated party
A non-U.S. financial institution providing significant financial services to OFAC-designated parties risks being cut off from the U.S. financial system under secondary sanctions.
Question 6: What does 'extraterritorial reach' mean in the context of U.S. sanctions?
- The ability of OFAC to conduct physical audits of foreign banks
- The application of U.S. sanctions laws to conduct occurring outside U.S. territory by non-U.S. persons (Correct answer)
- OFAC's authority to seize assets held in foreign financial institutions abroad
- The jurisdiction of U.S. courts over foreign nationals for all financial crimes
Correct answer: The application of U.S. sanctions laws to conduct occurring outside U.S. territory by non-U.S. persons
Extraterritorial reach refers to the application of U.S. sanctions laws to foreign persons for conduct occurring outside U.S. territory, enforced through threats to market access.
Question 7: What is the primary enforcement mechanism OFAC uses to implement secondary sanctions against foreign financial institutions?
- Issuing civil monetary penalties directly to foreign banks
- Prohibiting or restricting the foreign institution's access to U.S. correspondent accounts (Correct answer)
- Filing criminal charges against foreign banks in U.S. federal courts
- Referring matters to the UN Security Council Sanctions Committee
Correct answer: Prohibiting or restricting the foreign institution's access to U.S. correspondent accounts
OFAC primarily implements secondary sanctions against foreign financial institutions by prohibiting or restricting their access to U.S. correspondent banking relationships.
CSS Secondary Sanctions & Extraterritorial Reach 1
What is the primary purpose of secondary sanctions in U.S. foreign policy?