Common Mistakes and Violations of Office of Foreign Assets Control (OFAC) Regulations

I. Referrals to OFAC-Sanctioned Entities

Non-U.S. organizations have engaged in transactions with OFAC-sanctioned countries, regions, or persons due to a misunderstanding or misinterpretation of OFAC’s regulations.

• Reasons for Non-Compliance:
  • Lack of understanding or misinterpretation of OFAC’s regulations
  • Failure to conduct thorough research on counterparties and transactions

II. Exporting/Re-exporting U.S.-Origin Goods/Services to OFAC-Sanctioned Persons/Countries

Non-U.S. persons have purchased U.S.-origin goods with the intent to re-export, transfer, or sell them to sanctioned entities.

• Types of Non-Compliance:
  • Large or sophisticated organizations engaged in a pattern of prohibited activity over multiple years
  • Willful or reckless conduct, concealment of activity, and significant harm to U.S. sanctions program objectives

III. Utilizing the U.S. Financial System/Processing Payments to/from U.S. Financial Institutions

Non-U.S. persons have processed financial transactions through U.S. financial institutions involving OFAC-sanctioned countries, regions, or persons.

• Reasons for Non-Compliance:
  • Enforcement actions focused on willful or reckless conduct
  • Concealment of activity and significant harm to U.S. sanctions program objectives

IV. Sanctions Screening Software/Filter Faults

Organizations failed to update their sanctions screening software or included incorrect identifiers (e.g., alternative spellings), leading to failures in identifying OFAC-prohibited locations, parties, or dealings.

• Types of Non-Compliance:
  • Failure to update sanctions screening software
  • Inclusion of incorrect identifiers

V. Improper Due Diligence on Customers/Clients

Organizations conducted inadequate due diligence on customers, including ownership, geographic location(s), counter-parties, and transactions.

• Reasons for Non-Compliance:
  • Administrative actions taken by OFAC involved improper or incomplete due diligence
  • Lack of thorough research on counterparties and transactions

VI. Decentralized Compliance Functions and Inconsistent Approaches

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Key Takeaways

• Common mistakes and violations of OFAC regulations include:
  • Lack of understanding or misinterpretation of OFAC’s regulations
  • Failure to conduct proper due diligence on customers and clients
  • Inadequate sanctions screening software or filter faults
  • Utilizing the U.S. financial system for prohibited transactions
  • Exporting/re-exporting U.S.-origin goods/services to OFAC-sanctioned entities
• Effective compliance with OFAC regulations is crucial to avoid non-compliance and its consequences.