Financial Crime World

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OFAC Sanctions Screening Methods Under Scrutiny in Macao

Introduction

In recent months, three banks in Macao have been hit with sanctions from the Office of Foreign Assets Control (OFAC) for failing to comply with current denied party screening and compliance regulations. In this article, we’ll explore what happened so companies across industries can avoid similar violations by strengthening their compliance policies, processes, and infrastructure.

Misunderstanding of Screening Policies Leads to a Finding of Violation

A recent OFAC sanction was enforced on a bank for the apparent violation of the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR). The bank in question processed multiple payments for two individuals only recently added to OFAC’s List of Specially Designated Nationals (SDN) and Blocked Persons.

  • The violation occurred due to a miscommunication between the company and its sanctions screening vendor.
  • The business falsely believed that its vendor screened its entire customer base for SDN violations daily, but those comprehensive screenings only happened once a month.
  • The vendor’s daily screenings checked only for new customers and existing ones with recent account changes.

Penalties, Remediation Steps, and What We Can Learn

OFAC issued a Finding of Violation (FOV) rather than a monetary fine. This ruling comes with several implications:

Banks Must Take a Risk-Based Approach to OFAC Compliance

  • Banks must take a risk-based approach to OFAC compliance.
  • If a financial institution chooses to outsource its compliance services, it must ensure that the vendor can handle its unique risk profile.

Every Bank’s Situation is Unique

  • Every bank’s situation is unique. No one approach to sanctions screening can apply to all businesses.
  • The bank instituted new manual processes for screening the entire customer base after any OFAC sanctions list update, and the vendor upgraded the frequency of its own screening solution.
  • Thanks to the bank’s cooperation with OFAC and its previous good compliance standing, OFAC considered these “mitigating factors” when deciding on a penalty.

Working with Individuals Involved in Drug Distribution and Money Laundering

A second case involved a bank that processed transactions for two employees of the Government of Venezuela. While the company planned to review its accounts potentially impacted by new sanctions, the efforts were too late, as the executive order in question came into force 14 months before the bank got around to blocking the accounts.

Penalties, Remediation Steps, and What We Can Learn

OFAC decided on a settlement amount of $255,937 based on several factors. While it was a moderately-sized bank with the capabilities to adhere to denied party screening obligations, the business did take remedial action in response to the violations:

  • Introducing enhanced sanctions screening training for employees
  • Developing additional resources on sanctions alert review
  • Implementing new sanctions policies
  • Adding new staff specifically for OFAC compliance

The Key Takeaways

Banks need a robust compliance system for not only OFAC compliance but also Sarbanes-Oxley compliance, a U.S. federal law mandating financial record keeping, and other best practices for businesses. However, the deficiencies and shortcomings uncovered in these three cases can occur in any business.

All organizations, not just banks, need to reevaluate their stances on OFAC compliance rulings. While you may think your current system is enough, mistakes can slip through for any reason, from human error to a lack of sufficient policy.

Descartes Can Help with OFAC Compliance

Descartes provides an industry-leading suite of denied party screening, 3rd party risk management solutions, as well as trade content for leading business systems. Their solutions are flexible and modular, allowing organizations to pick the specific and exact functionality and content they need for their particular compliance needs and scale up later as and when necessary.

By utilizing Descartes’ robust solutions, organizations can strengthen their compliance processes, including with regards to OFAC compliance, and enhance their competitive edge, as well as increase sales velocity.