All U.S. entities that do business with specially designated nationals (SDNs) have compliance obligations that are enforced by the Office of Foreign Assets Control (OFAC). However, financial institutions are in a unique position that mandates extensive OFAC compliance policies and procedures. While it is crucially important for banks to be aware of what is required, creditors and SDNs seeking access to blocked assets held by U.S. financial institutions will be well-served to familiarize themselves with financial institutions’ compliance obligations as well.

Although OFAC makes a significant amount of guidance publicly available, its guidance also makes clear that banks and other entities must implement compliance programs based on their particular needs and the advice of their attorneys. Here is a small sampling of the issues that can create issues for banks – and creditors and SDNs by extension – when it comes to OFAC compliance:

Certain Areas of Bank Operations are Considered More High-Risk Than Others

OFAC advises that, “[c]ertain areas of bank operations, such as international wire transfers and trade finance, are at a higher risk than others.” While banks, creditors and SDNs cannot ignore any aspects of OFAC compliance, the areas that OFAC considers to be high-risk merit special consideration and must be approached accordingly.

It Is Up to Banks to Decide How Often They Review OFAC’s List of SDNs

With regard to comparing customer databases to OFAC’s list of SDNs, OFAC simply states that, “[t]he frequency of running an OFAC scan must be guided by [a financial institution’s] internal policies and procedures.” It also goes on to make clear that if a bank, “fails to identify and block a target account (of a terrorist, for example), there could be serious consequences.”

Banks Can Having Multiple and Varying OFAC Compliance Obligations

While “OFAC compliance” is often used generally, compliance obligations not only vary from one industry to the next, but also within the financial sector. For example, OFAC’s Resource Center contains separate guidelines for:

  • Credit reporting
  • Securities and investments
  • Anti-money laundering (AML)
  • General financial services

In order to ensure that they do not fail to block target accounts of SDNs or otherwise run afoul of OFAC’s requirements, banks must take a comprehensive approach to compliance that addresses all aspects of their operations.

There are Strict Requirements for Blocking Accounts and Transfers Involving SDNs’ Assets

When the decision is made to block an account or transfer, the financial institution must adhere to a number of stringent requirements. OFAC also indicates that banks should establish an “audit trail” so that compliance can be confirmed. Here, too, compliance issues can not only create issues not only for banks themselves, but also for creditors and SDNs that find themselves dealing with situations in which banks have not met their legal obligations.

Speak with an OFAC Compliance Attorney at Saavedra Goodwin

With offices in South and Central Florida, our firm represents banks, creditors and SDNs with regard to all aspects of OFAC compliance and enforcement. If you have questions and would like to speak with an attorney, we encourage you to call 954-767-6333 or contact us online for a confidential consultation.