OFAC (Office of Foreign Assets Control)

Increasing financial and corporate crimes demand nations to take proactive measures to prevent these threats. The US Department of Treasury has developed an economic and commercial sanctions program to address the challenges and threats to national security. OFAC (Office of Foreign Assets Control) has issued sanction lists against targeted people and entities to monitor international transactions while protecting the state’s security.

What is OFAC?

The OFAC, also referred to as the Office of Foreign Assets Control, is an official agency under the Department of Treasury. Primarily, it is a financial sanction organization that enforces financial sanctions as per the US Foreign Policy. The organization primarily targets every individual and entity involved in organized crimes such as drug trafficking, money laundering, and even the proliferation of weapons for mass devastation.

Origin of OFAC Screening

OFAC primarily originated during the Second World War. In fact, the agency was the descendant of the FFC (Office of Foreign Funds Control), which was developed in the 1940s due to the German invasion of Norway. When the United States of America formally entered into the war, the FFC had a leading role in financial warfare while focusing on blocking enemy assets and forbidding international financial transactions and trades. 

Nevertheless, the FFC officially became OFAC in December 1950, when China entered into the Korean War. In order to restrict Chinese and North Korean resources under US sovereignty, President Truman proclaimed a state emergency. The OFAC’s current duties include maintaining foreign policy objectives, enforcing national security, and safeguarding the US economic system.

An Overview of OFAC Compliance Regulations

The OFAC primarily summarizes which nations, businesses, and individuals are restricted from trading. These restrictions, known as prohibited transactions, are enforced unless specific authorization is granted by the OFAC. There are two major classifications of sanctions: main and supplementary. Economic limitations pertaining to U.S. citizens, permanent citizens, individuals within the country, U.S.-registered businesses (including international branches), and activities carried out through the U.S. financial sector or in United States dollars are the main types of sanctions. Typical common sanctions are:

• Prohibitions on the import and export of technologies, products, and services
• Limits on investment
• Assets of specific nations, groups, and people are frozen
• Travel prohibitions for specific people 

Secondary sanctions aim to deter third parties from engaging in trade with countries under sanctions from another nation. These sanctions serve to reinforce primary sanctions and safeguard the issuing country’s national security. In the U.S., OFAC’s secondary sanctions bolster primary sanctions programs targeting nations like North Korea and Iran.

In certain circumstances, the OFAC may permit individuals or businesses to conduct a transaction that would otherwise be prohibited by issuing a license. This involves a thorough application process specific to the relevant sanctions program. Applicants must adhere to detailed guidelines and requirements, though federal laws can ultimately override these provisions.

Also Read: Why Sanctions Screening Matters for Businesses in 2024?

Sanction Lists Maintained by OFAC

The following are the sanction lists OFAC maintains:

SDN List

• The SDN List, which stands for “Specially Designated Nationals and Blocked Persons,” contains names and contact information for individuals and organizations that have been granted this designation. Afghanistan, the Central African Republic, Iran, and Russia are some examples of country-specific SDN initiatives. Other examples include activity-specific measures like Counter Narcotics Trafficking (CNT) and Cyber-Related Organizations.
• The assets of these individuals must be frozen whenever they are in the United States, owned by American citizens, or if they are possessed or controlled by American individuals.

Non-SDN List

• In addition to SDN Lists, OFAC has what is called the “Consolidated Sanctions List.” The Sectoral Sanctions Identifications list and the Non-SDN Chinese Military-Industrial Complex Companies list are all part of the Non-SDN system.
• On these lists, you may find names of people or organizations that have non-blocking measures put on them, such as limits on investments or corresponding or payable-through accounts, or prohibitions on particular kinds of trades.

Using a security and compliance screening system to investigate and confirm prospective partners is crucial for every organization to fulfill its legal responsibilities in its sanctions programs. 

Who Must Comply with OFAC Regulations?

OFAC rules are mandatory for all individuals and businesses in the United States. It comprises:

• American banks
• Financial holding companies
• Subsidiaries other than banks

Federal financial regulators conduct ongoing assessments of OFAC compliance processes to guarantee that all banks operating under their jurisdiction adhere to the sanctions. In contrast to the Bank Secrecy Act (BSA), the OFAC’s laws and guidelines extend beyond domestic agencies and U.S. individuals. Additionally, they cover worldwide affiliates and branches. When developing an OFAC compliance procedure, the association recommends that banks proceed with caution and consider potential threats.