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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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NJ/NY District Export Council Seminar November 14, 2006

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  1. OFAC Office of Foreign Asset Control NJ/NY District Export Council SeminarNovember 14, 2006

  2. 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: • Foreign countries that are sanctioned • Terrorists • International narcotics traffickers • Those engaged in the proliferation of weapons of mass destruction

  3. How long has it been around? 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.

  4. Who is required to comply? All US persons must comply with OFAC regulations. This includes: • All persons and entities located in the US. • US citizens and permanent resident aliens located outside the US. • All US incorporated entities and their foreign branches. • Under certain programs, all foreign subsidiaries owned or controlled by US companies. • Under certain programs, foreign persons in possession of US origin goods. Economic sanctions are only effective if all US individuals and businesses comply with OFAC regulations.

  5. Consequences of non-compliance • $2,750 Jarden Zinc Products, Inc., Greenville TN for violations of the Sudanese program. (6/06) • $6,226 Excel Global Logistics, Inc., Hayward, CA for allegations of violations of Iranian Transaction Regulations for coordination of shipments to Iran. Voluntary disclosure. (9/06) • $9,000 Augsburg College, Minneapolis, MN for violations of Cuban embargo by arranging travel to and from Cuba for other organizations. (5/06) • $43,947 Koch Foods, LLC, Chattanooga, TN for allegations of violations against Iraqi sanctions occurring in 4/02 shipped under contract with a company located in a third country for 20 containers of frozen poultry to Iraq. (10/06)

  6. Consequences of non-compliance • $136,500 Coca Cola Company, Atlanta, GA for violations of the Sudanese sanctions by exporting to its bottler in Sudan services not authorized under their OFAC license. (2/06) • $171,305 Dresser-Rand Group, Inc., Olean, NY for allegations of violations of Cuban Embargo program by exporting goods and services to Cuba. (9/06) • $40,000,000 ABN AMRO Bank NV, Amsterdam, NetherlandABN AMRO Bank NV, New York and Chicago Branches 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)

  7. What is a Prohibited Transaction? 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:

  8. Which Countries have Sanctions? • Balkans • Belarus • Burma • Côte d’Ivoire (Ivory Coast) • Cuba • Democratic Republic of Congo

  9. Which Countries have Sanctions? • Iran • Iraq • North Korea • Sudan • Syria • Zimbabwe

  10. Sanction Programs • Anti-Terrorism Sanctions • Counter Narcotics trafficking Sanctions (Kingpin Act) • Non-proliferation Sanctions • Diamond Trading Sanctions (controls the importation or exportation of rough diamonds required under the Kimberley Process Certification Scheme “KPCS”)

  11. What is SDN? 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

  12. What if you have a match to the SDN List? • OFAC maintains an assistance hotline: 1-800-540-6322 • Staff is available to answer specific questions if there is a “hit”. • If you have checked the name manually, you should do a little more research. Is it an exact match or close? Is your customer in the same general area as the SDN? If not, it could be a false hit. If you are uncertain, contact OFAC.

  13. How does OFAC investigate and enforce violations? Depending on the severity of the violation, OFAC investigations may lead to one or more of the following: • Cautionary letter • Warning letter • Requirement to furnish information • Order to cease and desist • Civil penalty proceeding • Suspension of OFAC license • Criminal prosecution 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.

  14. What if your bank decides you have an OFAC violation? 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: • Wire transfers • Deposit Accounts • Credit Card Accounts • Loans of any Type • Letters of Credit 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.

  15. What if your bank decides you have an OFAC violation? 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: • Block or freeze a transaction that is in process, or • Reject the transaction altogether and refuse to do business with the party. 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.

  16. Valerie M.Oakes-Locascio, VP TD Banknorth NA International Banking Group 2055 Hamburg Turnpike Wayne, NJ 07452 973-283-4000 x 303 valerie.oakes-locascio@tdbanknorth.com