I. INTRODUCTION
The purpose of this article is to summarize Office of Foreign Assets Control (OFAC) regulations of direct interest to banks and to note those areas which should be considered by the bank as formalized policy. The US Treasury Department requires all banks to monitor, block and report every attempted financial access by certain individuals and organizations or face heavy penalties and possible imprisonment. OFAC is enforcing the regulations and has already levied several million dollars in fines against banks (particularly major “money center” banks). Before concluding that your bank is not affected by the transactions which OFAC regulates, be aware that several smaller banks have been found engaged in illegal transactions by their customers, e.g., persons wiring family remittances to relatives in Cuba or Iraq, local exporting firms and people remitting financial contributions to terrorists or terrorist entities. Small, inconsequential transactions may serve as a “test” by prohibited parties to ascertain if your bank is prepared for OFAC compliance.
Although the division’s name and its regulatory, administrative and enforcement authority may be relatively of recent vintage – and not yet a household word – its roots are deep. One anecdote reports that a banker, attending a compliance seminar, inquired into how long OFAC regulations had been around. The topic was obviously “news” to the banker. The speaker replied, “about 200 years – it’s known as doing business with the enemy.”
II. MISSIONAND ROLE OF OFAC
The stated “mission” of OFAC, a division of the U.S. Department of the Treasury, is to administer and enforce:
economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations and international narcotics traffickers based on U.S. foreign policy and national security goals. OFAC acts under Presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close coopertation with allied governments.
OFAC promulgates regulations regarding economic and trade sanctions imposed by the U.S. government against targeted foreign countries, foreign nationals of such countries, and specially designated nationals of those countries, including terrorist sponsoring entities and international drug traffickers. OFAC regulations do not apply exclusively to banks. In fact, all U.S. citizens, including permanent resident aliens, must comply. In addition, companies located in the U.S., overseas branches of U.S. companies, and as the case may be, overseas subsidiaries, are subject to these regulations.
OFAC operates under the authority of Presidential “wartime” and “national emergency” powers, as well as the “Trading With the Enemy Act,” “International Emergency Economic Powers Act,” “Iraqi Sanctions Act,” “United Nations Participation Act,” “International Security and Development Cooperation Act,” “The Cuban Democracy Act,” “The Cuban Liberty and Democratic Solidarity (“Libertad”) Act of 1996,” and “The Antiterrorism and Effective Death Penalty Act of 1996.” These authorities allow, among other actions, the imposition of sanctions or controls on transactions under the jurisdiction of the United States (e.g., trade embargoes, freezing of foreign assets, import surcharges). It is prohibited to deal with foreign countries, the nationals of such countries and the specially designated nationals of countries found on OFAC’s list. Their assets or accounts in the United States are to be frozen and may be pooled for the benefit of United States claimants. The United States Criminal Code (18 U.S.C. § 1001) provides for fines and imprisonment for violation of matters under OFAC jurisdiction.
Since OFAC is not a bank regulatory authority, it cannot directly regulate bank compliance activities; rather, it plays an “after-the-fact” role once a violation is detected. The federal bank regulatory agencies are aware that banks must comply with OFAC regulations and cooperate with OFAC in ensuring bank compliance with the regulations, e.g., FDIC examiners have been trained to ask five questions regarding OFAC compliance:
1. Are there policies and procedures for complying with OFAC laws and regulations?
2. Is the current OFAC “Specially Designated Nationals and Blocked Persons” (list of countries, entities and individuals with whom trade is prohibited or controlled) maintained by the bank?
3. Is updated OFAC information routinely disseminated to the bank’s foreign offices, if any?
4. Are new account applications routinely compared to the List?
5. Are international accounts (e.g., maintained in the bank by foreign nationals or companies) routinely compared to the List?
III. OFAC REGULATIONS AFFECTING BANKS
A. General Bank Responsibilities
OFAC regulations affecting banks can be summarized as follows:
Section 326(a) of Title III of the USA Patriot Act of 2001 provides that financial institutions compare the names of new account customers with government lists of known or suspected terrorists. Regulations were effective October 25, 2002.
Generally, OFAC regulations bar transactions with the following three categories:
These categories are listed and such lists are periodically updated. Regulations involving terrorists and narcotics traffickers are codified at 31 C.F.R. Title V. OFAC has identified hundreds of individuals and companies that are restricted from trading in the United States. OFAC maintains an “Alphabetical Listing of All Blocked Persons, SDNs, Specially Designated Terrorists, and Specially Designated Narcotics Traffickers” which is found in Appendix A to 31 C.F.R. Title V. Some names appearing on past lists sound innocent, but serve as fronts for terrorist activities, e.g., each of the following entities were on the OFAC list as SDNs: Atlas Air Conditioning, London; Fartrade Holdings, Switzerland; SIRM Holding, Rome; Vinales Tours, Cancun.
B. Reporting and Procedures Regulations – 31 C.F.R. Part 501
The regulations provide that if someone on the list is involved in a covered transaction, the bank must block the transaction, freeze the assets, and notify OFAC. Note that the “Right to Financial Privacy Act” does not extend to transactions that are under OFAC regulation. A bank is required to report all blockings to OFAC within 10 days of occurrence. If your bank does not block and report a transfer and another bank does so, then your bank could be subject to fines, possible criminal penalties and adverse publicity. In addition, a comprehensive annual report on blocked property must also be filed with OFAC.
Full and accurate records of transactions subject to OFAC must be retained by the bank for at least five years subsequent to the transaction and must be available for examination by the Treasury Department or delegated authority. Recordkeeping is required even if the transaction has completed pursuant to a Treasury-issued license or other authorization. In addition, Treasury officials may ask to examine account books, contracts letters or other documents connected with either the transaction or property involved in the transaction.
All blocking actions must be reported to OFAC Compliance by FAX (202.622.2426) within 10 days. There is no form to be filed and a letter on bank letterhead is sufficient. The report must: identify the owner or account party; the property and the property’s location; any existing or new account number or similar reference necessary to identify the property; actual or estimated value of the property; the date the property was blocked; a confirmation that the payment has been deposited into a new or existing blocked account clearly labeled as such and established in the name of, or contains a means of clearly identifying the interest of, the individual or entity subject to blocking; the name and address of the holder; and the name and telephone number of a contact person from whom compliance information can be obtained. In regard to fund transfers, the report should have a photocopy of the transfer instructions. Note that blocked accounts are to earn interest at “commercially reasonable rates in instruments with maturities of less than 90 days.
Reports on reject items also must be filed within 10 days and include the following information: name and address of the transferee financial institution; date and amount of the transfer; photocopy of the payment or transfer instructions received; the basis for rejection; and name and telephone number of a contact person at the transferee financial institution from whom compliance information can be obtained.
In conclusion, the focus of the bank should be to ensure that suspect items are interdicted and that bank officers and key staff have the training and information to recognize and stop suspect transactions for further review by the bank officer responsible for OFAC compliance. Since every OFAC sanctions program is different, the bank will need to notify OFAC to help determine whether the interdicted transaction should be processed, blocked or rejected.
A comprehensive annual report of blocked property held as of June 30 by September 30 of each year is required to be filed with OFAC using Form TDF 90-22.50. This form is reproduced following this article and may also be found on OFAC’s fax-on-demand service or electronically by internet access on the GPO ACCESS button found in OFAC’s Home Page.
U.S. persons involved in litigation, arbitration or other binding alternative dispute resolution proceedings regarding blocked property must provide appropriate notice. The notice of such proceedings are filed with OFAC Chief Counsel, U.S. Treasury Department, 1500 Pennsylvania Ave., NW – 3123 Annex, Washington, DC 20220 and should include the submission of copies of all documents associated with such proceedings within 10 days of their filing. Information about the scheduling of any hearing or status conference should be faxed to OFAC Chief Counsel at 202.622.1911.
Applications to OFAC requesting the release of funds which have been blocked at a bank must be filed. The filing is called a “licensing request” and should be sent in hard-copy form to OFAC’s Licensing Division. The licensing request must contain the following information: amount of payment; date of payment, name and address of remitter; name of remitting bank and any intermediary banks; name of U.S. bank which blocked funds; name of beneficiary bank, name and address of beneficiary; copy of original transfer instructions given to remitting bank by its customer; complete description of underlying transaction with copies of documents (e.g., invoices, bills of lading); nature of applicant’s interest in funds; and a statement of the reasons why applicant believes the funds should be unblocked. The application must also include the name, address, telephone number and fax number (if available) of the party seeking release of the funds. If U.S. individuals are requesting, the inclusion of the person’s social security number is recommended but not required. If the request is made by a corporation or other entity, the application should include a principal place of business, state of incorporation or organization, and if a U.S. corporation or entity, a taxpayer identification number. Faxed applications are not advised unless the case involves funds believed to have been blocked due to mistaken identity.
Note on Record Retention Requirements: OFAC regulations have a uniform requirement across all of its sanctions programs that all records must be maintained for five years.
C. Specific Bank Responsibilities: Written Policies and Procedures; Internal Controls and Monitoring; Correspondent Bank Screening
1. Written Policies and Procedures
FDIC, OCC and Federal Reserve Board safety and soundness examination procedures require the inclusion of a review of written policies and operational procedures to assure compliance with OFAC. The bank should address OFAC Policy and Procedures either separately or as a supplement to any one of a number of bank policies it might best be inserted, e.g., General Operations Policy, Safety and Soundness Policy, Bank Security Policy or Bank Secrecy Act Policy.
2. Internal Controls and Monitoring for Compliance
The measure of internal controls needed by your bank is a risk issue that each bank will have to measure for itself. What may be satisfactory controls for one bank may not be sufficient for another. Obvious risk assessment includes bank asset size, number of foreign transactions, and geographic location. Risk assessment may also include a review of bank customers doing business with foreign nationals.
A bank must maintain sufficient internal systems and procedures to ensure that reporting is accomplished according to regulatory requirements. Clear, concise and orderly work papers should support the data presented, i.e., having an audit trail. A bank must establish adequate internal controls to assure that the sanctions imposed by OFAC have not been violated. In other words, OFAC-related transactions should be stopped before they are processed. Bank tellers, account officers, letter of credit servicers and wire room personnel play critical roles in ensuring compliance.
Tellers should be trained to be aware of potentially illegal personal remittances, e.g., customer instructs teller to wire money from his bank account to his mother in Cuba (customer’s account should be appropriately debited and money placed in a blocked account) or customer instructs teller to cash a draft drawn on an account of a person on the books of “Rafidain Bank, Jordan” (although Jordanian and Iraqi non-SDN nationals are not blocked, the draft is blocked, since it is drawn on a branch of a blocked bank – “Rafidain Bank, Baghdad”).
Account Officers – Since “property” is defined in the regulations to include both assets and obligations, the bank should review for blocked deposit and loan account (including credit card account) parties. The account owner, obligor, co-owner, guarantor, cosigner or beneficiary may be on the OFAC list. Note that credits to blocked accounts are allowed, but debits (except normal service charges) are prohibited without authorization from OFAC. Blocked loan or credit card payments are to be credited to a blocked account and not applied against blocked loan balances without a license.
Letter of Credit Servicers – Prior to issuing, confirming, amending or advising a letter of credit (LOC), OFAC issues include determining: whether the account party, beneficiary, issuing bank or paying bank fit a blocking profile; whether the underlying transaction is prohibited; whether the bill of lading shows that goods were shipped by a blocked shipping company or merchant vessel on the SDN list; whether the certificate of origin shows the goods came from a target country; whether the invoice shows a blocked company as the supplier of goods to the seller. If any interests of a blocked party are indicated, the LOC and related documents should be treated as blocked property, drafts and other negotiable instruments should be secured and OFAC should be notified. OFAC may instruct that the customer’s account be debited and that the LOC payment be blocked.
Wire Room Personnel – Prior to being sent to an international correspondent bank, outgoing wire transfer instructions should include determining: whether intermediary bank or beneficiary banks appear on the SDN list or in a blocking profile; and whether the transfer appears to support a prohibited transaction. If a blocked interest is involved, it should be debited from the customer’s account and credited to a blocked account.
Charitable Contributions – All bank personnel should be aware that prior to making charitable contributions to what may be categorized as “ethnic entities,” the bank should check the SDN list in that some supposed charities have been found to be fronts for terrorist organizations.
When bank officers or staff identify a potential OFAC issue, the bank’s compliance officer should be alerted in order to review and possibly notify OFAC. Whether a covered transaction should be blocked or rejected is dependent on many factors and the terms of the applicable sanctions program. Since sanctions are subject to change and are often quite complex, these issues can be sorted out only after calling OFAC’s Compliance Hotline at 1-800-540-OFAC (6322).
3. Correspondent Bank Screening
In addition, correspondent banks are required to screen transactions between other banks and their bank for OFAC regulated activities. If any violation is indicated, the correspondent bank must report any alleged violation on the part of any respondent to OFAC within 10 days which could result in penalties against the violating bank for permitting a prohibited activity to take place. In addition, a bank may not divulge to its customer whether his or her account has been blocked by the OFAC.
Federal regulators agree that a bank’s internal control system in place to detect these transactions will minimize the risk that the bank could violate OFAC regulations. For this reason, regulators have emphasized safety and soundness examination efforts in this area. That is why OFAC regulations are considered a “hot” compliance topic.
D. Key Terms
1. 602 Request
A “602 Request” is a national emergency inquiry requested by the U.S. Secretary of State. The U.S. government does not need an injunction order for this request, and the recipient of such a request must respond to the inquiry.
2. Blocking of an Account or Other Assets
OFAC may order the blocking of an account, allowing only credits to be posted to a customer’s account. A blocked account cannot be debited or otherwise used to settle claims (e.g., the bank cannot exercise offset rights). Blocking an account does not mean federal seizure of assets; rather, the bank retains the assets, placing funds into a separate account that cannot be accessed by outside means without the order of the Treasury Department. A bank’s correspondent bank accounts may also be blocked or frozen. Assets may also be blocked whereby the Treasury Department exercises powers and privileges associated with ownership of all property andinterests in property of the sanctioned country’s government, its agencies, instrumentalities, and controlled entities in the United States or within the possession or control of U.S. persons.
3. Census
The response of which is required by law, a census is a statistical survey, conducted periodically by OFAC, of blocked assets.
4. Covered Transactions
Any transaction involving U.S. currency, letters of credit, check processing, cashier's checks, money orders, ACH activities and wire transfers are covered by OFAC regulations.
5. Interest
An “interest” of a blocked individual or entity is any interest in property whatsoever, direct or indirect, present, future or contingent.
6. Licenses
The U.S. Treasury Department is authorized to issue either a “general” or “specific” license to a designated national which can then be presented by the customer to the bank, allowing the bank to debit his or her account. A “general” license is not represented by a document; rather, OFAC regulations authorize specific transactions. A bank must request that a customer sign an affidavit stating that the particular transaction is covered by a general license. Telephone OFAC at (202) 622-2520 for more information. The “specific” license is a permit issued by OFAC allowing an activity by a specific person or company that would be otherwise prohibited under the embargo or sanctions program. The bank must examine the original “specific” license which may take the form of a letter or license (containing the U.S. Treasury seal, signature of OFAC’s Chief of Licensing and control number). Telephone OFAC Licensing at (202) 622-2480 for verification.
7. Prohibited Transactions
This term includes, but is not limited to: exporting securities, currency, checks, drafts and promissory notes to designated foreign countries; presenting, accepting or paying drafts or other orders for payment drawn under irrevocable letters of credit in favor of or on behalf of any designated nation; transactions incident to administration of a blocked decedent’s estate; access to a listed party’s safe deposit box within the U.S.; and requests or authorizations made by or on behalf of a bank or other person within the U.S., to a bank or other person outside of the U.S., resulting in payment or transfer of credit either directly or indirectly to a designated national.
8. Property
OFAC’s definition of property includes “anything of value,” i.e., both assets, obligations “or interests therein, present, future or contingent.” “Property interest” means any interest whatsoever, direct or indirect.
9. Rejecting Transactions
If the underlying transaction is prohibited, the transactions must be interdicted and either rejected, canceled or returned after consultation with OFAC officials. If such a transaction were processed, the bank could be liable for facilitating a prohibited transaction just as it would be liable for processing a blocked transfer.
10. Specially Designated National
A “specially designated national” (SDN) is a person or entity who acts on behalf of one of those countries under economic sanction by the United States. The U.S. Secretary of State gives the SDN designation.
IV. COMPLIANCE ISSUES
A. Help in Getting Started
The bank may order a starter compliance kit from OFAC by calling the OFAC Compliance Hotline at 1-800-540-OFAC (6322) or 202-622-2490. The kit contains:
The Compliance Hotline is also available for questions or other assistance. OFAC’s web site (http://www.treasury.gov/resource-center/sanctions/Pages/default.aspx) contains summaries of all OFAC regulations and text of the OFAC list in various formats. Specific financial institution requirements are found at http://www.treasury.gov/resource-center/sanctions/Pages/regulations.aspx.
OFAC also maintains an automated fax-on-demand service--free and available 24 hours a day, seven days a week (dial 202-622-0077) from a touch tone phone and follow the voice prompts. OFAC documents include those available on its website as well as notices, licensing guidelines and copies of Federal Register notices. An “Index of Available Documents” is date-specific.
There are many private companies that offer OFAC compliance tools, such as computerized automated tracking systems that keep up with frequent OFAC changes. OFAC also has an automated compliance guide on its website. Financial institutions may subscribe to an e-mail service that can synchronize computers to routinely and automatically check for OFAC updates link at www.treasury.gov/ofac
B. Maintenance of OFAC List
The OFAC list changes on occasion and bank employees should keep up-to-date on such additions and deletions from OFAC sanctions regulations. A method for maintaining and updating this list should be established by the bank. As stated above, OFAC has its web site at www.treasury.gov/ofac which summarizes all OFAC regulations and the OFAC list in various formats, including a format in which the list is available in ASCII delimited format (which could be helpful for a bank not requiring a sophisticated interdiction system). The ASCII file can be downloaded and imported it into a database program (e.g., Microsoft Access) to serve as a basic interdiction program. Changes to the OFAC list are published in the Federal Register which one can access in several ways, including the GPO Gate at http://www.gpo.gov/. Internet resources also include several “interdiction” software vendors. A current listing, once published in the Federal Register, is sent to all banks by the federal bank regulatory agencies.
C. Filtering Transactions Against the List
Once the bank’s risk assessment is complete, the bank should select the appropriate method and technology to filter transactions against the list, including account activities (both deposits and loans), letters of credit, new accounts and ACH. At the onset, consider filtering the bank’s entire existing customer base – in that it would demonstrate the bank’s diligence in ascertaining its customers prior to putting such controls in place. The simplest, but perhaps least efficient method would be to manually filter against the list. Of course, this also means that the bank must maintain the list of key target countries and an updated SDN list at all times. FDIC has noted that the majority of fines levied involved transactions where the bank manually filtered against the list. Alternatively, to reduce risks of human error in “high volume” areas, there is stand-alone PC software available from several vendors. If you have access to the Internet, you might conduct a search on “OFAC” and “interdiction”, to locate such vendors. Some trade shows have displayed PC-based platform or wire transfer applications that come with integrated OFAC interdiction software. Stand-alone and integrated mainframe software solutions are also available.
In devising the bank’s interdiction process, consideration should be given to whether OFAC matters should be incorporated into the bank’s existing application processes or maintained as a separate process. Consider asking your correspondent banks what process they are utilizing. The fact is that most OFAC violations are found through correspondent banks. In a typical case, the correspondent bank has more sophisticated controls that, for example, allow it to detect a blocked entity involved in a wire transfer that another bank processed through the correspondent bank. The correspondent blocks the transaction, freezes the assets and notifies OFAC. OFAC checks the trail of the wire, leading it to the initiating bank. OFAC enforcement officers appear at the bank, asking to see the bank’s interdiction procedures and controls. The level of controls in place may determine whether there may be mitigation of penalties. OFAC penalties are quite heavy -- up to $250,000 per transaction. OFAC is allowed the discretion to mitigate penalties, considering the amount of control that exists at the bank. If the bank has sufficient controls considering its size, number of foreign transactions, location and other material facts, but the one incident had “slipped through the crack,” there is a better chance for penalty mitigation as opposed to a response such as “What’s OFAC?” Although OFAC does not consider a fully automated process to detect illicit funds transfers as a full defense in civil penalty proceedings, it does favorably consider a bank’s business decision to use “interdict” software as well as other good faith manual and electronic compliance efforts in considering mitigation of penalties.
V. OFAC PUBLICATION-QUESTIONS FROM FINANCIAL INSTITUTIONS
On September 11, 2002, OFAC published on its website a series of frequently asked questions (FAQs) concerning OFAC regulations, policies and procedures, including questions from financial institutions. Many of these questions and answers should further assist financial institutions in their compliance and training efforts and are reproduced below.
The entire set of answers to FAQs is an initiative intended to be part of OFAC’s commitment to regulatory transparency and customer service. OFAC will continue to prepare answers to additional questions which will be posted on its website from time to time. OFAC welcomes comments via the “E-mail OFAC“ link (ofac_feedback@treasury.gov) found on OFAC’s homepage. OFAC cannot treat any information submitted concerning FAQs as confidential or proprietary to the submitter and no information submitted concerning FAQs is treated as such. The FAQs are found at: http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/index.aspx.
Does OFAC itself require that banks set up a certain type of compliance program?
No. There is no single compliance program suitable for every financial institution. OFAC is not itself a bank regulator; its basic requirement is that financial institutions not violate the laws that it administers. Financial institutions should check with their regulators regarding the suitability of specific programs to their unique situations. [09-10-02]
How do I get the OFAC Starter Kit?
Prior to the establishment of its website, OFAC mailed “Starter Kits” to financial institutions upon request. The same information is now available on the website and from OFAC’s fax-on-demand service. OFAC encourages anyone interested in the details of OFAC’s programs to download the information from OFAC’s website. [09-10-02]
What do I need to do to comply? Do I have to buy expensive software?
This is primarily a question for your regulator. What constitutes an adequate compliance program depends in large part on who your customers are and what kinds of business you do. Certain areas of bank operations, such as international wire transfers and trade finance, are at a higher risk than others. There are numerous interdiction software packages that are commercially available. They vary considerably in cost and capabilities. If your bank feels it needs to invest in software in its attempt to comply with OFAC regulations, OFAC recommends that you talk to your counterparts in other banks about the systems they have in place and contact vendors for an assessment of your needs. It should be noted that *. TXT and *. PDF versions of OFAC’s SDN list can be manually scanned; OFAC’s *. TXT list can also be queried using standard word processing software such as Microsoft Word or Corel’s WordPerfect. [09-10-02]
How often do I need to scan my customer database for SDNs?
The frequency of running an OFAC scan must be guided by your internal bank policy and procedures. Keep in mind, however, that if your bank fails to identify and block a target account (of a terrorist, for example), there could be “real world” consequences such as a transfer of funds or other valuable property to an SDN, an enforcement action against your bank, and negative publicity. [09-10-02]
How do I setup a compliance program for my bank?
There is no prepackaged compliance program that fits the needs of every bank. Banks, obviously, range in size from small to some of the largest institutions in the world. A good starting point is to go to the OFAC website and look under “Regulations by Industry.” Then read the brochure for the Financial Community. This brochure provides insight as to how your particular bank could set up a compliance program. There are also a number of articles written for banking industry publications available on OFAC’s website. See, for example, OFAC Primer forCommunity Banks. It may be helpful to contact your counterparts in other banks to see what they are doing and talk to your regulator. [09-10-02]
What are the features and benefits that banks should be looking for when selecting an OFAC compliance software package?
There are a wide variety of software packages available to the financial community. The size and needs of each institution help to determine what to look for in a package. Some packages are used to interdict sanctioned countries and SDN names in wire transfers, while others are used to check the names of new customers; other packages also filter the names of all accountholders. One suggestion for finding the right software for your bank is to research what your peer banks are using and determine if the software package is working for them. Your bank also could talk to a variety of software vendors who can easily be located by doing an Internet search. [09-10-02]
How do I block an account or a funds transfer?
Once it has been determined that funds need to be blocked, they must be placed into an interest-bearing account on your books from which only OFAC-authorized debits may be made. The blocking also must be reported to OFAC Compliance within 10 business days. Some banks have opted to open separate accounts for each blocked transaction, while others have opted for omnibus accounts titled, for example, “Blocked Libyan Funds.” Either method is satisfactory, so long as there is an audit trail which will allow specific funds to be unblocked with interest at any point in the future. [09-10-02]
How much interest do I have to pay on the blocked funds?
OFAC regulations require that funds earn interest at a commercially reasonable rate, i.e., at a rate currently offered to other depositors on deposits or instruments of comparable size and maturity. [09-10-02]
Can my bank deduct service charges from the account?
Generally yes. In most cases (excluding Iraq, for instance) OFAC regulations contain provisions to allow a bank to debit blocked accounts for normal service charges, which are described in each set of regulations. The charges must be in accordance with a published rate schedule for the type of account in which the funds are maintained. [09-10-02]
Do all OFAC programs involve blocking transactions?
No. OFAC regulations are tailored to further the requirements and purposes of specific Executive Orders or statutes which provide the basic outline of each program. In some cases, the President has determined that a comprehensive asset freeze is appropriate, and in others the President has determined that more limited restrictions (for example, import bans) are in order. The individual program brochures outline the restrictions for each program. [09-10-02]
I understand blocking a transaction, but what is meant by rejecting a transaction? When should a transaction be rejected rather than blocked?
In some cases, an underlying transaction may be prohibited, but there is no blockable interest in the transaction. In these cases, the transaction is simply rejected, or not processed. For example, a U. S. bank would have to reject a wire transfer between two third-country companies (non-SDNs) involving an export to a non-SDN company in Sudan. Since there is no interest of the Government of Sudan or an SDN, there is no blockable interest in the funds. The U. S. bank cannot process the transaction because that would constitute a transaction in support of a commercial activity in Sudan, which is prohibited by the Sudanese Sanctions Regulations. Similarly, a U. S. bank could not be involved in the financing of a prohibited transaction. A U. S. bank cannot so much as advise a letter of credit if the underlying transaction is in violation of OFAC regulations. Please note that rejected funds transfers must be reported to OFAC within 10 days. Questions about whether a transaction should be blocked or rejected should be directed to OFAC Compliance. [09-10-02]
My bank operates accounts for individuals living in Iran. OFAC has told us that these accounts cannot be operated. Does this mean that the accounts are blocked?
No, the accounts are restricted. The Iranian sanctions prohibit the export of goods or services to Iran. By operating an account for an individual or company in Iran, the bank would be exporting services to that person or entity in violation of the Iranian Transactions Regulations. The accounts, however, are not blocked. The account holder can close the account and have the funds transferred to his or her account outside the United States. [09-10-02]
I’ve heard that U-Turn payments are allowed for Iran. What exactly is a U-Turn payment?
A “U-Turn” payment involving Iran is where U. S. dollar transactions involving Iran are cleared through a U. S. bank. Generally speaking, there must be a third-country bank on both sides of a transaction to qualify as a “U-Turn.” For example, Bank Melli Iran can send funds from its account at a German bank through the German bank’s correspondent in New York to an Italian bank to pay for goods purchased from Italy. The originating and beneficiary banks may not be U. S. banks. [09-10-02]
What do I do if I have a blocked account that needs to be escheated to the state?
You need to discuss this with your state authorities and with OFAC. For instance, the states of New York and Florida each have licenses to escheat blocked funds, pending OFAC approval of each transfer. Banks in New York or Florida should contact their State Banking Departments for instructions on how to proceed. Banks in other states should contact OFAC directly for instructions on how to proceed. [09-10-02]
If my financial institution receives a wire going to an embassy in a sanctioned country, can we process the transaction?
This depends on the program. If you have a payment involving an embassy in a targeted country, please contact OFAC Compliance for directions (1-800-540-6322). [09-10-02]
Should an institution tell its customer that it blocked their funds, and, if so, how does the institution explain it to them?
An institution may notify its customer that it has blocked funds in accordance with OFAC’s instructions. The customer has the right to apply for the unblocking and release of the funds. Information on OFAC’s licensing procedures is available on the website.
For a copy of the *.PDF application form for the unblocking of funds transfers (TD F 90-22. 54), please direct your customer to http://www.treasury.gov/resource-center/sanctions/Documents/license.pdf [09-10-02]
What do I do if a person tries to open an account and the person’s name is on OFAC’s SDN list? Do I open the account and then block the funds?
A U. S. bank cannot open an account for a person named on the SDN list. This is a prohibited service. However, you should pay careful attention to be sure the person trying to open the account is the same person as the one named on OFAC’s list. In many cases you may get a “false positive,” where the name is similar to a target’s name, but the rest of the information provided by the applicant does not match the descriptor information on OFAC’s SDN list. If the bank does come into the possession or control of any property in which a blocked person has an interest, it is obligated to block that property. In other words, if you receive an application to open an account from a person who matches the information on the SDN list, together with an opening deposit, you are obligated to block the funds. The same is true for other banking transactions. If, for example, a customer asks if he or she is allowed to send money to a relative’s account with Rafidain Bank in Iraq, the bank can say “no, that’s illegal.” If, on the other hand, a bank receives instructions from its customer to debit his or her account and send the funds to Rafidain Bank, the bank must act on the instructions by blocking the funds which contain a future interest of the Iraqi SDN bank. You might think of the analogy of a bouncing ball. Once the ball starts moving, you must stop it if it comes into your possession. [09-10-02]
Does a financial institution need to scan names against OFAC’s list of targets upon account opening or can it wait for 24 hours to receive a report from its software vendor on whether or not there is a hit?
There is no legal or regulatory requirement to use software or to scan. There is a requirement, however, not to violate the law by doing business with a target or failing to block property. OFAC realizes that financial institutions use software that does not always provide an instantaneous response and may require some analysis to determine if a customer is indeed an SDN. The important thing is not to conclude transactions before the analysis is completed. [09-10-02]
Is there a dollar limit on which transactions are subject to OFAC regulations?
There is no minimum or maximum amount subject to the regulations. [09-10-02]
Does my bank need to check the OFAC list when selling cashier’s checks and money orders? In the case of cashier’s checks, do I need to check both the purchaser and the payee? As a mortgage lender, do I need to check both the purchaser and the seller’s name against the SDN list?
Every transaction that a U. S. financial institution engages in is subject to OFAC regulations. If a bank knows or has reason to know that a target is party to a transaction, the bank’s processing of the transaction would be unlawful. [09-10-02]
If a loan meets underwriting standards but is a true “hit” on the OFAC list, what do we use as a denial reason on the adverse action notice?
If you have confirmed with OFAC that you have a “good hit,” there is no reason not to explain that to the customer. The customer can contact OFAC directly for further information. [09-10-02]
Through corporate giving programs, many banks contribute toward charities and other non-profits. To what extent does a bank need to review the recipients of these gifts or the principals of the charities?
Donations to charitable institutions must be handled as any other financial transaction. The donating bank or institution should crosscheck the recipient names against OFAC’s SDN list and assure that the donations are in compliance with OFAC sanctions programs. [09-10-02]
I just received an interdiction “alert” What do I do?
When your interdiction software or accountholder checking service shows a potential match, OFAC recommends that you do an initial analysis prior to contacting OFAC. If you have a reasonably close match to a name on the SDN list and your customer is located in the same vicinity as the SDN, feel free to contact OFAC Compliance. Computer software can only deal with letters and numbers. It will inevitably flag some transactions that are not actually OFAC targets. This is where human intervention becomes critical and some hands-on research may be necessary. Questions that ought to be asked by a Compliance Officer before calling OFAC include: Is it an exact name match, or very close? Is the suspect party located in the same general area as the SDN? If there are many similarities, then contact OFAC for verification. Unless you have an exact match or are otherwise privy to information indicating that the hit is a target, it is recommended that you not actually block a transaction without discussing the matter with OFAC. [09-10-02]
When a transaction is rejected or blocked, I have ten days to report it. Do I have to do it in writing or can I call OFAC Compliance and report it that way?
At the moment, OFAC requires that all blocking and reject reports be submitted in writing. Optional reporting forms are available at http://www.treasury.gov/resource-center/sanctions/Pages/forms-index.aspx. Reports may be mailed in or faxed to OFAC Compliance at 202-622-2426. Blocking and reject reports must contain a copy of the original transfer instructions. OFAC is currently working with the financial community on a pilot project to permit the filing of such reports electronically. If you wish to participate in the pilot project, please contact OFAC Compliance. [09-10-02]
Is there a requirement for annual reporting of blocked property? Is there a required format?
Yes. A report of blocked property is to be submitted annually by September 30 to OFAC Compliance, Department of the Treasury, Washington, D. C., 20220. The standardized form can be accessed by visiting http://www.treasury.gov/resource-center/sanctions/Documents/td902250.pdf. If you wish to use a different format, please contact OFAC’s Blocked Assets Division at 202-622-2440. [09-10-02]
How do I apply for a license to get my money unblocked?
With respect to blocked funds transfers, you will need to submit an application for the release of blocked funds form which is available on OFAC’s website under “Forms.” You should print this form, complete the required information, attach payment instructions, and mail it to:
Office of Foreign Assets Control U. S. Department of the Treasury Treasury Annex 1500 Pennsylvania Avenue, NW Washington, DC 20220 Attn: Licensing Division
OFAC requests that the application form be submitted in triplicate. The form must be sent by hard copy - fax copies will not be accepted. It is extremely important that the underlying transaction be described in detail and copies of supporting documentation be included in the package. [09-10-02]
VI. PENALTIES
OFAC regulations provide for criminal prosecution with penalties ranging up to 12 years in prison and $1 million in corporate fines and $250,000 in individual fines, per incident. In addition, civil administrative penalties of up to $250,000 per violation may be levied. As stated in the Introduction, OFAC’s regulatory enforcement has already resulted in several million dollars of fines levied against banks.
VII. CONCLUSION
As noted above, your bank must maintain an OFAC list of blocked entities (the list currently contains some 2500 names). Every covered transaction must be monitored. Existing accounts have to be rechecked every time the OFAC list changes. Compliance with OFAC regulations is a technological challenge that could require specialized services for some banks if an electronic system is used to track OFAC. Noncompliance represents a potential major liability for banks. OFAC regulations are here to stay and any delay in implementing an adequate compliance program and technical solution could be very costly.
ANNUAL REPORT OF BLOCKED PROPERTY
TD F 90-22.50
Office of Foreign Assets Control
Department of the Treasury
Washington, D.C. 20220
The Office of Foreign Assets Control ()OFAC) requires an annual report of all property blocked or funds retained under OFAC Regulations found in Title 31 of the Code of Federal Regulations, Parts 500 through 599. This information is needed by the United States Government for planning purposes and to verify compliance with OFAC Regulations. The report is to be submitted annually by September 30 to the Compliance Programs Division, OFAC, Department of the Treasury, Washington, D.C. 20220.
General Instructions
Any person holding property blocked or funds retained under OFAC Regulations is required to submit a report on this form concerning such property. Reports filed in accordance with OFAC Regulations are regarded as containing commercial and financial information which is privileged and confidential. Requests to submit reports in alternative formats will be considered on a case-by-case basis. For additional copies of the form, as well as other information of interest to holders of blocked property, call OFAC’s fax-on-demand service at (202) 622-0077.
Part A - U.S. Person Holding Property.
State reporter’s corporate name and address and the name and telephone number of an individual corporate official to contact regarding this report.
Name:
Address:
Individual to contact regarding this report:
Total number of accounts or items reported on Part B:
Complete the certification where applicable. The report is not valid without the certification.
I, ____________________________, certify that I am the ___________________________
(name) (title)
of the , that I am authorized to make this
(corporate name)
certification, and that, to the best of my knowledge and belief, the statements set forth in this report, including any papers attached hereto or filed herewith, are true and accurate, and that all material facts in connection with said report have been set forth herein.
______________________________________ ___________________________
(signature) (date)
PAPERWORK REDUCTION ACT STATEMENT: The paperwork requirement has been cleared under the Paperwork Reduction act of 1980. The Office of Foreign Assets Control of the Department of the Treasury requires this information be furnished pursuant to 50 U.S.C. 1701, and CFR Parts 500 to 600. The information collected will be used for U.S. Government planning purposes and to verify compliance with OFAC Regulations. The information will be held confidential. The estimated burden associated with this collection of information is 4 hours per respondent or record keeper. Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed to the Compliance Programs Division, Office of Foreign Assets Control, Department of the Treasury, Washington, D.C. 20220 and the Office of Management and Budget, paperwork Reduction Project (1505-0164), Washington, D.C. 20503. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by OMB.
Part B - Property Reported
Identify each account or item of property separately in the spaces provided below. Use additional photocopies of Pat B as needed. Use supplemental attachments if the space provided is inadequate. Be sure to indicate the number of accounts or items reported on Part B in the appropriate space on Part A.
Owner. Identify the owner of the property
Description. Provide a brief but comprehensive description of the property.
Value. Provide the value (or an estimate) of the property as of June 30.
Location. List the location or branch where the property is held, if different than the address shown in Part A.
Regulations. Identify the Part of Title 31 of the Code of Federal Regulations under which this property is blocked.
Owner Description Value Location Regulations