The Office of Foreign Assets Control (OFAC) is a key agency within the U.S. Department of Treasury responsible for implementing commercial and economic sanctions to support U.S. security and foreign policy objectives. Established in 1977 under the International Emergency Economic Powers Act (IEEPA), OFAC plays a crucial role in the fight against financial crimes.
OFAC maintains various sanctions lists that can be applied to individuals, institutions, and countries. These lists restrict or prohibit certain transactions and activities with designated entities. One of the primary lists is the Specially Designated Nationals (SDN) List, which identifies individuals and organizations with whom U.S. citizens are prohibited from conducting business. Compliance with U.S. regulations is mandatory for entities dealing with individuals or organizations on the OFAC SDN List.
In addition to the SDN List, OFAC publishes the Consolidated Sanctions List, which includes other sanction lists apart from the OFAC SDN List. These lists aim to safeguard national security by identifying individuals, institutions, or countries involved in activities that pose a threat.
To ensure compliance with these sanctions lists, organizations can utilize the OFAC Sanctions List Search tool, also known as the OFAC Screening Tool or OFAC Search. This tool employs fuzzy logic in its name search field to identify potential matches with the OFAC SDN List and the Consolidated Sanctions List. Conducting an OFAC check using this tool helps businesses determine whether an entity or individual is allowed to engage in financial and trade transactions with the United States.
Violating OFAC sanctions can result in severe criminal penalties, including fines ranging from $50,000 to $10 million and imprisonment for a period of 10 to 30 years. Therefore, it is crucial for businesses to regularly screen their transactions and business partners against the OFAC Sanctions Lists to ensure compliance and mitigate risks associated with prohibited activities.
The Consolidated Sanctions List maintained by OFAC includes several distinct lists targeting specific areas or entities. Here are some additional details about these lists;
- Foreign Sanctions Evaders (FSE) List: This list focuses on foreign individuals and organizations that have violated U.S. sanctions imposed on Syria or Iran. Inclusion on this list indicates that these entities have actively evaded or circumvented the imposed sanctions.
- Sectoral Sanctions Identifications (SSI) List: The SSI List comprises individuals, companies, and organizations operating within Russia's energy and finance sectors. U.S. citizens and institutions are prohibited from conducting business with entities listed on this list to maintain compliance with the imposed sectoral sanctions.
- Palestinian Legislative Council (NS-PLC) List: This list specifically targets individuals associated with the Palestinian Legislative Council. It identifies individuals who are subject to U.S. sanctions due to their involvement in activities that undermine the peace process in the Israeli-Palestinian conflict.
- List of Foreign Financial Institutions Subject to Part 561 (the Part 561 List): The Part 561 List focuses on foreign financial institutions that are subject to sanctions under Part 561 of the Iranian Transactions and Sanctions Regulations (ITSR). U.S. financial institutions are prohibited from maintaining correspondent accounts or payable-through accounts for institutions listed on this list.
- Non-SDN Iranian Sanctions Act (NS-ISA) List: The NS-ISA List identifies individuals and entities subject to sanctions under the Non-SDN Iranian Sanctions Act. These sanctions target individuals or entities involved in activities that support Iran's nuclear proliferation, terrorism, or human rights abuses.
- List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (CAPTA List): The CAPTA List identifies foreign financial institutions subject to correspondent account or payable-through account sanctions due to their involvement in facilitating significant transactions for designated individuals, entities, or countries.
These additional lists within the Consolidated Sanctions List expand the scope of OFAC's targeted sanctions and highlight the importance of monitoring and complying with specific restrictions pertaining to these sectors, regions, or entities. Staying informed about these lists is crucial for individuals, organizations, and financial institutions to ensure compliance with U.S. sanctions regulations and avoid engaging in prohibited transactions.
Specially Designated Nationals List
An SDN List, also known as the Specially Designated Nationals and Blocked Persons List, is a public list maintained by OFAC. It includes individuals and businesses owned or controlled by countries sanctioned by the US based on actions that pose a threat to US foreign policy or national security objectives.
The OFAC SDN List serves as a tool to prevent the use of the financial system for terrorism financing and money laundering. It is regularly updated with the names of people, companies, and organizations suspected of engaging in various criminal activities. Those on the list are considered a threat to American national security, foreign policy, and economic interests.
Being on the OFAC SDN List carries significant consequences. The assets of listed individuals and entities are frozen and subject to potential seizure. Transactions with SDNs are typically prohibited for US individuals and corporations, with legal repercussions for non-compliance. Financial sanctions may include restrictions on new debt and investments in the stock of blacklisted individuals and companies.
The OFAC SDN List is applicable to all US individuals, including citizens, permanent resident immigrants, and entities incorporated in the US. Additionally, foreign subsidiaries owned or controlled by US corporations and individuals possessing US-origin commodities may also be subject to OFAC requirements.
To be removed from the SDN List, a person or organization must submit a petition to OFAC for administrative evaluation. OFAC reviews the request, considering changes in behavior and a commitment to cease prohibited activities. The process can take several months or even years.
Searching the SDN List can be done through the OFAC-provided search engine, allowing users to narrow down results based on specific criteria. Codes indicating the reason for listing accompany the names in search results. Automated scanning software and procedures are often employed by financial institutions to comply with OFAC SDN list requirements efficiently.
If a search returns a match on the SDN List, further investigation is necessary to determine the nature of the match. Contacting OFAC for confirmation and guidance is recommended to address any concerns or potential false positives.
The SDN List serves as a crucial tool in combating terrorism financing and money laundering, ensuring compliance with US sanctions and protecting national security interests.
OFAC issues two types of licenses: general licenses and specific licenses. General licenses are granted to provide exceptions to sanctions imposed on a country basis. These licenses allow for exemptions from certain sanctions and prohibitions in specific transactions. The exceptions granted under general licenses typically cover activities such as humanitarian aid, legal consultations, information services provided through websites, and personal communications with relevant countries. It's important to note that these licenses are only applicable to U.S. citizens and cannot be obtained by individuals or institutions from third countries.
On the other hand, a specific license requires an application process. Individuals or organizations can apply to OFAC for a specific license, which provides an exception tailored to their particular circumstances. The issuance of a specific license is a response to the application submitted by the applicant. Whether for general or specific licenses, individuals or institutions engaging in transactions must adhere to all the terms and conditions specified in the licenses.
It is crucial to comply with the terms of the licenses granted by OFAC to ensure that transactions are conducted legally and in accordance with applicable sanctions regulations. Non-compliance can result in severe penalties and legal consequences. Therefore, individuals and organizations should consult with legal professionals or experts familiar with OFAC regulations and the OFAC SDN list to navigate the licensing process and ensure full compliance with the terms of the licenses granted.
How to Comply with OFAC Compliance?
Complying with OFAC regulations is crucial for individuals and businesses operating in the United States or conducting business with U.S. entities. Failure to comply with OFAC regulations can result in severe penalties and legal consequences. Here are some key steps to ensure OFAC compliance:
- Understand the OFAC Framework: Familiarize yourself with the OFAC regulations, including the sanctions programs and lists. Stay updated on any changes or additions to the sanctions lists.
- Screen Customers and Transactions: Implement a robust screening process to check your customers, clients, and business partners against the OFAC sanctions lists. This screening process should cover both new and existing customers and should be performed regularly to identify any potential matches. Virtual asset providers are also included in this obligation.
- Utilize Compliance Software: Consider using compliance software or tools that automate the screening process. These tools can scan your customer data and transactions against the OFAC sanctions lists in real-time, reducing the risk of human error and ensuring more efficient compliance.
- Develop Compliance Policies and Procedures: Establish comprehensive compliance policies and procedures within your organization. These should include guidelines for screening, reporting, record-keeping, and responding to potential matches or suspicious activities.
- Training and Awareness: Provide regular training and awareness programs to employees, ensuring they understand their responsibilities and the importance of OFAC compliance. This includes educating employees about red flags, suspicious activities, and reporting requirements.
- Maintain Records: Keep detailed records of your compliance efforts, including screening results, documentation of due diligence, and any actions taken in response to potential matches. These records should be securely stored and easily accessible for auditing purposes.
- Report Suspicious Activities: If you identify any suspicious activities or potential matches with the OFAC sanctions lists, promptly report them to the appropriate authorities. Cooperate fully with investigations and provide any requested information or documentation.
- Stay Updated: Monitor OFAC announcements, regulatory changes, and updates to the sanctions lists. It is essential to remain informed about any new sanctions, removals from the list, or changes in compliance requirements.
- Conduct Due Diligence: Prior to entering into any business relationships or transactions, conduct due diligence to ensure that your partners and customers are not on the OFAC sanctions lists. This includes verifying the identity of individuals and conducting risk assessments for higher-risk transactions.
- Seek Professional Advice: If you have any doubts or complexities regarding OFAC compliance, consider seeking professional advice from legal or compliance experts who specialize in sanctions and regulatory matters.
If you have any doubts or need guidance on OFAC SDN list compliance or OFAC compliance in general, consider seeking legal counsel or consulting with compliance professionals who specialize in sanctions and regulatory compliance.