What is OFAC? And why, despite not being in the United States, is it recommended to follow its sanctions program?
A few months ago, many were surprised by the agreement for USD 135Ks that the e-commerce giant Amazon reached with this office for apparent violations of the US sanctions programs, at the same time the economic sanction of USD 665Ks imposed in July 2020 to the company Essentra FZE Company Limited located in the United Arab Emirates, for exporting to the Republic of North Korea and receiving payments in North American bank accounts.
This brings to light how not complying with OFAC’s sanctions program could lead to legal, reputational or economic risks, and wonder how OFAC can affect me in particular?, what am I doing to comply with the sanctions program?, or what should I do? to be in compliance.
OFAC, is the United States Office of Foreign Assets Control. It is an intelligence and financial enforcement agency of the Department of the Treasury that administers and enforces US economic and trade sanctions programs against targeted foreign governments, individuals, groups, and entities in accordance with foreign policy and national security objectives. These sanctions are enforced through the creation of lists of designated persons.
It is important to highlight the publication made by OFAC in May 2019, entitled “Framework for OFAC Compliance” where it is recommended to organizations subject to the jurisdiction of the United States, as well as to foreign entities that conduct business in or with the States. United States persons or persons who use goods or services, to design, implement and maintain an OFAC program.
“Specially Designated Nationals” or “SDN”.
OFAC publishes a list of individuals and companies that are owned or controlled by, or acting on behalf of, sanctioned countries. The participants of the list are considered specially designated nationals.
It also lists individuals, groups and entities, such as designated terrorists and drug traffickers in programs that are not specific to a particular country, these individuals and companies are called
When OFAC include a person, entity o vessel to its list, the assets of that person in the USA are blocked and people or entities, including banks and financial institutions in the United States, are prohibited from dealing with them.
How does the OFAC sanctions program can apply indirectly o me?
The US dollar is the currency commonly used in international trade, this means that a large percentage of international sales are agreed to in US Dollars.
In order to transfer the US dollars, we need the access to bank accounts located either in United States banks or through local banks, that maintain correspondent relationship with a bank in the USA.
This means that, if I am going to market goods orservices in US currency, I must comply either directly or indirectly with OFAC’s sanctions programs.
If I am a merchant, failure to do so may lead to the rejection of transactions, freezing or closing of bank accounts. If I am a financial institution, I risk losing my correspondent accounts, receiving financial penalties and license suspension.
What do I need to do to comply with the OFAC sanctions program?
OFAC has its listings published on its website:
https://sanctionssearch.ofac.treas.gov/
The first thing that you must do as a minimum control, is torequest for a personal identification to the person you will start the business relationship.
In the case of an individual, the ID should include photo and be current. It is advisable to include the one that within my jurisdiction includes the country and city of birth, some identity cards do not contain this information, however, practically all passports do include it.
In the case of a legal entity, we suggest reviewing the shareholder certificates or articles of incorporation. This request in some cases could be seen as excessive, so we recommend first consulting the name in the list and if find any possible match, then proceed with the request .
Sometimes a provider of products and services, with a quick consultation to the list, can realize if they are interacting with a person or entity included in the sanctions program.
Some institutions, companies and businesses may not have the means, a significant volume of international transactions or their risk does not merit incurring a specialized electronic solution. Then, previously consulting your clients or prospects in the OFAC lists is suggested.
Now, if I am a financial institution, I should be concerned about including in my onboarding process, transactional monitoring and client base monitoring, solutions or technological resources, which will allows me to search the names of my clients through the OFAC lists, incorporating at the same time more sophisticated searches such as: indirect matches, partial matches, confusing matches, phonetic matches, among others. The complexity of the monitoring programming will vary depending to the magnitude and risk of the institution.
How do I check on my suppliers or clients?
The first thing we must do is make sure if the person you are dealing with is the person or entity included in the list.
There are many people who share the same names and surnames, by regions it is common that many names are used more than others. These coincidences are treated as possible “possible match” .
We suggest against a direct approach of the OFAC background check of your customer and suppliers, by making a direct comment or pointing out the possible match, since doing so may lead us to receive legal actions or other related complaints.
What we must do is, with identification document that I requested from my client or if I have not requested it, I will proceed to do so, verify for the coincidence in the following three points:
In case individuals we must observe the coincidence with:
· Full Name- We must confirm that both names and surnames are exactly the same as they appear in the list.
· Date of Birth (DOB) — We must confirm that my client’s date of birth coincides with the date of birth on the list, and finally
· The Country of Birth (COB) must match — here it is important to note that the country listed in the list is the country of birth, we must ensure that the identity document provided includes the country of birth and that the person who is doing the review, is able to distinguish the difference between country of residence, country of citizenship and country of birth
In case of being a legal entity, we verify the following coincidences:
· Legal Name- We must confirm that the entity’s name matches the list.
· Date of creation or incorporation-, and finally
· The country of creation of the entity must coincide — here applies the note of differences between the country of creation, country of operations or branches.
If any of this data does not match my client’s, we can discard the match. If we don’t have enough information to discard, we must request it. This will help us to be one step ahead and when we proceed to request international payments or transfers, we will already have in advance the review process and we will be able to provide the identification that our financial institution may be requesting to carry out the same exercise.
I have seen cases of transfers being rejected by financial institutions when information is not available and eeded to rule out a possible coincidence, so we must bear in mind that, if after we do the exercise, we decide to continue the commercial relationship, your the financial institution might reject or refuse to process the transaction, some more conservative ones could even make the decision to proceed with the closure of youy account.
If I am a provider of products and services, it is recommended that we carry out this practice every time an international payment is to be performed, since the lists are dynamic and are updated frequently.
If I am a financial institution, we must create monitoring procedures at the time of opening the relationship, periodically (at least every time there is an update to the lists) and transactional, every time a client is going to perform an operation, here I must not only to check my client, but also all the names and addresses registered in the operation.
What do I do if I find that my client is included in the OFAC sanctions program?
If I am a provider of products and services, it is suggested to withdraw from operations with that person or to proceed with the request for a license.
If I am a financial entity, as we said before, I am subject to direct regulation if I am located in the United States, or indirectly, if I manage bank accounts in dollars or correspondent accounts. The measures to be taken by the institution will depend on the case, but for the most part they can be included in:
Account lockout
It involves totally freezing an account because the owner is an SDN entity. In the case of credit cards, these are kept frozen for the duration of the sanction.
Transfer Blocking
When a direct or indirect interest of an SDN is identified in a transfer request, OFAC requires that the funds be frozen and reported to OFAC.
Transfer Rejection
In some cases, a transaction may be prohibited, but there is no lockable interest in it. In these cases, the transaction is simply rejected or not processed, and the action taken is reported to OFAC.
On this subject in depth and more, we will meet in the webinar on September 16 at 10:30 AM with Mr. Juan Medrano. Join us to learn about the “Program of sanctions against the government of Venezuela; challenges and challenges for international financial institutions “ IN SPANISH
Expert in anti-money laundering with more than 20 years of experience in the international financial sector, many of them in the position of Compliance Officer in important financial institutions in the region and as an examiner.
President and founder of J&A Global Compliance, a firm specialized in regulatory issues specifically BSA / AML and OFAC, conducting independent reviews, as well as advising on the design and management of the compliance program for financial institutions in the United States, Latin America and the Caribbean.
He has been a lecturer on the subject, including conferences on the Venezuelan Sanctions Program held in Panama City.
Degree in Business Administration from the Central University of Venezuela (UCV), Certified as a Professional in Anti-Money Laundering and an active member of ACAMS.
