As OFAC sanctions can reach into virtually all areas of its operations, banks should consider all types of transactions, products, and services when conducting their risk assessment and establishing appropriate policies, procedures, and processes. The goal is to enforce national security against targeted individuals and entities such as: OFAC targets include anyone engaged in certain activities like transnational organized crime, including narcotics trafficking, and the proliferation of weapons of mass destruction. On February 14, 2008, OFAC issued guidance stating that the property and interests in property of an entity are blocked if the entity is owned, directly or indirectly, 50% or more by a person whose property and interests in property are blocked pursuant to an Executive Order or regulations administered by OFAC. A good OFAC lawyer knows this, understands the importance of keeping an OFAC investigation quiet, and strives to keep things under wraps. Prohibited transactions conducted prior to completing an OFAC check may be subject to possible enforcement action. A. From at least 2001 through early 2007, Standard Chartered developed and implemented policies and procedures for processing certain U.S. dollar-denominated funds transfers through the Branch. Common Prohibited Transactions Making new investments in a country that is blocked or in property that a blocked government or Specially Designated National (SDN) owns, controls, or has an interest. OFAC can also promulgate general licenses, which authorize categories of transactions, such as allowing reasonable service charges on blocked accounts, without the need for case-by-case authorization from OFAC. Monitoring accounts to detect unusual or suspicious activity for example, unexplained significant changes in the value, volume, and types of assets within an account. The person responsible conducts a comprehensive evaluation of OFAC policies, processes, and procedures. For large banks, the frequency and area of the independent test should be based on the known or perceived risk of specific business areas. The policies, procedures, and processes should also address the management of blocked accounts. Foreign, or cross-border, transactions pose a higher potential OFAC risk. Unlike the Bank Secrecy Act (BSA), OFAC laws and regulations dont just apply to U.S. persons and domestic agencies They also apply to foreign branches and overseas subsidiaries. OFAC lists have not been designated government lists for purposes of the CIP rule. Commercial letters of credit and other trade finance products. The new regulations mean that anyone (not just banks processing funds transfers) who rejects a transaction because it involves a sanctioned territory like Iran, Syria, Cuba, or Crimea, or it indirectly involves an OFAC listed person, such as someone listed on the SDN list (and does not require blocking because no property was ever transferred to the control of a U.S. person) may be obligated . Additional information concerning OFAC regulations, such as Sanctions Program and Country Summaries brochures; the SDN and other lists, including both entities and individuals; recent OFAC actions; and " Sberbank is one of Russia's largest banks and is subject to so-called "sectoral sanctions" imposed by the European Union ("EU") (and the U.S.). Sberbank and 42 of its subsidiaries, as well as Alfa-Bank and 6 of its subsidiaries, are now SDNs subject to full blocking sanctions. However, because the transactions would constitute the exportation of services to Sudan, which is prohibited, the U.S. bank cannot process the transaction and would simply reject the transaction. 155Applications for a specific license may be submitted either online from the OFAC Web site, or in writing to: Licensing Division, Office of Foreign Assets Control, 1500 Pennsylvania Avenue, NW, Washington, DC 20220. An effective risk assessment should be a composite of multiple factors (as described in more detail below), and depending upon the circumstances, certain factors may be weighed more heavily than others. Furthermore, banks are encouraged to periodically reassess their OFAC risks. Transactions that are Subject to OFAC All of the following types of financial transactions should be reviewed for OFAC compliance: Deposit (checking & savings) accounts Loans Credit Cards Wire transfers ACH transfers Lines of credit Trust accounts Loan payments Letters of credit Currency exchanges Safety deposit boxes Depositing or cashing checks Strong Negotiating Skills. Company must file a SAR report within 10 business days to OFAC. Reg. Where there is a property interest of a sanctions target under a blocking program, the property must be blocked. 161Refer to 74 Fed. New accounts should be compared with OFAC lists prior to being opened or shortly thereafter. Comment: OFAC requires the retention of all reports and blocked or rejected transaction records for five years. For example, RDFIs have Reg E obligations for consumer accounts . There is no minimum or maximum amount subject to the regulations. if the subject is aware of the OFAC investigation, notifying the subject; (2) seeking more information either by issuing an . The OFAC always determines whether an individual or company is authorized to do business in the United States. A specific license is a written document issued by OFAC authorizing a particular transaction or set of transactions generally limited to a specified time period. Both U.S. citizens and permanent resident aliens are subject to OFAC no matter where they are located. 162Refer to Guidance to National Automated Clearing House Association (NACHA) on cross-border ACH transactions. However, because blocking reports require only limited information, if the bank is in possession of additional information not included on the OFAC blocking report , a separate SAR should be filed with FinCEN that would include such information. 57593 (November 9, 2009) for additional information (also available on the OFAC Web site). Many of these pitfalls are particularly applicable to financial institutions, and a strong sanctions compliance program should account for these risks. OFAC realizes that financial institutions use software that does not always provide an instantaneous response and may require some analysis to determine if a customer is indeed on OFAC's Specially Designated Nationals List (or any of OFAC's other sanctions lists). Is there a dollar limit on which transactions are subject to OFAC regulations? A report regarding each blocked transaction must be filed with OFAC within 10 days. 2. Restrictions might include limitations on the use of omnibus accounts, where a lack of transparency can be exploited in order to circumvent OFAC regulations. OFAC is a government agency within the U.S. Department of the Treasury. If something suddenly changes dramatically with your usual transactions or a contact is added to a blacklist, a companys controls must account for this type of circumvention. In these cases, the transaction is simply rejected, (i.e., not processed). Cross-border automated clearing house (ACH) transactions. The initial identification of high-risk customers for the OFAC is often performed as part of the banks CDD and CIP procedures. Every transaction that a U.S. financial institution engages in is subject to OFAC regulations. Assess the banks risk-based Office of Foreign Assets Control (OFAC) compliance program to evaluate whether it is appropriate for the banks OFAC risk, taking into consideration its products, services, customers, entities, transactions, and geographic locations. Important Lessons from an OFAC Penalty Case, OFAC Laws, and Civil and Criminal Penalties, Specially Designated National (SDN) Designations. A and B are incorrect because whether or not an institution blocks or rejects a transaction is based on the nature of the sanction. When it comes to OFAC's attention that an illicit transaction was processed through a U.S. bank, without being blocked or rejected, as appropriate, OFAC normally sends an administrative demand for information, Dollars or . All transactions incident to the closing of accounts opened pursuant to the authorization in paragraph (c)(6)(i) of this section are authorized, provided that any transfer of funds may only be effected by wire transfer to an account maintained at a depository institution, as defined in 515.333, that is a person subject to U.S. jurisdiction. The birthdate, address, and even the country can all be missing. OFAC's Russia-related Sovereign Transactions Directive broadly prohibits US persons from engaging in any transaction involving Russia's Central Bank, National Wealth Fund, and Ministry of. If you have a payment involving an embassy in a targeted country, please contact OFAC Compliance for directions (1-800-540-6322). In addition, banks should have policies, procedures, and processes in place to check existing customers when there are additions or changes to the OFAC list. In general, the regulations that OFAC administers require banks to do the following: U.S. law requires that assets and accounts of an OFAC-specified country, entity, or individual be blocked when such property is located in the United States, is held by U.S. individuals or entities, or comes into the possession or control of U.S. individuals or entities. A blocked transaction is when money from an OFAC-specified country is transferred through a U . Federal banking agencies continuously evaluate OFAC compliance programs to ensure all banks under their supervision comply with sanctions. * The scope and training should be consistent with your risk profile and appropriate to each employees responsibilities. This OFAC FAQ explains what those terms mean - blocking an account requires the credit union to place the funds into an interest-bearing account "from which only OFAC-authorized debits may be made.". We've paired this article with a comprehensive guide to global payment methods. 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