March 2009 - Feature
The Truth Behind OFAC
OFAC checks might seem useless, but not complying could mean 10 to 30 years in prison. Find out why compliance is a good thing and how it can act as a first line of defense.
By Justina Ly
What is OFAC?
The Office of Foreign Assets Control administers and
enforces economic sanctions programs primarily against countries and groups of
individuals, such as terrorists and narcotics traffickers. The sanctions can be
either comprehensive or selective, using the blocking of assets and trade
restrictions to accomplish foreign policy and national security goals.
How long has OFAC
been around?
The OFAC is the successor to the Office of Foreign Funds
Control (the “FFC’’), which was established after the German invasion of Norway in 1940. The FFC program was administered by the Secretary of the Treasury
throughout the war. The FFC’s initial purpose was to prevent Nazi use of the
occupied countries’ holdings of foreign exchange and securities, and to prevent
forced repatriation of funds belonging to nationals of those countries.
The OFAC itself was created in December 1950 after the entry
of China into the Korean
War, as President Truman blocked all Chinese and North Korean assets subject to U.S. jurisdiction.
How do I determine if
I have a valid OFAC match?
• Is the
“hit” or “match” against OFAC’s SDN List or targeted countries, or is it
“hitting” for some other reason (e.g. “Control List” or “PEP,” “CIA,”
“Non-Cooperative Countries and Territories,” “Canadian Consolidated List,”
“World Bank Debarred Parties,” “Blocked Officials File,” or “government
official of a designated country”)?
• Now
that you’ve established that the hit is against OFAC’s SDN List or
targeted countries, evaluate the quality of the hit. Compare the name in
your transactions with the name on the SDN List. Is the name in your
transaction an individual while the name on the SDN List is a vessel,
organization or company (or vice versa)? If yes, you do not have a valid
match.
• How
much of the SDN’s name is matching against the name in your transaction?
Is just one of two or more names matching (i.e., just the last name)? If
yes, you do not have a valid match.
• Compare
the complete SDN entry with all of the information you have on the
matching name in your transaction. An SDN entry often will have, for
example, a full name, address, nationality, passport, tax ID or cedula
number, place of birth, date of birth, former names and aliases.
• Are
there a number of similarities or exact matches? If yes, you are
instructed to call the hotline at (800) 540-6322. If no, you do not have a
valid match.
What are the
penalties for non-compliance?
Criminal penalties related to OFAC violations can include
fines ranging from $50,000 to $10 million and 10 to 30 years of imprisonment
for willful violations. Civil penalties range from $250,000, or twice the
amount of each underlying transaction, to $1,075,000 for each violation.
Where can I find the
OFAC list?
OFAC’s list is available online at
www.treas.gov/offices/enforcement/ofac. The agency also provides a starter kit
comprised of the SDN List, an industry-specific brochure and articles.
To conduct an OFAC check, screen the customer’s name
manually or by using software. Then answer the following question: Is the name
an exact match, or very close? Is your customer located in the same general
area as the SDN listed? If the answer is “no” to either question, you may have
a “false hit.” If there are many similarities, contact OFAC at (800) 540-6322
for verification.