Creating an OFAC Sanctions Compliance Program

Creating an OFAC Sanctions Compliance Program

Setting up an effective OFAC sanctions compliance program can seem like a daunting task for many businesses. OFAC (The Office of Foreign Assets Control) oversees U.S. economic and trade sanctions, so having a program that ensures compliance is crucial. This article will break down the key elements of creating a successful OFAC compliance program in a simple, conversational way.

What is OFAC?

First, a quick overview of what OFAC is and does. OFAC is part of the U.S. Department of Treasury and administers sanctions programs against foreign countries, entities, and individuals. These sanctions can include trade embargoes, asset freezes, and other economic penalties. The goal is to support U.S. national security and foreign policy objectives.

OFAC has the authority to impose civil penalties against companies that violate U.S. sanctions laws. So having an effective compliance program is important to avoid potentially serious consequences like fines or damaged business relationships.

Getting Started

When initially creating your OFAC compliance program, focus on these key steps:

• Get buy-in from leadership – Make sure management is on board and will allocate necessary resources.
• Assess your risk – Evaluate your exposure based on clients, business locations, etc.
• Review OFAC requirements – Understand the laws and your obligations.
• Document policies and procedures – Outline your program structure and processes.
• Train employees – Educate staff on OFAC compliance through training.

OFAC does not require a standardized compliance program. Rather, it expects companies to develop customized programs based on their risk profile and operations. So assessing your unique risk is an important first step.

5 Key Components

While each OFAC compliance program will be tailored, OFAC has outlined 5 essential components your program should include:

1. Management Commitment – Get buy-in from senior management and ensure adequate resources are dedicated to compliance.
2. Risk Assessment – Assess your exposure to sanctions risk based on clients, partners, transactions, etc. Update as needed.
3. Internal Controls – Implement processes to identify, escalate, and report on sanctions issues. For example, customer screening procedures.
4. Testing & Auditing – Regularly test your program through audits. Evaluate if processes are working as intended.
5. Training – Educate staff through training on OFAC compliance, tailored to their job duties.

Having detailed policies and procedures for each component will help demonstrate the effectiveness of your program to OFAC if needed.

Risk Assessment

Conducting a risk assessment is a key step when designing your compliance program. The goal is to identify potential areas of sanctions exposure based on your business activities, customers, geographic locations, and partners. This will allow you to allocate compliance resources accordingly.

When conducting your risk assessment, consider factors like:

• – Locations where you do business
• – Nature of your customers and business partners
• – Your products and services
• – Volume and types of transactions

Be sure to document your risk assessment methodology and findings. You should also plan to update your risk assessment periodically as your business changes.

Screening Customers

A primary internal control for OFAC compliance is screening customers and business partners against OFAC’s Specially Designated Nationals (SDN) and other sanctions lists. This allows you to identify any prohibited parties and prevent transactions with them.

Screening should happen at onboarding and be conducted on an ongoing basis to catch any changes. There are a few approaches to screening:

• – Manual checking of names against OFAC’s free SDN search tool
• – Exporting OFAC lists into your internal systems
• – Using third-party software that checks names against the full OFAC database

Make sure to document your screening procedures and any matches that require investigation. False positives will happen, so have a process for researching and resolving them.

Training Employees

In order to have an effective compliance program, your employees need to understand OFAC requirements and their role. Training should be provided to all staff, with more comprehensive training for those in higher risk roles like customer onboarding.

Training topics can include:

• – Summary of OFAC and economic sanctions
• – Your OFAC compliance program policies and procedures
• – How to identify sanctions red flags
• – Protocols for escalating issues
• – Consequences of non-compliance

Plan to provide training at onboarding and periodic refresher courses. Track completion to make sure all employees are trained. Tailor training to each role’s responsibilities.

Recordkeeping

Maintaining documentation is critical to demonstrate your OFAC compliance efforts. Ensure you keep records of:

• – OFAC risk assessments
• – Written compliance policies and procedures
• – Training materials and completion records
• – Screening reports
• – Investigations of potential issues
• – Any disciplinary actions related to violations

Having detailed records will help you respond effectively if OFAC requests information during an investigation.

Testing & Auditing

In addition to documentation, you need to regularly test your OFAC compliance program through audits. This allows you to assess whether your policies and procedures are working as intended.

Example audit activities include:

• – Reviewing a sample of transactions for screening
• – Examining training completion reports
• – Assessing if escalation protocols were followed
• – Validating if screening technology is operating accurately

Conduct audits at least annually and have them completed by a qualified internal or third party resource. Implement corrective actions based on the results.

What About Technology?

Automated solutions like sanctions screening software can greatly improve efficiency and accuracy of an OFAC compliance program. But the right technology depends on your risk level, resources, and program maturity.

Options to consider include:

• – Screening Software – Checks customer names against OFAC lists[1]
• – ID Verification – Validates customer identity data[2]
• – Transaction Monitoring – Flags abnormal activity[3]
• – Case Management – Tracks investigations[4]

Evaluate technology based on capabilities, deployment options, and cost. Leverage solutions to strengthen your compliance efforts without over-investing.

Staying Up to Date

OFAC rules and sanctioned parties lists change frequently. So an important compliance program component is having procedures to stay current. Ways to maintain awareness include:

• – Email Updates – Subscribe to OFAC email updates[5]
• – Sanctions Changes – Review OFAC recent actions regularly[6]
• – Advisories – Read OFAC compliance newsletters
• – Annual Training – Refresh employees on the latest requirements

By making ongoing sanctions updates part of your program, you’ll avoid surprises and penalties down the road.

The Importance of Culture

Policies and technology are crucial. But at the end of the day, an effective OFAC compliance program is really driven by culture. Employees have to understand the importance of compliance and their role in it.

Ways to promote a culture of compliance include:

• – Gaining buy-in from senior leadership
• – Consistent messaging about the value of compliance
• – Incentives for identifying issues
• – Celebrating “wins” when issues are avoided

With managers and staff aligned, your OFAC program will become an integrated part of operations rather than just a check-the-box exercise.

The Bottom Line

Maintaining an effective OFAC sanctions compliance program requires diligence and commitment. But taking a methodical approach focused on risk, controls, and culture can help ensure compliance. While penalties are never desirable, they pale in comparison to the reputational damage and lost business caused by sanctions violations.

By investing the time to understand OFAC requirements and implement key program components, your organization can avoid serious compliance gaps. The result will be smoother operations, reduced risk, and the ability to assure partners you take compliance seriously.

At the end of the day, a mature OFAC program demonstrates your commitment to ethics and builds trust. And that’s something from which any business can benefit.

References

[1] FircoSoft OFAC Name Screening

[2] LexisNexis ID Verification

[3] NICE Actimize Transaction Monitoring

[4] CaseWare Monitor

[5] OFAC Recent Actions

[6] OFAC Sanctions Changes

OFAC Advisories