Patriot Act Raises the Stakes On Complying with OFAC Regulations

U.S. Patriot Act Searches / OFAC Compliance

What is OFAC?

OFAC is an office within the U.S. Department of the Treasury that “administers and enforces economic and trade sanctions based on US foreign policy and national security goals.”¹ While OFAC has been involved in sanctions programs since the War of 1812, Congress’s passing of the U.S. Patriot Act in the aftermath of the events of 9/11 has led to an increase in OFAC’s operations to curb terrorism. OFAC’s efforts include:

Sanctions Programs

There are three types of sanctions programs – comprehensive, limited and targeted. According to the OFAC 2012 Financial Symposium:

·         Comprehensive programs are those such as with Cuba, Iran, Sudan and Syria. With a comprehensive program, generally all activities are prohibited.

·         Limited sanctions, such as those with Burma, North Korea and involving conflict diamonds, allow certain activities. For example, exporting may be allowed, but not importing or investing. Each country or target may have different restrictions. Therefore, it is necessary to know which restrictions apply, and when.

·         Targeted sanctions mean an activity is on the sanctions list for a particular reason, such as narcotics trafficking or Somalian piracy.²

Licensing

All sanctions programs have exceptions of some sort and these exceptions may be handled through a license. An example may be General License 11, which allows for the transfer of services by non-governmental organizations. Another license may allow for the export of food to sanctioned nations (such as Iran or Sudan), although the countries themselves may be under a comprehensive program.²

The Specially Designated Nationals and Blocked Persons List (SDN List)

OFAC maintains a listing of restricted parties called the Specially Designated Nationals and Blocked Persons List (SDN List). Names are added to and removed from this list continually.² Failure to understand and properly comply with the Office of Foreign Assets Control’s (OFAC’s) requirements in this area can lead to results as mild as a cautionary letter or as severe as civil or criminal penalties.

Who needs to be OFAC compliant?

If your company deals in the transfer of funds, you must practice due diligence when dealing with clients in order to comply with OFAC requirements. This also applies if your company assists with the formation of corporate entities. This means that you or your service company needs to understand the OFAC Sanctions Programs (comprehensive, limited and targeted) and be aware of the SDN List.

What can you do to be OFAC compliant?

We have found that people/entities who neglect their responsibilities are usually penalized more harshly than those who have written internal processes but who somehow have a target slip through their process.

Once a violation is recognized, information is gathered and the violator should be prepared to answer such questions as why the target was missed and what happened. In determining an action to be taken against the violator, such items as whether it was a willful or reckless violation, the violator was aware of the conduct when approving the transaction, a compliance program was in place or not, cooperation with OFAC occurred during the investigation, etc. are taken into account. Actions can include a no action letter, a cautionary letter, a finding of a violation (civil or criminal penalties may be assessed) or a settlement.²

OFAC’S current focus is wire transfers. All wire transfers need to be screened. According to the OFAC 2012 Financial Symposium:

Particular risk occurs if the recipient of the transfer has overseas branches or subsidiaries, if the transfer came from a high-risk bank, the type of product offered for sale, how much internal quality control is in place and if the recipient has had a high number of OFAC incidents in the past. Ways to mitigate risk include keeping and using an updated SDN List, reporting incidents of missed identification, significant recordkeeping, and due diligence, including having tailored, written policies and procedures in place.²

CLAS has processes you can utilize to track your compliance attempts. Contact a CLAS Service Representative by emailing Christy@clasinfo.com, or by calling 800.952.5696. CLAS Information Services can be found online at www.clasinfo.com.

Sources:

1.  http://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx

2.  http://www.nprragac.org/2012/06/21/ofac-2012-financial-symposium/