Facilitation and the Reach to Non-US Parties
The most common way a United States company violates a sanctions program is not by trading with a prohibited party. It is by approving, arranging, financing or quietly supporting a transaction that a foreign affiliate carried out somewhere else entirely.
The rule in short
Sanctions programs prohibit United States persons from approving, financing, facilitating or guaranteeing a transaction by a foreign person where that transaction would be prohibited if performed by a United States person. Some programs go further and apply directly to foreign entities owned or controlled by United States persons. A separate theory reaches any person, of any nationality, who causes a United States person to violate a prohibition.
Most sanctions failures at large companies do not involve a United States entity selling to a prohibited party. They involve a foreign affiliate doing business that the United States entity could not do, with help, approval or arrangement coming from the United States side. That help is separately prohibited, and it is prohibited even though the transaction itself happened somewhere else.
What facilitation means
The standard formulation prohibits a United States person from approving, financing, facilitating or guaranteeing any transaction by a foreign person where the transaction would be prohibited if performed by a United States person or within the United States. The prohibition is written broadly on purpose, because its entire function is to close the gap that corporate structure would otherwise open.
Nothing in it requires an economic benefit to the United States person, and nothing requires the foreign transaction to be unlawful where it occurred. The question is whether a United States person did something to help it along. That framing means a compliance analysis has to ask what people in the United States did, not only what the contracting entity was.
The acts that count
Enforcement records show the same patterns repeatedly. Approving a foreign subsidiary's proposed transaction, or declining to stop it when approval was required by internal policy, is facilitation. Referring a customer to a foreign affiliate because the United States entity cannot serve it is facilitation. Changing operating policies or procedures so that the affiliate is free to act is facilitation.
So is support. Providing accounting, information technology, human resources, logistics, insurance or legal services in aid of the transaction can each qualify, as can arranging financing or providing a guarantee. Where a shared services center in the United States processes the affiliate's invoices, the processing is the facilitating act even though no one there knew the customer's identity.
Group structures make this harder than it sounds. Centralized treasury, a single enterprise resource planning system, global procurement and consolidated insurance all route the affiliate's business through United States infrastructure by design. Unwinding that for a particular line of business is expensive, and the alternative of leaving it in place while telling people not to look is worse. Companies that get this right decide at the outset which businesses the group will not conduct anywhere, rather than trying to partition a system that was built to be integrated.
Groups sometimes build a firewall so that United States personnel never learn which customers the affiliate serves. That is legitimate when the affiliate genuinely operates independently and the United States side provides nothing. It fails when the firewall is nominal: the same executives approve budgets that plainly include the business, the same systems process the transactions, and the same policies were rewritten to permit them. Programs prohibiting evasion and attempts reach arrangements whose purpose is to avoid a prohibition.
Foreign affiliates covered directly
Some programs go beyond facilitation and apply to the foreign entity itself. Where a program prohibits entities owned or controlled by United States persons and established or maintained outside the United States from engaging in transactions that a United States person could not engage in, the subsidiary is directly liable, and the United States parent can be liable for the subsidiary's conduct.
This design is not universal. It appears in some comprehensive programs and not in others, which is why the analysis has to start from the applicable part rather than from a general rule, as described in comprehensive and targeted programs compared. Where it applies, the affiliate needs its own compliance program rather than an instruction to stay clear of United States touchpoints.
Ownership and control are defined for this purpose in the program itself, and the definitions are not identical across programs. Control can rest on holding a majority of voting interests, on the power to appoint a majority of the board, or on authorizing or directing the entity's actions. A minority United States shareholder with negative control rights can therefore bring a foreign entity within scope even though it owns nothing close to a majority.
Causing a violation, and reexports
A separate theory reaches persons who are not United States persons at all. Where a foreign party causes a United States person to violate a prohibition, by omitting the identity of the ultimate customer from payment instructions or by routing goods through an intermediary, the foreign party has exposure of its own. Programs prohibiting evasion, avoidance and conspiracy provide the hook, and the export control rules contain an analogous prohibition on proceeding with knowledge that a violation is about to occur.
Reexport prohibitions extend the reach geographically. A shipment moving between two foreign countries can be prohibited where the goods are of United States origin, where a United States person is involved, or where the applicable program says so. The classification questions that determine whether goods carry that status are covered in classifying an item and finding its control number.
Who is exposed, and to what
| Actor | Conduct | Nature of exposure |
|---|---|---|
| United States entity | Approving or supporting an affiliate's transaction | Direct violation of the facilitation prohibition |
| Foreign subsidiary of a United States person | Transacting where the program covers it | Direct violation; parent may also be liable |
| Foreign subsidiary where the program does not cover it | Transacting without United States involvement | No direct exposure under that program |
| Foreign party outside any program | Causing a United States person to violate | Liability for causing the violation |
| Foreign party engaging in described conduct | Significant transactions with sanctioned parties | Designation risk under secondary sanctions |
The last row is different in kind from the others. Secondary sanctions do not prohibit the foreign party from doing anything; they create the prospect that it will itself be designated, with the consequences described in what a listing does to property and dealings. Where facilitation has already occurred, the response runs through voluntary self-disclosure, penalties and mitigation, and the internal question is usually how far up the approval chain the conduct went.
Points to carry away
- Facilitation prohibitions bar approving, financing, guaranteeing or arranging a foreign person's prohibited transaction.
- Changing a policy or referring business so that a foreign affiliate can transact is itself facilitation.
- Some programs apply directly to foreign entities owned or controlled by United States persons.
- A non-United States person who causes a United States person to violate a prohibition can be liable.
- Reexport prohibitions can reach shipments that never touch the United States.
- Secondary sanctions are a designation risk rather than a prohibition on the foreign party.
Questions readers ask
Can a United States person simply refuse to be involved and let a foreign colleague handle it?
Stepping back is the right instinct but it has to be genuine. A United States person may decline to participate, and the foreign affiliate may proceed on its own initiative where no program applies to it directly. What the United States person may not do is choose who handles it, approve the decision, negotiate terms, arrange financing or provide supporting services. Referral is itself facilitation in most programs, so the safe form of the answer is a refusal to engage rather than a redirection to someone else.
Do these prohibitions apply to a foreign employee of a United States company?
A person of any nationality who is physically in the United States is a United States person while there, and an employee of a United States entity acts for that entity wherever located. So a foreign national working in a United States office is fully covered, and a foreign national employed by the United States parent is generally acting on the parent's behalf. Structuring around the issue by hiring abroad rarely works, because the question is whose transaction it is rather than whose passport is involved.
What is the difference between a prohibition and secondary sanctions?
A prohibition tells a person what they may not do and creates penalty exposure for doing it. Secondary sanctions do not prohibit a foreign person from anything; they create the risk that the person will itself be designated, or lose access to the United States financial system, if it engages in described conduct. The practical effect can be more severe than a penalty, which is why foreign counterparties often decline business that no law forbids them from doing.
Sources
- Cornell Legal Information Institute — 31 CFR 560.208, Prohibited Facilitation of Transactions by Foreign PersonsThe standard formulation of the facilitation prohibition in a comprehensive program.
- Cornell Legal Information Institute — 31 CFR 560.215, Prohibitions on Entities Owned or Controlled by United States PersonsAn example of a program applying directly to foreign subsidiaries of United States persons.
- Cornell Legal Information Institute — 31 CFR 560.203, Evasions and AttemptsThe prohibition on evasion, avoidance, conspiracy and causing a violation.
- Cornell Legal Information Institute — 50 U.S.C. 1705, PenaltiesThe penalty exposure for causing a violation as well as committing one.
- Cornell Legal Information Institute — 15 CFR 736.2, General ProhibitionsThe export control prohibitions, including proceeding with knowledge that a violation will occur.
- Office of Foreign Assets Control — Frequently Asked QuestionsThe administering office's published answers on facilitation and foreign affiliates.
Liberty Law Library is a publication, not a law firm. This article states general rules and cites its sources; it is not advice about any particular case, and the law differs by state and changes over time.
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