OFAC

The Office of Foreign Assets Control ("OFAC") is a body within the Department of the Treasury. It is responsible for enforcing laws that impose economic and trade sanctions, freeze assets, and prevent money laundering. The laws enforced by OFAC include regulations intended to prevent transfer of assets to terrorist organizations and restrict transactions with foreign nations such as Iraq, North Korea and Cuba (see greater list, below.)

OFAC affects more than just financial institutions. All U.S. citizens, including permanent resident aliens, are obligated to comply with OFAC regulations. Companies located in the U.S., as well as overseas branches of U.S. companies, and in some cases, overseas subsidiaries, are all subject to compliance with OFAC designated regulations.

The Office of Foreign Assets Control is a division of the U.S. Department of the Treasury. OFAC administers and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations and international narcotics traffickers based on stipulated, 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 according to those of the United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments. To accomplish this mission, OFAC has implemented regulations that require (in most cases) the freezing of all assets and property of these targeted entities. These frozen assets and property are pooled for the benefit of U.S. claimants.

The OFAC regulations affect financial institutions by blocking any transaction that has any connection to an enemy of the United States, freezing all assets involved, and report the transaction to the Office of Foreign Assets Control. The financial institution must first take on the large task of identifying who those considered to be an enemy of the United States. Next, the financial institution must matches its various transactions against those identified as enemies.

OFAC regulations are effective in thirteen different areas. Ten of these are countries that have been designated as U.S. enemies. These are:

Burma (Myanmar)
Cuba
Federal Republic of Yugoslavia (including Serbia, Montenegro, and Serb-controlled Bosnia)
Iran
Iraq
Libya
North Korea
Unita (Angola)
Sudan
Taliban

Narcotics Sanctions Terrorism Sanctions Weapons of Mass Destruction Trade Control

There are also regulations involving terrorists and narcotics traffickers. These regulations are codified at 31 CFR Title V. The regulations contain specific requirements and restrictions stipulating the express types of trade and financial activity that can occur involving the various countries on the list. Specific information about these sanctions has been summarized and is made available at blocked_countries.htm.

Also, from within these countries and groups, OFAC has identified hundreds of individuals and companies that are restricted from trading in the U.S. OFAC maintains an "Alphabetical Listing of All Blocked Persons, Specially Designated Nationals, Specially Designated Terrorists, and Specially Designated Narcotics Traffickers." This listing is included as Appendix A to 31 CFR Title V. Regulations specify that if someone on the list is involved in the transaction, you must (in most cases) block the transaction, freeze the assets, and notify OFAC.

Banks are expected to filter their transactions against the current OFAC list. They are to evaluate any suspects to determine if they are genuine hits. They are to keep good records (audit trail) and they are to contact OFAC if a genuine hit occurs or a question arises. There is considerable internal control needed in order to avoid important risk issues. Each financial institution must measure regulation weights and balances in order to come out on the plus side of risk management, these would include: asset size, number of foreign transactions, and geographic location.

Most OFAC violations are discovered through correspondent banks. OFAC penalties can run up to $250,000 per transaction.

Look for the OFAC web site at: http://www.ustreas.gov/ofac. Summaries of all of the OFAC regulations will be found there, as well as the OFAC list in various formats.

Changes to the OFAC list are published in the Federal Register. Look for the GPO Gate at: http://www.access.gpo.gov/su_docs/index.html.

With the current climate, there will very likely continue to be an emphasis on OFAC compliance. When it comes to OFAC, the potential for risk greatly outweighs the cost of compliance. There is a suite of resources available to aid in the transition over to OFAC here.