Office of Foreign Assets Control (OFAC)
What are the violations, other laws penalties or other enforcement actions involving responses determined by OFAC?
Substantive provisions Reporting requirements Recordkeeping requirements Failure to respond to subpoena
Who are the SDNs?
"Specially Designated Nationals" are organizations and individuals who are restricted from doing business with the United States or American companies, or American citizens. E.g. drug traffickers, international organized crime syndicates, terrorist organizations, individual terrorists, and state sponsors of terrorism (such as Iran, North Korea). OFAC does not maintain a specific list of countries with which U.S. persons cannot do business. This is because U.S. sanctions programs vary in scope.
Your manager asked you to explain to a new employee the appropriate report items needed in the initial OFAC report filed when funds are blocked or rejected. Which five items should be included in the initial report?
1 ) Phone number and contact person at the bank 2 ) Bank name and address 3 ) Customer name 4 ) Amount of funds deposited or on deposit 5 ) Date funds were blocked
Which two types of people must comply with OFAC regulations?
1) All US persons, including all U.S. citizens and permanent resident aliens regardless of where they are located 2) All persons and entities within the United States as well as all US incorporated entities and their foreign branches
OFAC violations can be prosecuted under a myriad of other laws, more specifically ?
1) The Trading with the Enemy Act, which provides for imprisonment, fines and asset forfeiture for both individuals and corporations 2) The International Emergency Economic Powers Act, which also provides imprisonment and fines for both corporations and individuals
Sanctions Lists - The following list of transactions are usually checked against the SDN List:
1. Deposit account opening 2. Loan applications and letters of credit 3. Sale of a cashier's check 4. Sale of an investment product 5. Rental of a safe deposit box 6. Cashing a check for a non-customer 7. Initiation and receipt of a wire transfer 8. Currency exchanges 9. Sale of pre-paid cards and gift cards to non-customers
A) FinCEN B) FBI C) OFAC D) CIA
A) To safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities B) To protect and defend the United States against terrorist and foreign intelligence threats, to uphold and enforce the criminal laws of the United States, and to provide leadership and criminal justice services to federal, state, municipal, and international agencies and partners C) Administer and enforce economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, individuals, and organizations D) To gather information about foreign governments, corporations, and individuals; analyzing that information in order to provide national security intelligence
Who are the persons and entities that must comply with OFAC's economic and trade embargo ?
All U.S. persons, including U.S. citizens and permanent resident aliens regardless of where they are located All persons and entities within the United States All entities incorporated within the United States as well as their foreign branches
Glossary Blocked property
Anything of value: money, checks, drafts, debts, obligations, notes, warehouse receipts, bills of sale, evidence of title, negotiable instruments, trade acceptance, contracts, and anything else real, personal, mixed, tangible, intangible, "or interest or interests therein, present, future, or contingent."
What are the implications for Banks?
Banks are required to have OFAC compliance policies and procedures in place to ensure that the bank does not permit a transaction to take place for a targeted individual or entity. By complying with the lists of individuals and entities established by OFAC, banks can identify individuals and entities barred from the U.S. financial system.
What is the primary reason for the majority of fines imposed on banks by OFAC?
Banks' failure to block illegal transfers or transactions by a targeted person or entity.
Bank procedures generally require that customers be checked against the Specially Designated Nationals and Blocked Persons List. What is the general recommended timing this list should be checked?
Before the relationship is established and periodically thereafter, conduct periodic reviews of their entire customer base against the most recent SDN List. The bank's review should include not only named account holders and borrowers, but also beneficiaries, guarantors, and cosigners.
When a bank must block funds because one of the parties to the transaction is on the SDN List, there are certain rules that must be followed.
Blocked account Rules: 1. Funds - maintained in an interest bearing acct. 2. For time deposit account - term must be the shortest offered by the bank. It may not exceed six months. 3. If the bank offers multiple time deposits of the same short term - choose the product that pays the highest interest rate 4. For loans - Right of offset on a blocked DDA is prohibited.
Sanctions Lists What is the main subject of the SDN lists and where can it be found?
Countries, individuals, and entities that basically are off-limits to anyone who is subject to the jurisdiction of the United States. Detailed information about the OFAC sanctions and the SDN List is published on the OFAC section of the Treasury Department's website
Are sanction programs subject to change? How?
Currently, sanction programs include The Balkans, Belarus, Central African Republic, Democratic Republic of the Congo, Burma, Cuba, Iran, Lebanon, Iraq, Libya, Somalia, Sudan, Ukraine, Venezuela, Yemen, Zimbabwe, Syria, Burundi, and North Korea. (The comprehensive sanctions against Cuba have been amended, but the Cuba embargo remains in place. Many transactions between the United States, or persons subject to U.S. jurisdiction, and Cuba continue to be prohibited, and OFAC continues to enforce the prohibitions. As it stands in October 2016)
What is NACHA?
Electronic Payments Association, requires all international ACH transactions (IATs) to have additional information included with each IAT, enabling institutions to check ACH transactions against OFAC lists.
Glossary Right of offset
Exercise of the right to net out debt owed to the institution holding the funds. The right to pay a debt owed to the bank by an individual or entity from any funds the bank holds which belong to that individual or entity. When funds have been blocked or frozen under OFAC sanctions, an offset is a prohibited transfer of the frozen assets.
Why Examiners must review the bank's OFAC risk assessment, independent testing to determine the extent to which a review of the bank's OFAC compliance program should be conducted during the examination?
Financial institutions are also expected to take a risk-based approach when considering the likelihood that they may encounter OFAC issues. The prudential regulators examine financial institutions to determine the adequacy of each institution's OFAC program and the effectiveness of its risk management. IMPORTANT: OFAC regulations are not part of the BSA
What is the procedure adopted for Matching Names?
Follow your bank's OFAC procedures or consult with your bank's OFAC officer. Carefully check the identifying information about the customer against the additional information provided on the SDN List - aliases, birthdates, passport numbers, address information — determine whether your customer is actually the person or entity on the list. Proceed with the transaction. Follow bank's internal procedures for dual verification, before making a final decision, ensuring appropriate documentation and retention were assured. Sometimes an initial review leads to a false positive. It looks like one but further investigation reveals it is not a match.
What is the procedure adopted for Matching Names?
If there is a match, follow bank's OFAC procedures or notify your OFAC officer. Receive instructions, follow bank's policies & procedures to notify the transaction cannot be processed due to an OFAC match. Document the actions taken. The notification should include information about the OFAC sanctions, how to contact OFAC if customer believes match is an error.
Glossary Specially Designated Nationals (SDN) and Blocked Persons List
Individuals and entities owned or controlled by, acting for or on behalf of, the governments of target countries or associated with international narcotics trafficking or terrorism are included on the U. S. Treasury Department's Specially Designated Nationals and Blocked Persons List. These individuals and entities are listed so persons subject to the jurisdiction of the United States will know they are prohibited from dealing with these individuals and entities and that they must block all property within their possession or control in which these individuals and entities have an interest.
Glossary Blocked accounts
It is an account where payments, transfers, withdrawals, or other dealings are prohibited unless licensed by OFAC or otherwise authorized by the U. S. Treasury. All debits are prohibited; however, credits are authorized.
What happens if a transaction is rejected?
It must be reported to OFAC within 10 business days. If it is not clear whether a transaction should be rejected or blocked, questions should be directed to your bank's OFAC compliance officer
Does OFAC itself require that banks set up a certain type of compliance program?
No.There is no single compliance program suitable for every financial institution, but they should check with their regulators regarding the suitability of specific programs to their unique situations.
Treasury Department has a long history of using economic sanctions to advance foreign policy goals. When was OFAC created?
OFAC as we now know it was formally created in December 1950 following the entry of China into the Korean War when President Truman declared a national emergency and blocked all Chinese and North Korean assets subject to U.S. jurisdiction.
What are the implications for Banks?
OFAC does not prescribe specific procedures that banks must follow.It is very important that the bank's procedures for checking the OFAC list be followed without exception. Failure to comply with OFAC's economic and trade regulations may result in civil and criminal penalties against the person or entity responsible.
How BSA, OFAC and regulatory agencies are related?
OFAC identifies individuals and entities subject to the sanctions programs (the SDN List). If a prohibited transaction is processed, OFAC will impose appropriate penalties. To comply with OFAC restrictions and U.S. sanctions programs, each bank develops its own risk-based policies, procedures, and processes for ensuring OFAC compliance. While OFAC is separate from Bank Secrecy Act compliance, the federal bank regulatory agencies review these policies and procedures as part of a bank's Bank Secrecy Act examination.
What is the OFAC background?
OFAC is part of the Office of Terrorism and Financial Intelligence of the U.S. Department of the Treasury, the division that also includes the Financial Crimes Enforcement Network (FinCEN). Accounts under Presidential wartime and national emergency powers, as well as the authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction.
What is the OFAC main Purpose?
OFAC is responsible for administering and enforcing economic and trade sanctions based on US foreign policy and national security goals against targeted foreign states, individuals, and organizations. OFAC maintains, updates, and distributes lists of targeted individuals, entities, and countries that are the subjects of sanctions and where transactions are prohibited. These lists are collectively referred to as "sanctions lists." Specially Designated Nationals and Blocked Persons List, usually referred to as the "SDN List."
How was OFAC originated?
OFAC is the successor to the Office of Foreign Funds Control (FFC) which was established at the beginning of World War II. The FFC's initial purpose was to prevent Nazis from taking advantage of financial assets in occupied countries.
Glossary Prohibited Transaction
Prohibited transactions are trade, financial transactions or other dealings that are barred to U.S. persons unless authorized by OFAC or expressly exempted from the restrictions by statute. Because each program is based on different foreign policy and national security goals, the prohibitions may vary between programs.
OFAC (Office of Foreign Assets Control)
Protects the US by preventing terrorists, international drug traffickers, development production of weapons of mass destruction; other threatens to our national security, foreign policy or economy from abusing the U. S. financial system.
Blocked or Rejected Funds
Rejected transaction A U.S. bank identifies a transfer that one of its commercial customers wants to make by wiring funds to a French bank branch in Paris. The payee is Tehran Computer Corporation. After an investigation, the bank confirms that the proposed payee is a company in Iran. The transfer must be rejected. In this example, the funds still belong to a non-listed entity (your bank's customer) but they cannot be transferred to a company on the SDN List. Blocked transaction A U.S. bank intercepts a wire transfer from the Syrian government to one of the bank's commercial customers. In accordance with Syrian sanctions, all property and interests in property of the Government of Syria, which includes its agencies, instrumentalities, and controlled entities, which are in the United States or within the possession or control of U.S. persons, are blocked. As a result, this payment must be blocked and not deposited to the bank's customer's account.
Which criteria is used to create SDN lists?
Some are broad-based and oriented geographically (i.e., Cuba, Iran). Others are "targeted" (i.e., counter-terrorism, counter-narcotics) and focused on specific individuals and entities. These programs may encompass broad prohibitions at the country level & targeted sanctions. That is why financial institutions should always check the OFAC website and not assume anything concerning sanctions.
Blocked or Rejected Funds
Sometimes an underlying transaction may be prohibited but there is no blockable interest. The transaction is simply rejected or not processed. E.g. a U.S. bank will reject a wire transfer between two non-U.S. companies (that are not on the SDN List) involving an export to a non-SDN company in Sudan. Because there is no interest of the Government of Sudan or an SDN, there is no blockable interest in the funds. However, a U.S. bank cannot process the transaction because that would constitute a transaction in support of a commercial activity in Sudan, which is prohibited by the Sudanese Sanctions Regulations.
What is the FFIEC BSA Examination Manual ?
The Manual with a section pertaining to OFAC compliance including an overview and examination procedures for bank's policies, procedures, and processes for ensuring compliance with OFAC sanctions.
What are Compliance Obligations ?
The U.S. Government, through the Office of Foreign Assets Control, uses economic and trade sanctions to protect the country's economy, carry out our foreign policy goals and enhance our national security.
When a bank must block funds because one of the parties to the transaction is on the SDN List, there are certain rules that must be followed. What does it mean "blocking a transaction"?
The bank freezes the funds in its possession. The ownership of the blocked property remains with the designated individual/entity. The exercise of powers & privileges associated with ownership is prohibited without authorization from OFAC.
When a bank must block funds because one of the parties to the transaction is on the SDN List, there are certain rules that must be followed.
The bank is also required to make certain reports about blocked accounts and rejected transactions. To accurately block the accounts and ensure accurate reporting, you should be aware of your bank's internal policies and procedures for appropriately coding and handling the accounts that have been blocked. Blocked funds must be reported to OFAC within 10 business days. Any questions about a transaction or party to a transaction, such as whether the transaction should be blocked or rejected should be directed to your bank's OFAC compliance officer who is likely to contact OFAC.
What are the Civil and Criminal Penalties for violations and enforcement responses determined by OFAC?
The ramifications of non-compliance can jeopardize critical foreign policy and national security goals. OFAC violations have serious consequences. Persons not complying with OFAC-administered sanctions are liable for significant penalties, even if their action was inadvertent or uninformed. Example of penalties: Civil penalties: $250,000 or twice the amount of each underlying transaction up to $1,075,000 per violation Criminal penalties: $50,000 to $10,000,000 fine; 10-30 years in prison Publication of penalty: OFAC publishes the names of companies that have been penalized
What are the non-comprehensive programs OFAC administered ?
They target individuals and entities located around the world. Currently relate to foreign narcotics traffickers, foreign terrorists, transnational criminal organizations, and WMD proliferators. There are no broad prohibitions on dealings with countries, but only against specific named individuals and entities. The names are incorporated into OFAC's list of Specially Designated Nationals and Blocked Persons ("SDN List") includes over 6,000 names of companies and individuals who are connected with the sanctions targets.
Treasury Reports
When the bank has blocked or rejected a transaction, two types of reports must be made. The first is an initial report that must be filed when funds are blocked or rejected. The second report is an annual report of all blocked funds. Both reports are filed with the Washington, D.C. office of OFAC. An initial report must be filed within 10 business days of the date the blocking or rejection of the funds occurred.
Treasury Reports
While there is not a specific form, the report must include the following information: 1. Customer name 2. Date funds were blocked 3. Name and address of the bank 4. Confirmation that payments received have been deposited into a new or existing blocked account 5. Amount of funds deposited or on deposit 6. Any existing or new account numbers 7. Name and telephone number of a contact person at the bank 8. Photocopy of relevant information (payment order, signature card, identification, and so forth)
Does OFAC have authority to impose civil penalties for violations and as enforcement responses?
Yes. OFAC allows for both civil and criminal penalties against both the bank and against individuals. OFAC looks at a variety of factors in calculating any penalties, including the seriousness of the offense, whether senior management was involved, and whether the bank has a good OFAC compliance program.
You enter a customer's name into the bank's OFAC software. A message indicates a possible match. What should you do?
www.treasury.gov/resource-center/faqs/ Sanctions/Pages/faq_compliance.aspx If there is no true match, proceed with the transaction. If there is a match, the bank must contact the OFAC compliance hotline.
