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OFAC Sanctions 201: Improving your understanding of sanctions

By: Tara Griffith, Manager, Wire Services & OFAC Officer

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October 31
2:00 – 3:00 p.m.

2019 BSA/AML/OFAC on-demand compliance webinar

Registration closes September 6, 2019

Last year, Corporate One published an article to help simplify one of the most complicated issues we come across in the financial sector: sanctions. This month’s article is a follow up and takes a deeper dive into the details of sanctions.

Why it’s important to understand sanctions

Fully knowing and understanding sanctions is essential for your credit union. Even though Corporate One performs Office of Foreign Asset Control (OFAC) due diligence on its own, your credit union still needs to conduct its own due diligence to ensure full compliance. OFAC administers both economic and trade sanctions not only against specific individuals but also against specific countries and entities, and the list is updated regularly and contains thousands of names. It bears repeating that all U.S. persons, including financial institutions, must comply with OFAC regulations, which includes the following:

  • Block accounts and other property of specified countries, entities and individuals.
  • Prohibit or reject unlicensed trade and financial transactions with specified countries, entities, and individuals.
  • Report blocking and rejection of transactions to OFAC within 10 business days of the occurrence and annually by September 30 of each calendar year (transactions blocked or rejected as of June 30 for that year). OFAC Reporting forms can be located on the U.S. Treasury website.

Types of sanctions

Now let’s briefly review three of the different types of sanctions than can be imposed. As you may already be aware, arms embargoes prohibit the importation/exportation of weaponry. Financial sanctions include prohibitions of financing or financial services to targeted countries or persons/entities; restrictions on the raising of new equity or debt capital by targeted countries; and bans of specific services (brokering, financial services, technical assistance). Third, trade sanctions include export/Import (generally applies to specific products) and prohibitions on investment, payments and capital movements.

Types of sanctions lists

As we discussed in OFAC Sanctions 101, there are many different lists of sanctions administered by OFAC. These sanctions lists can be either “comprehensive” or “selective,” also known as “targeted.”

If a country has been sanctioned as “comprehensive,” all financial transactions, including imports and export of goods, financing of goods, distribution of technology and services, or trade brokering between U.S. citizens and the sanctioned country are prohibited. Transactions will require a specific license or exemption from OFAC before any transaction can take place. Countries labeled as “comprehensive” include:

  • Cuba (exception, within the twelve categories authorized by travel)
  • Iran
  • North Korea (Democratic People’s Republic of Korea)
  • Syria

“Selective” sanctions, which are less broad than “comprehensive,” involve restrictions on particular products or financial flows. “Targeted” sanctions focus on certain groups or individuals in that specific country. These countries include:

Balkans Region Libya
Belarus Nicaragua
Burundi Somalia
Central African Republic South Sudan
Darfur Region of Sudan Ukraine/Russia
Democratic Republic of Congo Venezuela
Iraq Yemen
Lebanon Zimbabwe

Other OFAC sanctions lists

First is the SDN (Specially Designated Nationals List), in which specific individuals or entities are deemed to be involved in a range of criminal activity and U.S. persons are prohibited from dealing with them. View more details about the SDN list.

Second is the “Consolidated Sanctions List,” which consist of multiple sanctions, such as:

  • Foreign Sanctions Evaders (FSE) List. OFAC publishes a list of 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. It also lists foreign persons who have facilitated deceptive transactions for or on behalf of persons subject to U.S. sanctions.
  • Sectoral Sanctions Identifications (SSI) List. OFAC publishes a list to identify persons operating in sectors of the Russian economy identified by the Secretary of the Treasury.
  • Palestinian Legislative Council (NS-PLC) List. The Global Terrorism Sanctions Regulations, Terrorism Sanctions Regulations, Foreign Terrorist Organizations Sanctions Regulations imposes U.S. financial institutions to reject transactions with members of the Palestinian Legislative Council.
  • The List of Foreign Financial Institutions Subject to Part 561 (the Part 561 List). As of March 14, 2019, the List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (the “CAPTA List”) includes one foreign financial institution subject to correspondent or payable-through account sanctions.
  • Non-SDN Iranian Sanctions Act (NS-ISA) List. This sanction imposes persons determined to have made certain investments in Iran’s energy sector or activities relating to Iran’s petroleum sector. Financial institutions are prohibited from making certain loans/credit to these individuals/entities.
  • List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (CAPTA List). Financial Institutions are prohibited from opening or maintaining a correspondent account or a payable-through account for a foreign financial institution listed on this Sanction List as they are in connection with trade with North Korea.

View more details about these specific lists.

Finally, the remaining sanctions programs include the following:

  • Countering America’s Adversaries Through Sanctions Act of 2017
  • Counter Narcotics Trafficking Sanctions
  • Counter Terrorism Sanctions
  • Cyber-related Sanctions
  • Foreign Interference in a United States Election Sanctions
  • Global Magnitsky Sanctions
  • Non-Proliferation Sanctions
  • Rough Diamond Trade Controls
  • Transnational Criminal Organizations

View more details about these active programs.

Keeping your credit union up to date

The lists mentioned above can change at any time. It is important to check the current financial sanctions in OFAC’s online resource center regularly to ensure you have the most updated list(s).

In addition, OFAC published A Framework for OFAC Compliance Commitments on May 2. This document is a guide from the U.S. Department of the Treasury to help organizations develop, implement, and continually update their sanctions compliance program (SCP). The guide outlines five essential components for an effective SCP:

  • Management commitment
  • Risk assessment
  • Internal controls
  • Testing and auditing
  • Training

I hope you’ll review the guide for more details. And stay tuned for “OFAC Sanctions 301,” which will include how to identify and review suspected transactions.