OFAC: The Most Powerful Agency You’ve Never Heard Of
Fighting terrorism and implementing U.S. foreign policy requires more than wise diplomacy or boots on the ground. One of the most effective and least costly ways of dealing with hostile foreign agents and terrorist groups is by cutting off their financial support at the root. And this is the job of the U.S. Treasury Department’s Office of Financial Assets Control. Perhaps that’s why it has been called one of the most powerful government agencies you’ve never heard of.
But they don’t just fight against terrorist groups and hostile nations. They also target narcotics traffickers, money launderers, and more with sanctions that help stop hostile entities in their tracks. However, they can’t accomplish it all on their own. And that’s why they require U.S. citizens, organizations, and businesses to adhere to a set of guidelines when dealing with particular foreign actors.
What is the OFAC list? What about the SDN list?
Since OFAC’s mission involves administering sanctions, they publish an OFAC list of all individuals, organizations, businesses, and nations with whom U.S. persons are forbidden from doing business. All U.S. based financial institutions have the responsibility to implement sanctions screening. They must take the appropriate measures to minimize transactions involving any person or group that appears on an OFAC list. If they don’t, they can be severely punished.
When you start to do research on OFAC, you’ll likely come across several different lists of sanctioned persons. The Specially Designated Nationals (SDN) list includes individuals and companies owned by, controlled by, or acting on behalf of certain targeted nations. In addition, it includes non-country-specific groups, such as many terrorist organizations and narcotics traffickers. OFAC ensures that those on the SDN list are blocked from accessing any U.S.-based assets or doing business with U.S. citizens.
In addition to the SDN list, there are a number of other OFAC lists available, including a Foreign Sanctions Evaders list, a Non-SDN Palestinian Legislative Council List, and a Consolidated Sanctions List, among others.
How does OFAC administer sanctions?
OFAC administers two types of sanctions: comprehensive and non-comprehensive.
Comprehensive sanctions disallow all transactions between U.S. persons and any person in a targeted nation. This includes everything from wire transfers to imports and exports. OFAC institutes these sorts of sanctions only in rare cases and with nations that have consistently proven hostile or supported terrorism. Examples include Cuba, Syria, Sudan, and Iran.
Non-comprehensive sanctions (also called limited sanctions) don’t restrict trade with the entirety of a nation, but with certain individuals or entities. This could include anyone from narcotics traffickers to terrorists or even groups that support unfriendly political regimes. These individuals are called Specially Designated Nationals (or SDNs) and appear on the SDN list mentioned above.
Do I have to comply with the OFAC list?
Under United States law, U.S. persons must comply with all OFAC lists and regulations regardless of where they’re located. Even foreign subsidiaries owned or controlled by U.S.-based companies have to comply with OFAC regulations.
Because of this, financial institutions need effective OFAC watchlist screenings in place. These sanctions programs ensure companies don’t enter a financial relationship with any members on an OFAC list.
Can you be fined for OFAC list violations?
If a financial institution or any other U.S. person fails to maintain compliance with all OFAC lists, there will be repercussions. Fines can run into the tens of millions of dollars and prison sentences can stretch up to 30 years for those involved in a breach.
Recent years have shown a dramatic uptick in the number of penalties issued to noncompliant banks and other financial institutions. In 2012 and 2014, OFAC issued the highest penalties on record, totaling $1.1 billion and $1.2 billion, respectively. In 2015, BNP Paribas SA forfeited $8.9 billion and paid a $140 million fine for violating U.S. sanctions against Cuba, Sudan, and Iran.
So, yes. You can and will be fined for violating an OFAC list. However, OFAC regulations do make provision for exceptions. They will issue trade licenses on a case-by-case basis. Companies must seek these licenses before conducting any transactions with sanctioned countries or individuals.
How can watchlist screenings help?
Automated watchlist screenings make OFAC compliance a simple matter. They eliminate human error and minimize the likelihood of entering into a business relationship with a sanctioned entity. In addition to being more effective, they’re also much more affordable over the long haul because watchlist screenings make use of the latest technology and free up employees to do more important work.
In summary, there’s simply no reason not to make use of watchlist screenings as you seek OFAC compliance. They’ll keep your business or financial institution on the right side of the law, minimizing potential for fines and other problems. More importantly, they support your anti-money laundering program and help keep the financial system safe.