The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury manages economic and commercial sanctions based on U.S. foreign policy and national security objectives and implements the necessary procedures. It also takes measures against the proliferation of weapons of mass destruction and other threats to the U.S.'s national security, foreign policy, or economy. OFAC places individuals and organizations on a list called Specially Designated Nationals And Blocked Persons (SDN) for national security, foreign policy, and sanctions policy purposes.
As part of its efforts to conduct operations, OFAC publishes a list of individuals and companies owned or acting on behalf of the targeted countries. The name given to this list is the Specially Designated Nationals And Blocked Person List. Furthermore, OFAC lists individuals, groups, and assets, such as terrorists and drug traffickers identified under country-specific programs. The SDN list is regularly updated with the names of individuals, institutions, and organizations that are considered involved in criminal activity.
U.S. citizens are prohibited from dealing with individuals or organizations on the SDN published by OFAC. To protect the sanctuary of sanctions and prevent international crime and terrorist activities, the U.S. government creates SDN lists. Financial Institutions need to know and scan these lists because people or organizations in these lists have more risks. Therefore, Businesses should periodically make checks before establishing relationships with individuals or organizations and throughout the collaboration.
Individuals or organizations identified in this list may also lead to financial crimes such as money laundering and terrorist financing. That is why it is very important to identify these people, as well as to scan these lists before organizations start doing business with an individual or organization and during the time they do business. The SDN lists of OFAC are very important because any organization does business with the people or organizations on this list, the U.S. government punishes them. Individuals and organizations, and institutions that do business in these lists are not only subject to regulatory penalties but also serious reputational losses.
There can be many reasons why OFAC adds a person or entity to the SDN list, for example, money laundering, terrorist financing, drug trafficking, human trafficking, etc. The reason for being placed on the SDN List can be found through reports issued by the Department of Treasury during the appointment.
Besides, in order to be removed from the SDN list, a person or organization must submit a petition or request for administrative evaluation to the OFAC. This administrative assessment should effectively indicate and discuss that it has changed the person or organization's behavior and will no longer engage in prohibited activities. It is also necessary to demonstrate that they are leaving any activity that could potentially be sanctioned after the enforcement obligation. On the other hand, if a person or organization on the SDN list claims that it should not be on the OFAC's SDN list and proves it, OFAC is likely to remove the requester or institution from the list. OFAC examines this request and initiates the process accordingly. It may take months to complete, and sometimes it may take years.
SDN Lists scanning is mandatory not only for financial institutions in the U.S. but for institutions worldwide Failure to comply with SDN lists has serious consequences for U.S. citizens, as well as trade relations between countries, which are equally risky. Financial institutions are obliged to scan some lists besides SDN by OFAC Sanctions, which are as follows:
OFAC requires that these lists be scanned to prevent financial crimes from being committed to financial institutions. To facilitate these scans, OFAC provides a search engine for the SDN list. Users can find parameters such as calls by country, special sanctions. When financial institutions have high volume customers and transactions, it can be quite inefficient to manually search for each potential customer or a party's relationship. Given the busy business pace of financial institutions, it is inefficient and time-consuming to scan all potential customers or corporate relationships individually manually. Therefore, compliance with SDN can best be achieved through automated scanning software and procedures. This software automatically detects people and organizations in this list and generate alerts.
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