Screening Customers Against OFAC Sanctions Lists

Screening Customers Against OFAC Sanctions Lists

When running a business in the United States, it is important to screen customers against sanctions lists published by the Office of Foreign Assets Control (OFAC). Failure to comply with OFAC regulations can result in hefty fines or even criminal penalties. This article will explain what OFAC is, provide an overview of OFAC sanctions lists, discuss best practices for screening customers, and outline potential penalties for non-compliance.

What is OFAC?

OFAC is an office within the United States Department of the Treasury that administers and enforces economic and trade sanctions. OFAC acts under presidential national emergency powers and various legislation to impose controls on transactions and freeze assets under U.S. jurisdiction. Most OFAC sanctions are based on U.S. foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction. OFAC sanctions can also be used to comply with United Nations Security Council Resolutions.

OFAC publishes a number of different sanctions lists that businesses should screen customers against to ensure compliance. Failing to comply with OFAC regulations can bring severe consequences, including civil penalties and criminal prosecution.

OFAC Sanctions Lists

There are several different OFAC sanctions lists that businesses should be aware of:

• Specially Designated Nationals (SDN) List: This list includes individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific.
• Sectoral Sanctions Identifications (SSI) List: This list includes individuals and companies operating in the Russian economy identified by OFAC as subject to limited sanctions.
• Foreign Sanctions Evaders (FSE) List: This list includes foreign individuals and entities determined to have violated, attempted to violate, conspired to violate, or caused a violation of U.S. sanctions on Syria or Iran.
• Non-SDN Lists: These lists include individuals and entities subject to limited sanctions, such as the Cuban Restricted List and Non-SDN Palestinian Legislative Council List.
• Consolidated Sanctions List: A compilation of all individuals and companies subject to U.S. financial sanctions.

Screening customers against these lists is not optional – it is required by U.S. law. Any U.S. citizens, banks, or companies found to be doing business with individuals or entities on these lists can face civil or criminal penalties.

Best Practices for OFAC Screening

Here are some best practices businesses should follow when screening customers against OFAC lists:

• Screen customers against OFAC lists at onboarding and periodically afterwards. Do not wait until a transaction occurs to screen.
• Use OFAC’s free Sanctions List Search tool or invest in software to automate screening.
• Screen customer names in all relevant formats – for example, for individuals screen against first/last, last/first, and full name.
• Screen customers against OFAC’s lists of blocked countries and regions.
• Investigate potential name matches thoroughly before determining a customer to be a positive match.
• Document all screening procedures and results.
• Implement a risk-based approach, with extra precautions for high-risk customers.
• Train staff regularly on OFAC compliance procedures.
• Implement an audit process to check OFAC compliance procedures are being followed.

Automating the screening process through the use of software is highly recommended, as it makes screening more efficient and reduces the risk of human error. OFAC specifically states that its free Sanctions List Search tool should only be used for manual searches, not automated screening.

Penalties for OFAC Non-Compliance

The penalties for violating OFAC sanctions can be severe:

• Civil Penalties: Can range up to $307,922 per violation or twice the value of the transaction.
• Criminal Fines: Individuals may face up to $1 million in fines and up to 30 years in prison. Businesses may be fined up to $100 million.
• Denial of Export Privileges: Violators may be prohibited from participating in transactions involving items exported from the U.S.

In addition to financial penalties, a company can suffer reputational damage from public enforcement actions for OFAC violations. Negligence is not a defense when it comes to OFAC compliance – companies are expected to have appropriate screening procedures in place.

OFAC Compliance Program

To properly comply with OFAC regulations, businesses should implement a formal OFAC compliance program. This program should contain the following elements:

• Management Commitment: Senior management should establish clear responsibility for OFAC compliance and commit sufficient resources.
• Risk Assessment: Identify higher risk products, services, customers, and geographic locations.
• Internal Controls: Implement written OFAC policies and procedures, training programs, and audit procedures.
• Testing & Auditing: Conduct periodic audits to check OFAC compliance procedures are followed and effective.
• Training: Educate staff on OFAC regulations, sanctions lists, and the company’s compliance procedures.

The cornerstone of any OFAC compliance program is screening customers against the various sanctions lists. Putting in place appropriate policies, procedures, and technology to conduct this screening is critical for any U.S. business.

Third Party Screening Tools

There are a number of third party software tools available to assist with OFAC screening. Some options include:

• • Sanctions.io – Offers OFAC screening via API integration or batch screening services.