In recent years, economic sanctions have become one of the United States’ most frequently deployed foreign policy tools, affecting not just governments and major corporations but also legal professionals navigating representation in increasingly complex geopolitical environments. As sanctions regimes expand in scope and application, law firms, both in the U.S. and abroad, face rising stakes when it comes to compliance, ethical conduct, and client service. This article synthesizes the key points of agreement across legal experts and firms on how to responsibly represent designated clients and navigate the Office of Foreign Assets Control (OFAC) regulatory framework.

I. The Central Role of OFAC in U.S. Sanctions Enforcement

At the heart of U.S. economic sanctions enforcement lies the OFAC, an agency under the Department of the Treasury. OFAC administers and enforces a wide range of sanctions programs targeting countries, entities, and individuals deemed to pose threats to U.S. national interests. These include but are not limited to terrorism, drug trafficking, nuclear proliferation, and human rights violations.

Central to OFAC’s authority is the maintenance of the Specially Designated Nationals and Blocked Persons (SDN) List. U.S. persons are generally prohibited from transacting with parties listed on the SDN List unless explicitly authorized. Importantly, OFAC’s 50 Percent Rule extends these prohibitions to entities that are at least 50% owned, directly or indirectly, by one or more SDNs, regardless of whether the entity is listed by name.

II. The Extraterritorial Reach of U.S. Sanctions

One of the most universally acknowledged complexities in sanctions compliance is the extraterritorial application of U.S. law. While sanctions are inherently national in origin, their practical implications often extend beyond U.S. borders.

Transactions that touch the U.S. financial system, especially those involving U.S. dollars, create jurisdictional hooks for OFAC enforcement—even when both parties are foreign. For example, a non-U.S. law firm receiving a payment in U.S. dollars from a client in a sanctioned jurisdiction could be held liable for causing a U.S. bank to violate sanctions.

The expansive reach of U.S. sanctions means law firms must carefully evaluate not just their clients but also the mechanics of how and where payments are processed. This due diligence extends to identifying beneficial ownership, screening against the SDN list, and understanding all potential U.S. touchpoints.

III. Primary vs. Secondary Sanctions

A foundational distinction in U.S. sanctions law is between primary and secondary sanctions.

Primary sanctions apply directly to “U.S. persons,” a category that includes U.S. citizens, permanent residents, entities organized under U.S. law (including foreign branches), and anyone physically present in the United States. These persons are prohibited from engaging in most transactions with sanctioned individuals or entities unless specifically authorized.

Secondary sanctions, on the other hand, target non-U.S. persons who engage in certain types of transactions with primary sanctions targets. These do not rely on a U.S. nexus but aim to dissuade global actors from undermining the effectiveness of U.S. sanctions. For example, a European law firm that assists an SDN client in a commercial transaction may find itself barred from U.S. financial markets if the activity is deemed to further a prohibited purpose.

Though historically focused on banks and financial institutions, OFAC has broadened enforcement in recent years to include a wider array of service providers—including logistics firms, insurers, and potentially legal service providers. This expansion raises the possibility that law firms could soon be directly targeted if they fail to mitigate sanctions risks.

IV. Legal Services Carveouts and Authorized Activities

Despite the broad prohibitions of sanctions programs, there is widespread agreement that legal representation is not only allowed but also protected under most OFAC regimes. Legal services are often carved out from prohibitions through general licenses that authorize U.S. persons to:

• Represent clients in legal proceedings
• Petition for delisting from the SDN List
• Provide compliance counseling and guidance

These general licenses usually allow for the receipt of payments for such services, provided the payment process complies with licensing terms. However, law firms must be cautious about the currency and bank routing involved, as payments in U.S. dollars may trigger compliance obligations.

Additionally, firms often rely on specific licenses to represent clients in matters that fall outside general authorizations. These are granted on a case-by-case basis by OFAC and can take time to secure, creating operational uncertainty.

V. Compliance Obligations for Law Firms

Given the risk landscape, law firms must implement robust compliance frameworks. There is broad consensus that these should include:

• Client screening: Conduct due diligence to determine whether prospective or existing clients, or their beneficial owners, are on the SDN List or implicated in sanctions programs.
• Avoiding U.S. touchpoints: Where possible, payments and communications related to sanctioned clients should avoid routing through U.S. persons or institutions unless explicitly licensed.
• Personnel management: U.S. citizens or residents, even if based abroad, must not work on sanctioned matters unless permitted by OFAC. Firms must track and restrict personnel accordingly.
• Policy implementation: Clear, documented internal policies should guide attorneys and staff in identifying and escalating sanctions-related concerns.

Technology tools that automate SDN screening and flag jurisdictional risks can greatly enhance a firm’s sanctions compliance posture.

VI. Ethical Considerations and Withdrawal Requirements

Representing sanctioned clients is not merely a matter of regulatory compliance—it also raises complex ethical questions. Across jurisdictions, bar associations have weighed in on whether representation must or may be terminated in light of sanctions.

Withdrawal is generally mandatory when continued representation would result in violation of law or rules of professional conduct. For example, if the legal services provided would amount to sanctions evasion, or if payment cannot be lawfully accepted, the attorney may be required to withdraw.

Withdrawal may be permissive in cases where the representation imposes an unreasonable financial burden due to an inability to receive payment, or where reputational risk or client pressure creates untenable conflicts. However, permissive withdrawal still requires court approval if litigation is underway, and attorneys must ensure that withdrawal does not materially harm the client.

Additionally, lawyers are prohibited from assisting clients in criminal or fraudulent conduct, including strategies aimed at circumventing sanctions. Counseling clients about the legal implications of their actions is allowed, but facilitating prohibited activity is not.

VII. Sanctions Enforcement Trends and Penalties

The penalties for violating OFAC sanctions are steep. Civil penalties can reach over $368,000 per violation or twice the transaction value, whichever is greater. Criminal violations carry even more severe consequences: up to $1 million in fines and 20 years in prison.

In recent years, OFAC has increasingly pursued enforcement against non-financial actors, a trend that could soon envelop legal professionals. Though no law firm has yet been fined or penalized by OFAC directly, the consensus is clear: the risk is real and rising.

Lawyers who engage with sanctioned clients should assume they are operating in a high-risk zone. Proactive compliance, strategic risk assessments, and clear ethical guidelines are critical tools in navigating this space.