President Obama Issues Executive Order Authorizing Sanctions for Malicious Cyber Activities: Treasury Department May Designate Individuals and Entities That Engage in Cyber Activities Detrimental to U.S. Interests, Freezing Their Assets and Blocking Transactions With Them

Sullivan & Cromwell LLP - April 1, 2015

Earlier today, President Obama issued an Executive Order authorizing sanctions against persons found to have engaged in or supported significant malicious cyber activities.  Under the order, the Secretary of the Treasury is authorized to designate and impose sanctions on individuals and entities that are responsible for or complicit in certain cyber-related activities that pose a significant threat to the national security, foreign policy, economic health, or financial stability of the United States.  The Executive Order focuses in particular on cyber activities that harm or compromise critical infrastructure, disrupt computers or computer networks, or misappropriate funds, information, or trade secrets.  Although there were no initial designations made with today’s order, those designated for sanctions will be added to the Office of Foreign Assets Control’s (“OFAC”) List of Specially Designated Nationals and Blocked Persons.  It will be unlawful for U.S. persons to engage in transactions with such persons, and any assets they have in the United States or in the control or possession of U.S. persons will be required to be frozen. 

Significantly, in guidance released with the order, OFAC sets forth a strict liability framework and emphasizes that all U.S. persons, including technology companies and firms engaged in online commerce, must ensure they do not engage in unauthorized transactions or dealings with designated persons or entities owned by them.  According to OFAC’s guidance, these entities should develop a tailored, risk-based compliance program, which may include sanctions list screening or other appropriate measures for various reasons; compliance procedures are an important factor considered by OFAC under its enforcement guidelines in the event of an offense.