GlobalVIEW
How U . S . Sanctions Work and Its Tax Implications
Since the onset of the military conflict in Ukraine , many people have wondered precisely how international sanctions work and whether there are tax implications for individuals or businesses that violate sanctions .
Sanctions in General
The U . S . Department of the Treasury ’ s Office of Foreign Assets Control ( OFAC ) administers and enforces U . S . economic and trade sanctions against targeted :
• Foreign governments
• Terrorists
• Drug traffickers
• Parties engaged in proliferating weapons of mass destruction
• Threats to national security , foreign policy or the economy
Under the U . S . Code , OFAC can impose civil penalties against parties that violate sanctions . In lieu of penalties , OFAC sometimes agrees to settlements with offending parties . The U . S . Department of Treasury ’ s
Financial Crimes Enforcement Network ( FinCEN ) plays a role as well . In March 2022 , the agency alerted financial institutions to be vigilant against efforts to evade the expansive sanctions and other U . S . -imposed restrictions implemented in connection with the conflict in Ukraine .
The alert identifies red flags to assist in identifying potential sanction-evasion activity and reminds financial institutions of their reporting obligations under the Bank Secrecy Act ( BSA ), including with respect to convertible virtual currency ( CVC ).
FinCEN stressed it is critical for financial institutions , especially those with visibility into CVC flows — such as CVC exchangers and administrators generally considered financial services businesses under the BSA — to report suspicious activity associated with potential evasion of sanctions as soon as possible . Appropriate risk-based customer , or enhanced , due diligence should also be conducted .
22 VIEWpoint Issue 2 | 2022