18 Sep 23

OFAC Compliance Best Practices and Tips

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Last Updated on: 21st September 2023, 07:25 pm

Staying compliant with OFAC regulations can seem daunting, but it doesn’t have to be! Here are some best practices and tips to make OFAC compliance easier for your business.

What is OFAC?

OFAC stands for the Office of Foreign Assets Control, which is an agency of the US Department of the Treasury. OFAC administers and enforces economic and trade sanctions against targeted foreign countries, regimes, terrorists, international narcotics traffickers, and more based on US foreign policy and national security goals.

OFAC publishes a list known as the Specially Designated Nationals (SDN) list which includes individuals and companies owned or controlled by or acting for targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under sanctions programs that are not country-specific.

If a business engages in transactions with individuals or entities on this list, they are at risk of facing civil penalties from OFAC. That’s why OFAC screening and compliance is crucial for any company doing international business or interacting with foreign nationals.

Conduct Risk Assessments

A key component of an OFAC risk assessment is identifying customers and supply chain partners that may have ties to sanctioned countries and entities. Factors to consider include:

  • Countries where you are doing business
  • Nature of your products/services and how they could be used
  • Use of agents, brokers or distributors in transactions
  • Depth of your supply chain

Assign risk scores to business partners and transactions to identify high-risk areas. For example, a technology company selling dual-use products would be higher risk than a retailer selling consumer goods domestically. This allows you to focus compliance efforts on the highest risk areas.

Screen Customers and Business Partners

Screening customers and business partners against the SDN list and other restricted party lists is essential for OFAC compliance. Some best practices include:

  • Screen customers at time of onboarding and repeat periodically
  • Screen all supply chain partners including freight forwarders, customs brokers, etc.
  • Screen in real-time at point of transaction
  • Screen against SDN list plus other restricted party lists relevant to your industry
  • Use OFAC compliance software to automate screening

Be sure to screen against alternate spellings and name variations to avoid missing matches.

Implement 50% Rule Screening

One of the trickier aspects of OFAC screening is the 50% rule. This states that if an entity on the SDN list owns 50% or more of a company, that company is also considered blocked even if not explicitly listed.

To identify 50% rule matches, you must screen company ownership against restricted party lists. This is done by researching Ultimate Beneficial Owners (UBOs) and cross-referencing against screening lists.

OFAC compliance software can assist with 50% rule screening through:

  • UBO identification
  • Ownership percentage calculation
  • Comparison of ownership data against restricted party lists

Implement Quality Control Processes

OFAC screening should not be a one-and-done process. You need quality control measures to ensure the accuracy and completeness of screening over time. This includes:

  • Transaction testing to confirm system screening is working
  • Process audits
  • Updating screening system as new SDN/restricted party lists are released
  • Periodic training for staff on OFAC compliance
  • Internal escalation process for potential OFAC matches

Document your quality control activities so you can demonstrate OFAC compliance to regulators.

Respond to Potential Matches

If you receive an OFAC alert on a customer or transaction, take prompt action by:

  • Freezing the transaction
  • Escalating internally for investigation
  • Filing a report with OFAC within 10 days if valid match
  • Consider submitting a license application to OFAC
  • Consulting legal counsel

Avoid “stripping” or altering transaction details to avoid an OFAC match, as this can lead to violations.

Train Employees on Compliance

Make sure employees understand OFAC regulations and your compliance program. Training should cover:

  • Background on OFAC
  • Restricted party lists
  • Your OFAC risk assessment and mitigation procedures
  • How to handle potential OFAC matches
  • Consequences of non-compliance

Conduct training during onboarding and periodic refresher courses. Require employees to certify they understand training content.

Document Your OFAC Compliance Program

Documentation is key – if you are ever audited by OFAC, you need to show evidence of your compliance program and due diligence. Be sure to document:

  • OFAC risk assessment
  • Written OFAC compliance policies and procedures
  • Internal audits and quality control activities
  • Employee training records
  • Evidence of screening customers and transactions

Having robust documentation can help demonstrate your good faith efforts to comply with OFAC regulations.

Use Compliance Software

Automating OFAC screening with compliance software is highly recommended. Software can:

      • Perform automated batch screening of customers and transactions
      • Provide real-time screening at point of transaction
      • Screen across multiple sanctions lists relevant to your business
      • Identify name variations and alternate spellings to prevent false negatives
      • Update screening lists as they change
      • Generate alerts for potential matches that require investigation
      • Maintain audit trails to demonstrate screening is taking place
      • Integrate with your existing systems and workflows

Leveraging automation helps increase efficiency, reduce errors from manual processes, and lets your team focus on higher value analysis and risk mitigation.

Consider Cloud-Based Solutions

Many OFAC compliance software solutions are now cloud-based. Benefits of cloud-based compliance include:

      • Fast deployment without large IT projects
      • Regular updates to screening lists without IT effort
      • Scalability to handle growing transaction volumes
      • Access from anywhere with an internet connection
      • Avoidance of costs associated with on-premise solutions

Just be sure any cloud-based solutions meet your security standards.

Review and Update Compliance Program

OFAC regulations and best practices evolve over time. Set reminders to regularly review your OFAC compliance policies and procedures to identify if updates are needed. Key factors to consider:

      • Changes to OFAC sanctioned countries or restricted party lists
      • New jurisdictions where you are doing business
      • Addition of new products, services, or customer types
      • Feedback from audits and internal stakeholder on effectiveness of current program
      • Compliance technology advancements

Updating your compliance program ensures it accounts for new risks and leverages the latest regulatory guidance and technology tools.

Get Help from Experts

OFAC regulations can be complex. If needed, don’t hesitate to enlist help from experts such as:

      • Legal counsel with trade sanctions expertise
      • Consultants who specialize in OFAC advisory services
      • OFAC hotline for guidance on regulations
      • OFAC compliance technology vendors

Getting input from professionals can help you implement and maintain an effective OFAC compliance program tailored to your unique risk profile.