Comprehensive Guide to Office of Foreign Assets Control (OFAC) Regulations and Compliance Requirements

Overview of OFAC

The Office of Foreign Assets Control (OFAC) is a critical component of the U.S. Department of the Treasury, responsible for administering and enforcing economic and trade sanctions against foreign countries, entities, and individuals. The primary objectives of these sanctions are to achieve specific national security, foreign policy, or other interests-related goals.

Blocking Entities and Individuals

An entity is considered blocked if it is owned 50% or more by one or more blocked persons. Blocked entities are subject to U.S. law and regulations, including the blocking of assets and restrictions on transactions.

• An entity may be blocked due to its:
  • Ownership ties to a blocked person
  • Involvement in prohibited activities or trade with sanctioned jurisdictions
  • Other factors deemed relevant by OFAC

OFAC Compliance Program

Financial institutions (FIs) must establish and maintain an effective OFAC compliance program. This program should:

• Identify higher-risk areas and provide internal controls for screening and reporting
• Maintain a full and accurate record of each rejected transaction for at least five years after the date of the transaction

Key Requirements

To ensure compliance with OFAC regulations, FIs must implement the following key requirements:

Risk Assessment

Identify specific products, services, customers, entities, and geographic locations unique to the FI.

• Assess the risk associated with these elements
• Develop strategies to mitigate identified risks

Internal Controls

Address how the FI will identify and review transactions and accounts for possible OFAC violations.

• Establish clear policies and procedures for screening and reporting
• Implement internal controls to prevent and detect prohibited activities

Blocked Transactions

Block assets and funds related to blocked individuals or entities.

• Identify and freeze any assets or funds linked to blocked persons
• Report all blockings to OFAC within 10 business days of the occurrence

Reporting

Report all blockings to OFAC within 10 business days of the occurrence.

Training and Testing

To ensure effective implementation of the OFAC compliance program, FIs must:

• Provide adequate training for all appropriate employees on the OFAC compliance program, procedures, and processes.
• Conduct an independent test of the OFAC compliance program every year.