The Office of Foreign Assets Control, or OFAC, is a financial intelligence and enforcement agency within the U.S. Department of Treasury’s Terrorism and Financial Intelligence division (TFI). It administers trade and economic sanctions against organizations and individuals identified as a threat to the national security, economy, and foreign policy of the United States. In conjunction with other agencies of the federal government, OFAC also enforces legal penalties on any U.S. entities that undermine those sanctions by engaging in business or financial transactions with prohibited foreign entities. Federal law requires all U.S. entities (i.e. both U.S.-based businesses and individual citizens) to 1) comply with OFAC regulations and 2) provide OFAC with evidence of your due diligence in maintaining that compliance.
The Specially Designated Nationals or Blocked Persons (SDN) list is OFAC’s dynamically updated record of those aforementioned prohibited entities. To be OFAC compliant, your business needs:
- A system in place to detect and block transactions that either involve entities on the SDN list, or that are prohibited by other OFAC sanctions
- Documentation supporting your due diligence in following that system
- A process for reporting blocked transactions to OFAC within 10 business days of their occurrence, and providing OFAC with an annual report of all blocked transactions for the year by September 30.
OFAC compliance is the law. However, there is no mandated process for how to accomplish this – you can use whatever system or technology that works best for your business to maintain OFAC compliance. But setting up a compliance program that’s right-sized to your business’ volume of transactions and level of risk can be challenging.
On one hand, validating every single transaction (i.e. regardless of size, origination, or risk level) or paying for a software solution with unnecessary features can be a waste of resources for certain types of financial institutions. On the other hand, the costs of breaking the law by committing an OFAC violation can be devastating. Violations (willful or not) carry criminal and civil penalties that can exceed several million dollars. Plus, OFAC publishes the names of those that have been penalized – effectively blacklisting them for the rest of the finance industry.
Based on the unique needs of your company, Lyons Commercial Data can help you implement an OFAC compliance program by providing you with the right tools for screening your customers and flagging transactions. Our robust OFAC verification tools provide real-time data from multiple sanctions lists, with extensive reporting features for compliance documentation. Contact us today to learn more about OFAC screening, or other financial data validation solutions.