OFAC protects the United States from the dangers foreign countries may bring. To fight for national security, the agency uses multiple sanction policies and a Specially Designated Nationals List, that is extremely important for AML compliance businesses struggle to keep up with.
So, what exactly is an OFAC and its mission?
Office of Foreign Assets Control (OFAC) is controlled by the US Department of Treasury. The office is responsible for several things: financial intelligence, planning and applying economic and trade sanctions to support the US national security and foreign policy objectives.
Determined by the White House, OFAC operates against foreign states and few other organizations and individuals, in particular, terrorist groups, which are officially recognized by Washington as threats to the US national security. It also has 3 essential responsibilities and controls.
1. Impose fine penalties
The agency imposes significant fines on those that do not comply with their requirements (for instance, the fine may be rather vast — the French bank BNP Paribas paid a record of $ 963 million to settle an $ 8.9 billion lawsuit because of connection with Iran and Sudan);
2. Freeze assets
OFAC is eligible to freeze assets under US jurisdiction in case of non compliance or law breaches;
3. Ban businesses from the US market
The agency is in charge of prohibiting business activities in the US: trade, financial transactions and other dealings in which U.S. persons can not be engaged unless authorized by the Office of Foreign Assets Control.
These responsibilities are realised by the means of OFAC sanction policies and blocklists.
OFAC sanction list or Specially Designated Nationals (SDN) list consists of individuals and companies that can be separated into two categories.
1. Individuals and companies owned or controlled by the sanctioned countries (e.g. North Korea, Iran, etc), or
2. Non country-specific individuals, groups, and entities that pose a threat to the country economy (such as terrorists and narcotics traffickers).
All of the individuals and entities featured in the list fall under the OFAC sanction policies—their assets can be blocked from being used in the country or the US citizens can be generally prohibited from dealing with them.
Of course, not all sanctions play by the same rule, the Specially Designated Nationals undergo different kinds of the OFAC sanction programs, depending on the nature of the issue they are involved with.
The 32 sanction programs differ depending on the foreign policy and national security goals to the person or country in question with main controls being the blocking of assets, trade restrictions or penalty fines.
The landscape is constantly changing with countries, companies and citizens getting in and out of the blocklist due to OFAC decisions. If a company is under the US jurisdiction, it is especially important for them to be aware of the SDN, as it is mandatory to be compliant with the OFAC regulation according to the AML legislation of the US.
It is also important to understand which countries are completely closed for businesses and which are open with the exception of the specific people affected. This way you will avoid losing potential customers. For example, when the US completely bans the Iranian companies/citizens, Russia and Belarus sanctions are targeted at merely on the specific people. That is why, it is crucial for a company to check and monitor its clients to single out SDNs.
The best way for the US companies to stay compliant with the law and avoid regulatory fines is to have a special customer acceptance policy to check if OFAC sanctions were applied for their counterparty or not. In general, sanctions monitoring is a good practise that benefits any company by additionally minimizing the risks.