Could My Startup Break US Sanctions by Selling or Raising Money Abroad?

Your startup has started attracting international opportunities.

A customer from another country wants to buy your software, and an overseas investor is interested in joining your next funding round.

Everything looks legitimate.

The contracts are ready, the money is available, and the business opportunity seems too good to ignore.

Then your legal adviser asks whether you’ve completed sanctions screening.

Many founders assume sanctions laws only affect banks, defense contractors, or multinational corporations. In reality, US sanctions rules apply to businesses of every size. A single transaction with the wrong customer, investor, or business partner can create significant legal and financial consequences, even if the violation was unintentional.

What Are OFAC Sanctions?

The Office of Foreign Assets Control (OFAC) administers and enforces US economic and trade sanctions.

For US companies, these rules generally apply to international business activities wherever they occur. Sanctions compliance can affect:

• Sales to overseas customers.
• Foreign investors.
• International vendors.
• Overseas subsidiaries and controlled entities.

Startups expanding internationally should treat sanctions compliance as a routine part of every cross-border transaction.

Some Customers and Countries Are Off Limits

OFAC sanctions restrict business with both specific individuals and certain jurisdictions.

Prohibited transactions may involve:

• Individuals and organizations listed on the Specially Designated Nationals (SDN) List.
• Comprehensively sanctioned jurisdictions, including Cuba, Iran, North Korea, Syria, and the Crimea, Donetsk, and Luhansk regions of Ukraine.

Because the SDN List is updated frequently and contains more than 20,000 names, screening should become part of every international transaction rather than a one-time exercise.

The 50 Percent Rule Makes Screening More Complicated

One of the most commonly overlooked sanctions rules involves ownership.

A company does not need to appear directly on the SDN List to become a prohibited counterparty.

Under OFAC’s 50 Percent Rule, a business may also be treated as blocked if one or more sanctioned persons collectively own 50% or more of the company.

This means founders should review beneficial ownership rather than relying only on the legal name of the customer or investor.

OFAC Violations Are Strict Liability

Many founders believe penalties apply only when someone intentionally violates sanctions. That is incorrect.

OFAC civil enforcement generally operates under a strict liability standard, meaning a violation may occur even if the company had no knowledge that a counterparty was sanctioned.

During 2025 the maximum civil penalty is the greater of:

• $377,700 per violation, or
• Twice the value of the underlying transaction.

Because each prohibited transaction may be treated separately, the financial exposure can increase quickly.

Sanctions Screening Should Be Ongoing

Completing a sanctions check once during onboarding is rarely enough.

Customers, investors, and vendors that pass screening today may appear on sanctions lists later.

For that reason, startups involved in cross-border business should establish procedures for:

• Screening new counterparties before transactions.
• Verifying beneficial ownership.
• Monitoring changes to sanctions lists.
• Re-screening existing international relationships periodically.

These ongoing reviews become increasingly important as international operations expand.

Build Compliance Into Every International Transaction

Sanctions compliance should become part of your standard legal and commercial process.

Before accepting overseas investment or entering foreign commercial agreements, founders should understand:

• Who the counterparty is.
• Who ultimately owns or controls that entity.
• Whether any sanctions restrictions apply.
• Whether the company’s products or technology create additional export-related obligations.

Taking these steps early is generally much easier than responding to a sanctions investigation after funds have already been received or products have already been delivered.

Common Founder Mistakes

• Assuming sanctions laws apply only to large companies: OFAC rules apply to US businesses regardless of size, making sanctions compliance important even for early-stage startups.
• Screening only the investor or customer while ignoring beneficial ownership: Under the 50 Percent Rule, a company may still be blocked if sanctioned persons collectively own at least 50% of the business.
• Treating sanctions screening as a one-time process: The SDN List changes frequently, making periodic re-screening an important part of ongoing compliance.
• Believing intent is required before penalties apply: OFAC civil violations generally operate under a strict liability standard, meaning companies may face penalties even without knowingly dealing with a sanctioned party.

10-Minute Sanctions Compliance Self Check

• Have I screened every foreign customer, investor, and vendor against current sanctions lists?
• Do I understand who ultimately owns each foreign entity?
• Have I reviewed whether the 50 Percent Rule applies?
• Am I doing business in or through a comprehensively sanctioned jurisdiction?
• Have I established an ongoing sanctions screening process?
• Does my company understand how US sanctions affect its international operations?

If you cannot answer these with confidence, you are not ready to close a cross-border deal yet.

Bottom Line

International expansion creates valuable opportunities, but it also introduces sanctions compliance responsibilities that many founders underestimate. Understanding OFAC rules, screening counterparties carefully, reviewing beneficial ownership, and maintaining ongoing compliance procedures help reduce the risk of costly violations. A thoughtful sanctions compliance process allows startups to pursue global growth with greater confidence.

Concerned About Sanctions Risks in Your Startup’s International Business?

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