The United States Government strives to protect its economic interests, its foreign policy, and its national security through various means. Among those protective means are economic and trade sanctions imposed through Executive Orders and congressional legislation. These sanctions programs are listed in the Federal Register and administered through the Office of Foreign Assets Control (OFAC), an agency of the United States Department of the Treasury.

Some sanctions programs, such as those against Cuba, are quite comprehensive and bar direct and indirect import and export of products to and from the nation. Others are more nuanced and may involve financial transactions with specified individuals, rather than entire regimes.

Obviously importers, exporters, shipping companies, and banks must be aware of all OFAC regulations and sanctions programs. However, all United States citizens and companies that have international dealings are also required to be in compliance with all OFAC regulations. This includes Money Service Businesses (MSB) that are involved in non-bank financial transactions. A pdf copy of OFAC’s report titled “Protecting Our National Security: The Critical Nature of OFAC Compliance for Money Service Businesses” can be found here.

Money Service Businesses include the following:

  • Foreign currency exchange dealers
  • Check cashing businesses
  • Traveler’s checks issuers, sellers, and redeemers
  • Money order issuers, sellers, and redeemers
  • Money transmitters and money transfer services
  • Prepaid access providers and sellers

These entities must ensure that the funds which pass through their hands are not remitted or received in violation of OFAC regulations. Neither the sender nor the recipient of these funds may be a Specially Designated National or other prohibited person. Each MSB is required to perform due diligence in checking the SDN list and blocking or rejecting prohibited transactions as required by law.

OFAC Compliance for Money Service Business

Whenever a person enters a money service business to remit funds or otherwise engage in financial transactions, it is the responsibility of the business to determine whether those involved in the transaction are listed as a Specially Designated National (SDN) on OFAC’s SDN list. Specially Designated Nationals include terrorists, international narcotics traffickers, and proliferators of weapons of mass destruction.

In failing to check the SDN list in compliance with OFAC requirements, an MSB could potentially allow financial dealings which support terrorism or other acts that threaten national security and foreign policy. Additionally, such a failure could result in a wasted opportunity to capture a wanted terrorist or other criminal considered to be a global threat.

It is a common misconception that only large transactions must be checked. There is no minimum transaction for OFAC compliance, and every remitter should be scanned against the SDN list.

Most financial institutions, including banks and non-banking financial institutions, utilize interdiction software as a tool for running remitters through the SDN list. While this software does occasionally provide false positive hits, it can be instrumental for enforcement of and compliance with OFAC sanctions.

Due Diligence

Money Service Businesses are required to perform due diligence in preventing prohibited transactions. The first step in doing so is to run a remitter’s name and information through the SDN database immediately. If the MSB waits until after the remitter has left the office, a potentially prohibited transaction will have already gone through, the MSB will be missing pertinent remitter information to determine whether an SDN hit is a false positive or a valid hit, and an opportunity may be missed for the apprehension of a dangerous foreign national.

If a search of the SDN list turns up a positive match, the employee must determine whether or not the remitter is truly the person identified as a Specially Designated National. Similar or partial names, for example, may turn up a false positive. Getting more information from the remitter can help validate or refute the hit.

The Office of Foreign Assets Control gives financial institutions and Money Service Businesses a specific list of steps to take when a search of the SDN list turns up an apparent match. The steps are addressed here, in the agency’s OFAC compliance brochure for Money Service Businesses. Recommended actions include the following:

  • Determining whether the SDN is a company or vessel rather than a person
  • Comparing the gender of the remitter to the gender of the SDN
  • Comparing the full name of the remitter to the full name of the SDN
  • Comparing other identifying information, such as address, passport information, tax ID number, nationality, birthplace, aliases, and former names, etc.
  • Noticing other important similarities between the remitter’s information and the SDN entry

If the hit appears to be a quality match, it is important that the MSB block the transaction and notify OFAC immediately.

OFAC Legal Assistance

Lack of knowledge about OFAC regulations and minor slips in due diligence are not acceptable defenses to allegations of OFAC violations. Although such factors may mitigate a potential OFAC enforcement response, they have no impact on legal liability. Negligence in OFAC matters can lead to civil penalties while reckless and willful violations can lead to criminal penalties such as imprisonment. It is important to have a thorough understanding of OFAC sanctions programs, regulations, and requirements in order to maintain compliance. Even some prohibited transactions may be approved with the proper general or specific license. To get help maintaining OFAC compliance or for representation in OFAC actions, contact a lawyer who is knowledgeable and experienced in these matters.