CSS Secondary Sanctions & Extraterritorial Reach 2 — Questions and Answers
Question 1: The Global Magnitsky Human Rights Accountability Act authorizes U.S. sanctions against foreign persons for which of the following?
- Violations of U.S. export control laws
- Significant corruption or gross violations of internationally recognized human rights (Correct answer)
- Providing material support to designated terrorist organizations
- Engaging in nuclear proliferation activities
Correct answer: Significant corruption or gross violations of internationally recognized human rights
The Global Magnitsky Act authorizes the President to impose sanctions against foreign individuals responsible for significant corruption or serious human rights abuses, regardless of country.
Question 2: Which statute serves as the primary legal authority for presidential imposition of secondary sanctions through executive orders?
- The Export Administration Act (EAA)
- The International Emergency Economic Powers Act (IEEPA) (Correct answer)
- The Trading with the Enemy Act (TWEA)
- The Foreign Corrupt Practices Act (FCPA)
Correct answer: The International Emergency Economic Powers Act (IEEPA)
IEEPA grants the President broad authority to regulate or prohibit economic transactions during declared national emergencies involving foreign threats, and is the primary basis for most modern secondary sanctions programs.
Question 3: 'De-risking' by foreign financial institutions in response to secondary sanctions concerns typically involves which behavior?
- Filing suspicious activity reports for all cross-border transactions
- Terminating relationships with entire jurisdictions or customer segments to avoid any sanctions exposure (Correct answer)
- Implementing enhanced due diligence for every individual client
- Obtaining OFAC general licenses for all high-risk transactions
Correct answer: Terminating relationships with entire jurisdictions or customer segments to avoid any sanctions exposure
De-risking refers to foreign banks exiting entire markets or customer categories rather than managing individual risks, often driven by secondary sanctions pressure and compliance cost concerns.
Question 4: Under the Comprehensive Iran Sanctions, Accountability, and Divestiture Act (CISADA), which activity by a foreign bank can result in loss of its U.S. correspondent account?
- Operating a branch office inside Iran without disclosure to regulators
- Knowingly facilitating significant financial transactions on behalf of the IRGC or designated Iranian parties (Correct answer)
- Holding Iranian government bonds in its investment portfolio
- Employing Iranian nationals in its compliance department
Correct answer: Knowingly facilitating significant financial transactions on behalf of the IRGC or designated Iranian parties
CISADA authorizes OFAC to prohibit or restrict a foreign bank's U.S. correspondent accounts if it knowingly facilitates significant financial transactions for the IRGC or other designated Iranian parties.
Question 5: Which of the following is NOT typically a factor OFAC considers when determining whether a transaction is 'significant' for secondary sanctions purposes?
- The size and volume of the transaction
- The nationality of the individual employees processing the transaction (Correct answer)
- The nature of the transaction and its connection to sanctioned activity
- The impact on U.S. national security or foreign policy objectives
Correct answer: The nationality of the individual employees processing the transaction
OFAC's 'significant transaction' analysis focuses on transaction size, nature, and national security impact — the nationality of compliance employees is not a determining factor.
Question 6: A non-U.S. company that knowingly facilitates a 'significant' transaction for a party designated under North Korea-related secondary sanctions may face which of the following consequences?
- Automatic referral to the UN Security Council with no direct U.S. action
- Loss of access to U.S. markets and potential designation on the SDN List (Correct answer)
- A mandatory operational audit by OFAC at its foreign headquarters
- Criminal prosecution in U.S. courts as the sole available remedy
Correct answer: Loss of access to U.S. markets and potential designation on the SDN List
Under secondary sanctions, non-U.S. companies that facilitate significant transactions for North Korea-related designated parties risk being placed on the SDN List and losing access to U.S. markets.
Question 7: What is the primary purpose of OFAC's 'significant transaction' standard in secondary sanctions enforcement?
- To identify all transactions that must be reported to FinCEN
- To distinguish sanctionable foreign conduct from routine commercial activity that does not warrant sanctions (Correct answer)
- To calculate the appropriate civil monetary penalty for violations
- To determine whether a voluntary self-disclosure is required from a U.S. person
Correct answer: To distinguish sanctionable foreign conduct from routine commercial activity that does not warrant sanctions
The 'significant transaction' standard helps OFAC identify when foreign conduct rises to a level warranting secondary sanctions, distinguishing sanctionable activity from routine commerce with minimal sanctions nexus.
CSS Secondary Sanctions & Extraterritorial Reach 2
The Global Magnitsky Human Rights Accountability Act authorizes U.S. sanctions against foreign persons for which of the following?