Financial Crime World

Complying with OFAC Sanctions: A Guide for Financial Institutions

Introduction

The Office of Foreign Assets Control (OFAC) administers a wide range of sanctions programs that prohibit or restrict dealings with foreign entities and individuals. In this article, we will outline the key regulations and guidelines for complying with OFAC sanctions.

Blocking Entities

If a listed individual owns 50% or more of a non-listed entity, EU persons/entities are prohibited from making available funds and economic resources to that entity. Transacting with such an entity may also be viewed as indirectly benefiting the listed individual.

Key Takeaways

  • Do not provide financial services or economic resources to entities owned by listed individuals.
  • Be aware of indirect benefits to listed individuals through transactions with non-listed entities.

OFAC Compliance Program

OFAC encourages FIs (Financial Institutions) to take a risk-based approach in designing their compliance program. The program should:

  • Identify higher-risk areas
  • Provide for appropriate internal controls
  • Establish independent testing for compliance
  • Designate a responsible employee
  • Create training programs for personnel

Key Takeaways

  • Develop an OFAC sanctions compliance program that addresses your risk profile.
  • Ensure your program includes regular reviews and updates.

Risk Assessment

Management should structure the AML compliance program to adequately address its risk profile, as identified by the risk assessment.

Key Takeaways

  • Conduct a risk assessment to identify potential areas of risk.
  • Use this information to inform your OFAC sanctions compliance program.

Blocked Transactions

FIs must block transactions that are by or on behalf of a blocked individual or entity, to or through a blocked entity, or in connection with a transaction in which a blocked individual or entity has an interest.

Key Takeaways

  • Block transactions involving blocked individuals or entities.
  • Do not process transactions that involve blocked individuals or entities.

Prohibited Transactions

In some cases, underlying transactions may be prohibited, but there is no OFAC requirement to block the assets. Such transactions are simply rejected (not processed).

Key Takeaways

  • Be aware of prohibited transactions that do not require blocking.
  • Do not process these types of transactions.

Reporting

Institutions must report all blockings to OFAC within 10 business days of the occurrence and annually by September 30 concerning those assets blocked as of June 30.

Key Takeaways

  • Report blockings to OFAC within the required timeframe.
  • Keep accurate records of blockings.

Independent Testing

Every institution should conduct an independent test of its OFAC compliance program.

Key Takeaways

  • Regularly review and test your OFAC sanctions compliance program.
  • Use this information to improve your program.

Responsible Individual

It is recommended that every FI designate a qualified individual to be responsible for the day-to-day compliance of the OFAC compliance program.

Key Takeaways

  • Designate a responsible individual for your OFAC sanctions compliance program.
  • Ensure they have the necessary expertise and resources.