The Office of Foreign Assets Control (OFAC) is the agency that administers economic sanctions programs created through Executive Orders or Acts of Congress to impose sanctions against entities deemed to be threats to the national security and foreign policy of the United States.
Economic sanctions are enforced against hostile countries, terrorists and terrorist organizations, international narcotics traffickers and kingpins, those involved in the proliferation of weapons of mass destruction, and other threats are designed to restrict the profits, cash flow, assets, and resources of targeted nations and Specially Designated Nationals (SDNs). By targeting these threats through economic sanctions, the United States, the United Nations, and other multinational efforts reduce the ability of these entities to undermine international peace and security.
In order to effectively enforce these economic sanctions, OFAC relies on the active participation and compliance of the nation’s financial institutions. OFAC develops and administers sanctions, and all bank regulatory agencies work together to ensure that financial institutions and those in the financial sector are in compliance with all OFAC regulations. As part of this process, financial institutions must frequently consult with OFAC sanctions attorneys.
OFAC Laws and Penalties for Violation
Financial organizations are expected to keep accurate records and to report blocked property and rejected transactions in accordance with the OFAC Reporting and Procedures Regulations 31 C.F.R. Part 501 (see pdf copy here). Additionally, they are forbidden from engaging in prohibited transactions as specified in the Federal Register by OFAC sanctions programs promulgated from Executive Orders and other sources of federal law.
Economic sanctions administered by OFAC are primarily promulgated pursuant to the following legal authorities:
- Trading With the Enemy Act (TWEA) – Cuban Assets Control Regulations; civil penalties of up to $65,000; criminal penalties for individuals range from up to 10 years in prison and $250,000 in fines and fines of up to $1,000,000 for each violation caused by a corporation.
- International Emergency Economic Powers Act (IEEPA) – Sanctions involving diamond trading, Sudan, Iran, Zimbabwe, the Balkans, terrorism, narcotics trafficking, proliferation of weapons of mass destruction (WMD), Syria, North Korea, Burma, transnational criminal organizations, and others; civil penalty of up to $250,000 per violation or twice the amount of the underlying transaction; criminal penalties of up to $1,000,000 in fines, and up to 20 years in prison.
- Foreign Narcotics Kingpin Designation Act – Sanctions involving international drug traffickers and kingpins; civil penalty of $1,075,000; criminal penalties of $10 million per count against corporations and $5 million per count and up to 30 years in prison for individuals.
Additionally, financial institutions and individuals in the financial sector must keep accurate records and make truthful reports regarding prohibited transactions, blocked property, and other dealings which concern OFAC sanctions. Falsifying or concealing materials or information in OFAC matters is a criminal offense punishable by 5 years in prison and a $10,000 fine.
Find a list of bank responsibility by country here.
Bank Compliance with OFAC Regulations
Each financial institution is required to establish OFAC compliance programs and auditing policies that will support the goals of OFAC sanctions programs. Banks are required to block transactions involving prohibited countries and Specially Designated Nationals identified on the agency’s SDN list. If a transaction is prohibited by sanctions law, but does not involve a SDN, the financial institution must reject the transaction. In either case, the financial institution must report the blocked property or rejected transaction within 10 business days. It must further provide a comprehensive annual report of all blocked property as of June 30 of each year by September 30 of that same year.
In order to ensure OFAC compliance, banks and financial institutions are encouraged to designate a “Compliance Officer” dedicated to OFAC matters. To facilitate checking transactions for legality in light of continually evolving sanctions programs and a constantly updated SDN list, most financial institutions use interdiction software to scan and flag names involved in transactions. Once a name is flagged, the financial institution is responsible for ascertaining the validity of the hit, blocking property involved in prohibited transactions, and reporting the blocked property to the Office of Foreign Assets Control.
For bank compliance questions, those in the financial sector may call a designated OFAC hotline at 1-800-540-OFAC (6322). It may also be beneficial to retain legal counsel knowledgable in OFAC matters to help maintain compliance and to address any issues which may arise in the course of business.