FAQs
Question: Our OFAC interdiction software just provided an “alert” on a new bank customer. We have never had this happen before. What now?
Answer: When your interdiction software or account holder checking service shows a potential match, OFAC recommends that you do a closer review of the account. Computer software may flag some transactions that are not actually associated with OFAC targets. This is where human intervention becomes critical and some hands-on research may be necessary. OFAC recommends reviewing the due diligence steps posted to its website. If you have a reasonably close match to a name on the Specially Designated Nationals (SDN) list (or one of OFAC’s other sanctions lists) and your customer is located in the same vicinity as the SDN, contact OFAC. Unless you have an exact match or are otherwise privy to information indicating that the hit is a sanctions target, OFAC recommends that you do not actually block a transaction without discussing the matter with them.
Question: Does OFAC itself require that banks set up a certain type of compliance program?
Answer: 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.
Question: What do I need to do to comply with OFAC? Do I need to buy expensive software?
Answer: This is primarily a question for your regulator. What constitutes an adequate compliance program depends in large part on who our customers are and what kinds of business you do. Certain areas of bank operations, such as international wire transfers and trade finance, are at 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 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.
Question: Does a financial institution need to scan names against the OFAC list of targets upon account opening or can it wait 24 hours to receive a report from its software vendor on whether or not there is a hit?
Answer: 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 realized 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 a SDN. The requirement is not to conclude transactions before the analysis is completed.
Question: Are we required to screen ACH transaction under the OFAC rules?
Answer: Originating Depository Financial Institution’s (ODFI’s) that originate domestic or international ACH transactions are subject to OFAC requirements. The ACH Rules require ODFIs to establish policies and procedures to ensure Originators are not blocked persons on the Specially Designated Nationals (SDN) or Blocked Persons List and also to provide a good faith effort to determine an Originator is not engaged in transmitting funds to, from or on behalf of party subject to blocking action. The ODFI may rely on the Receiving Depository Financial Institution (RDFI) that holds the account of the Receiver to ensure compliance with OFAC as related to the Receiver for domestic accounts. However the same is not true if the RDFI is located outside the United States. The ODFI will have to check the blocked list for both the Originator and Receiver of an International ACH Transaction (IAT) because foreign RDFIs are not subject U.S. law.
RDFIs receiving domestic ACH entries are not required to screen each transaction for OFAC compliance, but may instead screen their own account holders against OFAC’s SDN and Blocked Persons List on a periodic basis. (The frequency of these periodic checks will vary and RDFIs may rely on a third party processor to do this screening. However, the screening should be done at least each time the SDN list is updated.) Receipt of an IAT will trigger the RDFI to screen each transaction. Again, because if the Originator is located outside the United States, it is not subject to U.S. laws. When receiving an IAT, the RDFI should screen the Receiver, Originator, any remittance information and any identified foreign correspondent banks.
Question: Is there a dollar limit on which transactions are subject to OFAC regulations?
Answer: There is no minimum or maximum amount subject to the regulations.
Question: Do all OFAC programs involve blocking transactions?
Answer: No. OFAC regulations are tailored to further the requirements and purposes of specific Executive Orders or statutes that provide the basic outline of the 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.
Question: How do I block an account or funds transfer?
Answer: Once it has been determined the 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 that will allow specific funds to be blocked with interest at any point in the future.
Question: How much interest do I have to pay on the blocked funds?
Answer: OFAC regulations require 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.
Question: Can my bank deduct service charges from the account?
Answer: 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.
Question: Should an institution tell its customer that it blocked their funds, and if so, how does the institution explain it to them?
Answer: An institution may notify its customer that it has blocked funds in accordance with OFAC’s instructions. The customer has a right to apply for the unblocking and release of the funds. Information on OFAC’s licensing procedures is located on the OFAC website.
Question: When a transaction is to be rejected or blocked, a bank has ten days to report it to OFAC. Do I have to report it in writing or can I call OFAC Compliance?
Answer: Currently OFAC requires all blocking and reject reports be submitted in writing. Optional reporting forms are available on OFAC’s website. Reports can be emailed to ofacreport@treasury.gov. Blocking and rejection reports must contain a copy of the original transfer instructions.
Question: Our bank recently purchased OFAC interdiction software. We had several “hits” when we ran our first match with our customer list. What do we do now?
Answer: Your designated OFAC person should review the customer information against the SDN list. In most cases the SDN list includes aliases, birth dates, passport numbers or address information such as the country of residence or city and state of the entity. Many times you will find you have a “false positive” hit after reviewing more information. If you are unable to determine for yourself if your hit is a “false positive”, use the OFAC Resource Center to determine if a call to OFAC is required. If a call is recommended, call OFAC Compliance Hotline at 1-800-540-OFAC (6322) to obtain their assistance. The OFAC representative will provide you with instructions that may include blocking, freezing or allowing the transaction. You can also email OFAC or submit an “in-process” wire transfer to the hotline at https://www.treasury.gov/about/organizational-structure/offices/Terrorism-Fin-Intel/Pages/OfficeOfForeignAssetsControlHotline.aspx. If you must block the account, place the funds in an interest-bearing account and file a report with OFAC within 10 business days. It is permissible to reveal to the customer they are on the OFAC list. You may tell them the reason the assets were blocked.
If you check the OFAC list BEFORE you accept the funds to open the account and you discover they are subject to blocking, you have the option of declining to open the account. No report to OFAC would be required because the transaction was not a rejected transaction under OFAC, nor was it blocked. You simply declined to do business with someone; which is something you can choose to do for a variety of reasons.
Question: When we originate an international wire, what are our compliance requirements regarding checking OFAC lists for the beneficiary, the bank and the country involved in the transaction?
Answer: OFAC has not established specific compliance procedures, rather requires that each financial institution conduct a risk-assessment and set risk-based policies and procedures in order to ensure that it doesn’t conduct a financial transaction for anyone on the Specially Designated Nationals (SDN) or Palestinian Legislative Council (PLC) lists or for a sanctioned country.
Generally, the originating institution should conduct an OFAC check for the originator, the beneficiary, all banks that handle the wire – any intermediary bank and the beneficiary’s bank, and the country in which the beneficiary’s bank is located. From a risk-based perspective, an OFAC check on the intermediary and beneficiary banks would be over-burdensome and unnecessary IF those banks are all domestic banks. However, when dealing with international wires, since international banks are not bound by U.S. law, a risk-based approach would include conducting an OFAC check on any foreign intermediary or beneficiary bank. Similarly, for incoming international wires, it is prudent to check the originator, the originating bank and any international intermediary banks, and the country of origin.
The list of sanctioned countries can be found on the OFAC site at https://www.treas.gov/offices/enforcement/ofac/programs/index.shtml.
In general, if you have a payment involving an entity or person in a sanctioned country, contact OFAC Compliance for directions on how to proceed (1-800-540-6322). A summary of banks’ responsibilities related to each sanctioned country is found at: https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/ques_index.aspx. Sanctions are different for each country: some prohibit financial transactions on behalf of the government; others prohibit financial transactions on behalf of the government and its citizens. In order to determine a risk-based approach to conducting OFAC checks on international transactions, it’s important to understand what/who is sanctioned within each country.
For additional guidance in developing a risk-based approach to compliance, OFAC has posted a series of frequently asked questions for the financial industry that offer guidance in specific cases: https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_compliance.aspx#other_fi.
Question: We are confused about what parties need to be checked against OFAC and 314(a) on incoming and outgoing wires. We only originate wires for customers and all customers are filtered every two weeks on an OFAC interdiction host data processing system. Are we compliant with OFAC and 314(a) by just relying on our host scan or do we have to check the originators of incoming wires and the recipients of outgoing wires? These persons are most generally NOT our customers.
Answer: OFAC rules for financial institutions require that both the originator and beneficiary of wires be checked before conducting the transaction. Generally, this obligation falls on the originating institution. Since you’re regularly filtering customers against the OFAC Specially Designated Nationals (SDN) list, you needn’t check the originator of outgoing wires, but be sure to check the beneficiaries. On incoming wires, the originator/beneficiary should already have been checked against the OFAC SDN list by the originating institution. However, there have been failures of this in the past. So, it’s always a good practice to check the originator’s and beneficiary’s name against the OFAC SDN list before releasing the funds to the beneficiary…so that your bank won’t be guilty of violating OFAC rules by releasing money to someone on the SDN list.
As for 314(a) – this is NOT a list to be maintained and monitored on an ongoing basis. These lists are delivered to financial institutions for a one-time review of accounts. If you find you have accounts held in the name of a person on the 314(a) list, respond appropriately to the 314(a) request. Once you’ve done that, there is no further obligation to monitor this list, and the list is not intended for purposes of determining whether to provide accounts or other services to persons named on the 314(a) list.