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OFAC Sanctions 101: Three tips for understanding the basics

By: Kristina Davis, CAMS, OFAC Analyst

Sanctions are one of the most complicated issues that we come across in the financial sector. The Office of Foreign Asset Control (OFAC) sanctions list contains thousands of names and is updated regularly, so fully knowing and understanding sanctions could pose a huge challenge to your credit union. This article includes three good tips to follow when dealing with OFAC. First, let’s review a few of the basics.

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Reviewing the definition and purpose of sanctions

OFAC is an agency under the U.S. Treasury that deals with sanctions. Sanctions are limits and/or restrictions placed on individuals, countries, or businesses used with the intention of altering the sanctioned party’s behavior. Sanctions are also economic/trade based and are used as consequences of an action toward an individual or country or when a substantial threat has been perceived toward the United States. Sanctions can be comprehensive, meaning that just about all transactions with the sanctioned country are prohibited; or they can be targeted, where only certain individuals/entities/businesses are sanctioned.

Considering the OFAC list

Since the OFAC sanctions list consists of a blacklist of individuals, countries, organizations and entities that the United States is not allowed to conduct business with, it’s imperative to know and remember that every U.S. citizen, no matter where they are in the world, is obligated to follow OFAC’s rules and regulations. No U.S. citizen, including U.S. permanent residents, can conduct any business with a sanctioned party unless they have been given a specific license from the U.S. Treasury or unless the transaction falls under the scope of a general license. In all cases where a transaction including funds transfers are involved, it’s best to contact the U.S. Treasury to determine if such a transaction is allowed under general license or if a specific license is required prior to conducting the transaction.

When violated, the consequences for an OFAC infringement can be astronomical, ranging from possible jail time to immense monetary fines, including civil monetary penalties.

Three tips to improve your understanding of sanctions

Because sanctions are very broad, difficult to understand, and open to different interpretations, here are three tips to keep in mind:

Tip 1: Do your homework.

If possible, try to understand sanctions as much as you can. Take time to go to the U.S. Treasury’s website and read through the various sanctions listed. A lot of sanctions are targeted sanctions dealing with certain persons, businesses, etc. But in some cases, such as North Korea, the country is still considered comprehensively sanctioned since most business and transactions are unable to be conducted with North Korea. However, OFAC has not discontinued travel to North Korea. As of September 2017, U.S. passports are invalid for travel to and in North Korea, but the U.S. State Department does allow for travel to North Korea under certain specific circumstances. A Special Validation Passport is needed in such cases. In this case, contacting the U.S. State Department for clarification on the rules of this passport is crucial prior to attempting such travel.

If the process of understanding as many sanctions as possible seems too cumbersome, then focus primarily on the countries where you see the most activity coming to and from your institution. For instance, if you have a lot of members who tend to send funds to Russia, then focus your attention on Russian sanctions to gain as much knowledge as possible. This kind of familiarity makes for a much smoother situation when you contact the U.S. Treasury for guidance or when faced with an in-process transaction.

Tip 2: Get all the information before you decide.

Second, ask for additional information, documentation, and clarification when you have a possible OFAC match. This is important. The penalties for failing to abide by an OFAC regulation are huge. Make sure to take your time and get all the information you need to back up your reasoning for releasing or blocking (freezing) assets. Know who is sending the funds, who the funds are going to, what is being sent (in our case, money), and why your member is sending the funds. Having this information allows you to make a better, well-rounded decision on what action to take.

Tip 3: Don’t rush the process.

Take your time when dealing with a possible OFAC match. Once a transaction is sent out (or in some cases, incoming), your opportunity for due diligence has gone out the door along with the transaction. We all work under time constraints, but this is one matter where taking your time with what you have in front of you is of utmost importance. When you require additional information, wait patiently for the needed documentation. If in doubt, always contact the U.S. Treasury and explain your situation as thoroughly and clearly as possible. Also, try making notes prior to the call, as this will allow you have all your underlying questions ready without forgetting anything.

To summarize, take your time, know what sanction or Specially Designated National (SDN) you may be dealing with, and make sure to get all the information you need. You will be in a much better position to make the best decision for your financial institution.