In today’s interconnected financial system, sanctions are among the most powerful tools used to influence global behavior, deter crime, and enforce international norms. Sanctions can take many forms—economic, diplomatic, or military—but one of the most complex and impactful categories is secondary sanctions. While primary sanctions directly prohibit a country’s own businesses and citizens from dealing with restricted parties, secondary sanctions go a step further, targeting foreign companies and individuals.
For banks, FinTechs, and multinational enterprises, failing to understand the secondary sanctions definition and the rules that govern them can result in devastating consequences: exclusion from U.S. markets, blocked access to the dollar-based financial system, legal liabilities, reputational damage, and severe financial penalties. In this guide, we explain what secondary sanctions are, provide examples of sanctions in practice, and outline the compliance challenges they create.
Secondary sanctions are restrictions imposed by one jurisdiction—most often the United States—on third-party individuals, businesses, or institutions that conduct business with sanctioned entities or jurisdictions. They are sometimes referred to as “extraterritorial sanctions” because they extend beyond national borders to influence the behavior of foreign actors.
By contrast, primary sanctions apply only to domestic entities. For example, under U.S. primary sanctions, American citizens and companies cannot do business with organizations listed on the OFAC sanctions list. With secondary sanctions enforcement, even a non-U.S. company may face penalties if it continues doing business with targeted regimes such as Iran, North Korea, or Russia.
This global reach means secondary sanctions are one of the most controversial and powerful compliance tools available, often shaping trade, investment, and banking well beyond the sanctioning country’s borders.
The U.S. Treasury’s Office of Foreign Assets Control (OFAC) is the primary body enforcing U.S. secondary sanctions. Because the U.S. dollar remains the global reserve currency, access to the American financial system is vital for banks and enterprises worldwide. Losing that access can be catastrophic, giving OFAC enormous influence.
A prominent case has been Iran secondary sanctions, which penalized foreign banks and energy companies—even those outside the U.S.—for conducting oil and financial transactions with Iranian entities. Similar measures have been applied in Russia-related sanctions, where financial institutions across Europe and Asia were forced to cut ties with sanctioned Russian banks and defense industries. North Korea sanctions have extended to foreign companies accused of facilitating prohibited trade, while the Helms-Burton Act applied secondary penalties against non-U.S. firms operating in Cuba.
OFAC also enforces entity-based sanctions through the “50 Percent Rule,” which blocks companies majority-owned by sanctioned individuals or groups. This rule has far-reaching effects on global supply chains, as firms must screen not only direct partners but also their ownership structures.
Secondary sanctions serve clear policy goals. They are designed to disrupt funding for sanctioned regimes, extend compliance pressure on third countries, protect the integrity of global financial markets, and use U.S. market access as leverage for international cooperation. At the same time, they send a strong diplomatic signal condemning activities such as terrorism, corruption, nuclear proliferation, or human rights violations.
However, these measures also reshape business realities across industries. For banks and financial institutions, secondary sanctions increase the need for robust sanctions risk management frameworks and financial crime compliance programs. For supply chains, they create disruptions that require constant due diligence, vendor screening, and sometimes over-compliance to avoid risk. Companies may pull out of markets entirely, sacrificing opportunities rather than risking penalties.
The compliance challenges are intensified by jurisdictional conflicts, such as U.S. sanctions clashing with EU blocking regulations. Mid-sized enterprises also struggle with the financial burden of audits, reporting, and continuous monitoring. These realities underscore the importance of specialized secondary sanctions compliance solutions.
To reduce risk and meet obligations under secondary sanctions regulations, businesses should:
Secondary sanctions remain among the most powerful tools reshaping global trade and finance. By extending beyond borders, they compel businesses worldwide to comply—or face exclusion from U.S. financial systems. For organizations in banking, payments, energy, and global supply chains, vigilance and automation are no longer optional.
If you’re vetting a counterparty with exposure to sanctioned jurisdictions, our sanctions screening checks companies and their owners against databases from 80+ sanction bodies, with investigators reviewing potential matches.
For the official program list and guidance, see OFAC’s sanctions programs page.
What are secondary sanctions?
Secondary sanctions are restrictions imposed on foreign companies or individuals for doing business with sanctioned countries, extending rules beyond borders.
How do secondary sanctions differ from primary sanctions?
Primary sanctions apply domestically, while secondary sanctions penalize foreign entities by threatening exclusion from U.S. markets and financial systems.
What are examples of sanctions?
Examples include Iran secondary sanctions, Russia sanctions tied to the Ukraine conflict, North Korea restrictions, and the Helms-Burton Act on Cuba.
Who enforces U.S. secondary sanctions?
The U.S. Treasury’s OFAC is the primary enforcer of U.S. secondary sanctions.
How can businesses comply with secondary sanctions?
Through automated sanctions screening, robust KYC/KYB checks, UBO verification, and integrated financial crime compliance solutions.
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