Understanding OFAC Compliance Concerns – With Resources

Understanding OFAC Compliance Concerns - With Resources

The United States uses economic sanctions against individuals, institutions, and countries as a diplomatic tool. They hope that economic pressure will cause the world’s bad actors to change their behavior. These sanctions, however, affect how the people of the US do business in the world, and vice versa. Ignoring or violating sanctions can come with severe penalties. The Office of Foreign Assets Control (OFAC for short) is an arm of the US Treasury that administers and enforces sanctions for the United States government. As the global marketplace gets smaller, it’s more likely that any business – large or small – may have contact with an entity under sanctions. Therefore, every business needs to know how to handle OFAC compliance.

Who Must Follow OFAC Compliance?

The short, simple answer is “everybody” in the US or doing business in or with the USA, or with US citizens. Because the US is a global financial powerhouse, the rules it sets for its own citizens and financial institutions relating to international transactions end up affecting just about everyone else. They become, in effect, a de facto global standard.
Officially, OFAC says that all U. S. persons need to be aware of OFAC sanctions and be in compliance. A U. S. person is not just an individual citizen. The United States defines a U. S. person as:

• A U. S. citizen
• Someone who has received permanent residence status
• Someone granted a protected person status
• Any corporation or business in the United States
• Any part of the U. S. Government

Included in the list of entities that need to comply are also any foreign branches of U. S. companies. Additionally, subsidiaries that are owned or controlled by U. S. persons are required to comply with OFAC sanctions against Cuba and North Korea.

Who is Subject to OFAC Sanctions?

Most people are familiar with sanctions against a nation – the kind that prohibits you from doing business with certain countries like Iran, Cuba and North Korea, to name a few. An up to date list of countries under sanctions can be accessed on OFAC’s site. But OFAC also maintains a list of individuals and businesses against which the United States has imposed sanctions. They fall into two groups; the first is individuals and businesses that act on behalf of targeted countries. The second is made up of individuals and businesses not associated with a targeted country but specially designated as narcotics traffickers or terrorists. These persons are called Specially Designated Nationals, or “SDNs”, for short. Up to date lists are available on OFAC’s website.

OFAC Compliance Information

As with any complex and important area of compliance, you should talk with experts before you make plans regarding OFAC compliance. While this article does give a brief introduction to OFAC compliance, it is not intended to be legal advice. Seek qualified experts (there are a number of lawyers and consultants who specialize in OFAC) to guide you through your plan for creating an OFAC compliance regime, so you can do business without worrying.

OFAC does maintain several documents on their website to help guide your business in compliance. In addition to distributing a list of sanction programs, they also provide industry-specific guidance. OFAC publishes guides for several specific industries such as finance, import/export, money services, insurance, and non-governmental organizations, to name a few.

Additionally, OFAC publishes a compliance FAQ that provides excellent guidance for the first steps of your own compliance system.

How Do Banks Handle OFAC Violations?

If someone tries to do business with an individual or entity on the sanctions list, the financial institution through which the payment is processed should, under OFAC rules, stop the transaction. Depending on the sanctions program, the financial institution will either reject the transaction, or they will block it. If they block the transaction, the institution will move the funds to an interest-bearing account. Under certain conditions, that person may be able to retrieve the funds. In the worst case, the person will not just lose the funds but will be subject to fines and criminal charges, as well.

As a practical matter, it is important global companies realize that any OFAC violation, or even the perception of a violation, can have a detrimental effect on business. Most banks are particularly sensitive to OFAC – even foreign banks. It can be exceedingly difficult to rectify violations through the bank’s bureaucracy. Even innocent “false positive” occurrences – where a legitimate payee’s name matches someone on the SDN list – can be difficult to clear up. For this reason, we encourage anybody making payments to or on behalf of customers to implement a strong compliance program whereby names are constantly screened against the most current list of SDNs prior to initiating payments.

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To learn more about OFAC requirements as they relate to global payroll, and to get assistance to ensure your organization remains compliant overseas, give us a call today. We’re ready to help!

 

**This article is for informational purposes only. It is not intended to constitute legal advice.

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