OFAC Compliance

What Is OFAC?

The Office of Foreign Assets Control (OFAC) acts as the intelligence and enforcement arm of the U.S. Department of Treasury. The OFAC plays a vital role in preventing money laundering and keeps a sanctions list of blocked persons and sanctioned countries for national security purposes.

OFAC is tasked with using the United States’ economic force to help enact foreign policy, anti-proliferation, and other goals.

The OFAC plays a vital role in national security, and this agency oversees sanctions for financial institutions, individuals, and countries around the world. OFAC sanctions are listed on the OFAC website, and companies must do their due diligence to avoid business dealings with individuals, organizations, and countries to avoid harsh fines and penalties.

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What Is OFAC Compliance?

The U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) is a governmental agency responsible for administering sanctions against targeted foreign governments, individuals, entities, and practices.

Created in 1950, OFAC is part of the U.S. Treasury Department of Terrorism and Financial Intelligence. The legal basis for OFAC’s jurisdiction and control can be found in the Trading with The Enemy Act (TWEA), International Emergency Economic Powers Act (IEEPA), the Foreign Asset Control Regulations 31 CFR Part 500, as well as other statutes, laws, and executive orders surrounding countries such as Iran, Cuba, Russia, Venezuela and more.

The OFAC requires that financial institutions, U.S. companies, and individuals take steps to ensure they comply with OFAC sanctions by: 

  • The Financial Action Task Force (FATF) requires private banks to conduct money laundering checks on account openings, cash transfers, and financial transactions.
  • When opening a new customer account at any business, you must fill out important information such as your name and physical address. Additional requirements may be needed for more sensitive transactions, but it’s up to each organization what level of due diligence.
  • To ensure that all transactions are legal, the company must first scan their new customer in an OFAC list. If the person is on the said list, they cannot open a bank account because it would be illegal.
  • Companies should regularly check their existing customers on the OFAC sanction list to avoid damaging Anti-Money Laundering (AML) compliance and losing out on potential business.

The scope of OFAC rules and regulations includes blocking assets of foreign parties, trade restrictions, and controlling financial transactions, among other things. OFAC has jurisdiction over all U.S. persons and citizens and foreign entities, which means the scope of this agency’s reach is very far.

Recently, several extensive and public violations have caused many organizations to take a second look at their sanctions/embargo compliance and to implement programs to help adhere to OFAC regulations.

What Penalties & Fines Result From OFAC Violations?

Depending on the nature of the violation and other factors such as the country and industry involved, OFAC civil penalties can be as high as $1 million per violation for corporations and up to $250,000 per violation and 20 years imprisonment for individuals.

In addition to these steep penalties, there is also the possibility of negative publicity and loss of international business. For these reasons, companies are paying attention to OFAC compliance more than ever before.

Export compliance does not only apply to big companies, and any U.S. business that sends products, services, or technology/technical data to foreign countries is subject to export control regulations.
Regardless of what you export to other countries, you need a compliance program that ensures you are compliant in all areas of your business to prevent export violations.

OFAC’s sanctions and embargoes programs are comprehensive and complex.  The sanctions are designed to keep you away from certain countries, companies, individuals and/or practices.

Due to their far reach, any corporation that does business internationally should evaluate its practices and develop plans to ensure compliance with these rules.

Companies will need a restricted parties screening program to ensure they are not violating any of these sanctions.   However, screening is just a first step and screening alone does not solve your problems.

Organizations should develop comprehensive policies and procedures, train personnel, monitor/audit compliance, and report violations.

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How Can You Build A AML/OFAC Compliance Program?

Recently, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has stepped up efforts to ensure organizations comply with U.S. sanctions and embargoes – and penalize those who are not.

OFAC’s sanctions and embargo programs are comprehensive and complex. The sanctions are designed to keep you away from certain countries, companies, individuals, and practices.
Due to their far reach, any corporation that does business internationally should evaluate its practices and develop plans to ensure compliance with these rules.
Regardless of how you address these regulations, some common elements that OFAC expects from every compliance program include:

  • Management Commitment – Demonstrating that top leaders from your organization understand the sanctions programs, and that they have implemented plans to comply and adequate resources (including personnel) to meet these goals.
  • Risk Assessment – To identify your organization’s high-risk transactions, customers and regions of the world.
  • Internal Controls – Designed to identify, evaluate and stop violations from occurring.
  • Testing and Auditing – To ensure that your compliance program is working effectively to mitigate risk and report issues.
  • Training – Making sure that your personnel are sufficiently resourced and trained to comply with OFAC regulations.
  • Mitigation of Penalties – To include voluntary disclosures, cooperation with U.S. governmental agencies, remedial compliance plans and improvements when issues are uncovered.

The U.S. sanctions and embargo programs change frequently with shifting U.S. foreign policy and other goals.  For this reason, it’s highly recommended to have an expert reviewing OFAC’s websites and other publications to ensure the latest information is being applied to your organization.

How Can You Maintain OFAC Compliance?

OFAC has published a detailed framework on the OFAC website to outline its expectations for a company’s compliance program – so ignorance is not an excuse! It is also worth noting that not one size fits all. Each company should evaluate its risk and tailor compliance measures to mitigate those risks.

As part of its mission, OFAC maintains a list of individuals, entities, and groups that are not directly tied to a country. These entities are called Specially Designated Nationals (SDNs). The SDN list is an essential regulatory tool because U.S. citizens and companies are not allowed to interact or engage with them or risk enforcement actions based on the severity of their interactions.

This has resulted in record fines and penalties totaling more than a billion dollars. Our team of experts knows and experiences your organization needs to comply with OFAC regulations.

An OFAC compliance program is a vital part of your company’s overall success, and here are 10 of the most common ways we see companies get hit with sanctions violations:

  • A policy that is not formalized allows for less-than-rigorous oversight and could lead to sanctions violations.
  • Banks and financial institutions, particularly foreign-based, often fail to understand the regulations of OFAC and, therefore, may inadvertently violate these rules.
  • Facilitating transactions by non-U.S. persons is not a violation of OFAC regulations. However, it can still be an offense if the transaction involves U.S.-origin goods or services and connected to the United States.
  • No one can be sure whether or not they comply with sanctions laws when a company’s compliance policies and procedures vary drastically from department to department. This inconsistency has created an environment where people have no incentive to follow the rules.
  • U.S.-origin goods, technology, or services are regulated by the Office of Foreign Assets Control (OFAC) and cannot be exported to OFAC-sanctioned persons or countries without specific authorization from this office.
  • U.S. businesses are prohibited from trading with countries or individuals on the OFAC list, which means they can’t process payments through any of their U.S. financial institutions.
  • Sanctions screening software must be designed to detect possible sanction violations accurately.
  • It is essential to perform due diligence on your customers and clients.

Companies will need a restricted party screening program to ensure they are not violating any of these sanctions. However, screening is just a first step, and screening alone does not solve your problems.

Organizations should develop comprehensive policies and procedures, train personnel, monitor/audit compliance, and report violations.

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