Financial institutions face difficulties in complying with Office of Foreign Assets Control (OFAC) regulations. These regulations appear easy on the surface: they instruct us not to break the US government's international economic and trade sanctions. OFAC also offers a list of over 20,000 names of parties who have been "blocked" by these sanctions. Financial institutions use specified screening software all around the globe to identify any prohibited party names on transactions or in their client base. Compliance with OFAC laws is complex precisely because they are based on such a broad mandate. Each financial institution must decide how much risk it is ready to take on and create compliance rules and processes to match.
What is OFAC?
OFAC is the United States Treasury Department's financial intelligence and enforcement department. It is in charge of enforcing and administering economic and trade sanctions supporting US national security and foreign policy goals. OFAC is largely staffed by intelligence personnel and attorneys and reports to the Treasury's Terrorism and Financial Intelligence Office.
The OFAC was founded in 1950 when China entered the Korean War. President Harry S. Truman declared a national emergency and ordered the freezing of all Chinese and North Korean assets under US control. OFAC began enforcing the restrictions and orders made under the revised Trading with the Enemy Act, in addition to freezing these assets.
What are Economic Sanctions?
Economic and trade sanctions are used by one government to compel, discourage, penalize, or shame another country, organization, or individual to change their policies, actions, or behaviors. Terrorism, worldwide drugs trafficking, human rights violations, cybercrime, uncontrolled nuclear weapons, military aggressiveness, and a number of other problems are among them in today's world.
The goal of economic and trade sanctions is to prevent the target from accessing the US financial system and markets. Typical results include trade restrictions, travel bans, and asset freezes in the United States.
Sanctions are a weapon for responding to foreign policy concerns, and the US employs them more than any other government. The United States presently maintains three dozen active sanctions programs, some of which are directed at specific countries, while others are aimed at terrorism, cybercrime, and drug trafficking. The European Union follows the United Nations as the second most powerful sanctioning authority.
OFAC Economic Sanctions Programs
The Organization for Economic Cooperation and Development is in charge of the United States' sanctions programs, which number in the hundreds. These initiatives have been classified as either comprehensive or targeted.
Comprehensive sanctions, such as those imposed on North Korea or Cuba, usually ban any business activity with that country. Sanctions are frequently targeted against specific persons and groups inside a country's government rather than the entire country. Nonetheless, even if the sanctions are not all-encompassing, OFAC sanctions programs are usually called by the nation concerned (for example, Venezuela, Libya, or Nicaragua).
Cuba, North Korea, Iran, and Syria are now the subjects of the most extensive sanctions. Despite some loosening of restrictions on Cuba during the Obama administration, they have returned to their previous status under Trump. The sanctions against North Korea and Syria are rather broad. The Iranian government, banking sector, aviation, and petroleum industries are all targeted by the country's tough sanctions.
On the other hand, targeted sanctions are directed at specific actions such as terrorism, international narcotics trafficking, cybercrime, or foreign meddling in US elections.
Sanctions traditionally prevent persons and businesses from imposing countries from doing business with the banned party. The United States, on the other hand, has levied extraterritorial sanctions (also known as secondary sanctions). These are designed to limit the economic activity of governments, corporations, and individuals in other nations in order to guarantee that they comply with US sanctions.
Blocked Persons and Specially Designated Nationals (SDN List)
The Office of Foreign Assets Control (OFAC) maintains the Specially Designated Nationals and Blocked Persons list, commonly known as the OFAC SDN list, in order to carry out its responsibilities.
The OFAC SDN list is a critical instrument in the battle against money laundering and terrorism funding in the United States and abroad. It's part of the US Treasury's Selective Sanctions strategy, which targets specific people and organizations implicated in specific illegal actions rather than penalizing the entire country.
Individuals, businesses, and organizations believed to be involved in various illegal acts are added to the Specially Designated Nationals, and Blocked Persons List regularly. Businesses should perform checks before forming a connection with a person or organization or doing transactions with them and at regular intervals during the relationship.
How to Comply with OFAC SDN List?
The risk assessment conducted by OFAC should guide the risk-based policies and processes of a financial institution. Most institutions' OFAC compliance strategies include automated SDN List screening as a key component. Sanction Scanner assists companies in complying with OFAC's ML and TF regulations with its sophisticated screening technology. You can contact us and request a demo if you would like to learn more about our products.
