Since the September 11, 2001 terrorist attacks, the OFAC has flexed more muscle in its prosecution of Executive Branch policies targeting money laundering, the financial sponsorship of terrorism and support for oppressive governments. The most powerful weapon in the OFAC’s bullet-less arsenal may be its ability to block financial dealings between US companies and entities or individuals placed on one of OFAC’s restricted lists.
Countries such as Iran, Cuba and North Korea are all covered under OFAC’s financial transactions prohibitions; as are groups like Hamas, Al-Qaeda and thousands of individuals including Zimbabwe’s President Robert Mugabe. Most recently, OFAC has expanded its tool kit to include sanctions against the financial services and oil producing sectors of the Russian economy.
FTSE Russell’s clients need to be aware of these restrictions which can significantly affect the international finance environment. So it follows that many of the largest financial institutions in the world have grown understandably sensitive to the risks associated with crossing the OFAC. A violation for providing assistance, knowingly or unknowingly, to a named person, company or country, can carry significant fines as well as reputational risk for the offending firm. Global financial firms have been particularly vulnerable to slip ups based on the transaction-oriented nature of their businesses.
Selected OFAC Sanctions Programs
Source: US Treasury Department as of February 8, 2016.
FTSE Russell has responded to clients’ concerns in a number of ways including leaving countries that are completely blocked off our list of eligible markets. Additionally, we have continued to monitor Russian-based sanctions and put new rules in place to clarify the treatment of companies that are named by the OFAC and are also index members. Advancements in the abilities of both index providers and asset managers to identify sources of companies’ revenues will allow for further screening tools in the future.
We also continue to watch for developments out of the OFAC that could expand investors’ access; an example being the recent thaw in relations between the US and Iran that may eventually make Iran’s $90B stock market accessible to many more foreign investors. As the US increasingly trades the threat of bombs for economic sanctions, index providers will need to remain vigilant against including countries and companies that can create their own sort of collateral damage.
* The term “Axis of Evil” was coined by President George W. Bush in his 2002 State of the Union address in reference to Iran, Iraq and North Korea.
 For more information about the OFAC please visit: https://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx
 Strobel, W. & Yukhananov, A. (2014). After success on Iran, US Treasury’s sanctions team faces new challenges. Reuters, accessed on February 6, 2016, at: http://www.reuters.com/article/us-usa-sanctions-insight-idUSBREA3D1O820140414
 Source: https://sanctionssearch.ofac.treas.gov/
 Source: https://www.treasury.gov/resource-center/sanctions/Programs/Pages/ukraine.aspx
 Rubenfeld, S. (2016). Barclays Pays $2.5Million over Zimbabwe Sanctions Breaches. The Wall Street Journal, article accessed on February 6, 2016, at: http://blogs.wsj.com/riskandcompliance/2016/02/08/barclays-pays-2-5-million-over-zimbabwe-sanctions-breaches/
 For more information about the FTSE response to Russian sanctions please read: http://www.ftse.com/products/index-notices/home/getnotice/?id=600061
 Motevalli, G., Nasseri, L. & Potter, S. (2016). What Investors Need to Know About Entering Iran’s Stock Market. Bloomberg, accessed on February 5, 2016, at: http://www.bloomberg.com/news/articles/2016-01-17/what-investors-need-to-know-about-entering-iran-s-stock-market
© 2016 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”) and (4) MTSNext Limited (“MTSNext”). All rights reserved.
FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.
All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Russell indexes or the fitness or suitability of the indexes for any particular purpose to which they might be put.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this communication should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a license from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.