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OFAC Office of Foreign Asset Control. NJ/NY District Export Council Seminar November 14, 2006. What is OFAC and what does it do?. OFAC is a division of the U.S. Treasury which enforces economic and trade sanctions based on U.S. foreign policy and national security goals. Targets are:
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Office of Foreign Asset Control
OFAC is a division of the U.S. Treasury which enforces economic and trade sanctions based on U.S. foreign policy and national security goals. Targets are:
The US has used sanctions in times of emergency prior to the War of 1812 when sanctions were imposed against Great Britain for harassment of American sailors.
During the Civil War, Congress prohibited transactions with the Confederacy and called for the seizure of the goods involved in those transactions. It was during that time that the US Treasury began to administer licenses under the set rules and regulations.
The Office of Foreign Funds Control (“FFC”) was established at the start of WorldWar II after the Germans invaded Norway in 1940. The purpose was to prevent Nazi use of the foreign exchange and securities owned by the occupied countries and their citizens. The FFC played a leading role in economic warfare against the Axis powers by blocking enemy assets and prohibiting foreign trade and financial transactions.
OFAC was formally created in December 1950 following the entry of China into the Korean War when President Truman declared a national emergency and blocked all Chinese and North Korean assets under US jurisdiction.
All US persons must comply with OFAC regulations. This includes:
Economic sanctions are only effective if all US individuals and businesses comply with OFAC regulations.
The bank received civil monetary penalties assessed by the Federal Reserve System and OFAC for lacking adequate risk management and legal review policies and procedures to ensure compliance with US law. Consequently one of their overseas branches developed “special procedures” which allowed certain funds transfers and letter of credit transactions which circumvented compliance. The bank also paid $20MM to NY State Banking Dept. and $20MM to Illinois banking regulators. (12/05)
Prohibited transactions are trade or financial transactions and other dealings by US persons that are not authorized by OFAC or expressly exempted by statute. Each program is based on a different US foreign policy and national security goals. Consequently prohibitions vary between programs. The following countries have specific sanctions:
OFAC publishes a list of Specially Designated Nationals and Blocked Persons “SDN List” which includes over 3,500 names of companies and individuals who are connected with the sanctions targets and located throughout the world. The list also includes individuals, groups and entities, such as terrorists and narcotics traffickers that are not country specific.
US persons are prohibited from dealing with SDNs wherever they are located and all SDN assets are blocked.
OFAC’s website should be check regularly as the list changes frequently. The list is updated as necessary and appropriate. A country by country list is also available on the website. The list may be checked manually or special filter software is also available from vendors. The web address is: www.treas.gov/offices/enforcement/ofac/sdn
Depending on the severity of the violation, OFAC investigations may lead to one or more of the following:
Voluntary disclosure can result in a 50% reduction in a fine. Clerical errors, first offenses and remedial measures can also result in a reduction of the fines or penalties.
Most US banks check the SDN list when opening all new accounts. Additionally if an existing customer is involved in a transaction to a person/entity on the SDN list, the bank must either block or reject the transactions. This includes:
Customers who have received specific licenses may receive an exemption. A copy of the license must be presented at the time of the transactions request.
If a match is found, the bank will complete its due diligence to verify that it is not a false hit including reporting the hit to the bank’s compliance officer. If the match is valid, the bank must take one of two actions:
If the transaction is blocked, the assets are frozen and placed in an interest bearing account. Debits are prohibited, but credits are allowed. Once an account is blocked it cannot be released without special permission from OFAC. A form TD F 90-22.50 “Application for the Release of Blocked Funds” must be filed with OFAC.