What is an OFAC Check?
An OFAC check is a screening process used to identify individuals, organizations, and entities that are subject to sanctions imposed by the United States Office of Foreign Assets Control (OFAC). OFAC is a division of the U.S. Department of the Treasury responsible for enforcing economic and trade sanctions against countries, individuals, and entities involved in activities such as terrorism, narcotics trafficking, proliferation of weapons of mass destruction, and human rights abuses.
OFAC Lists
OFAC maintains several lists, including the Specially Designated Nationals (SDN) List, which includes individuals and entities with whom U.S. persons are generally prohibited from conducting business. Other lists include the Foreign Sanctions Evaders List, the Non-SDN Iran Sanctions Act List, the Sectoral Sanctions Identifications List, the List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions, and the Non-SDN Palestinian Legislative Council List.
Sanctions Programs
OFAC administers various sanctions programs targeting countries, individuals, and entities involved in specific activities. These programs include sanctions against Iran, North Korea, Cuba, Syria, and Russia, among others. The sanctions imposed under these programs may include restrictions on financial transactions, trade, travel, and other activities.
Compliance Obligations
Financial institutions, businesses, and individuals subject to U.S. jurisdiction are required to conduct OFAC checks to ensure they are not engaging in prohibited transactions. This obligation extends to all transactions, regardless of the amount or purpose.
Screening Process
An OFAC check involves comparing the names of individuals, organizations, and entities against the names on the OFAC lists. This can be done manually or using automated screening software. When a potential match is identified, the screening system will typically assign a risk score based on the level of similarity between the names.
Consequences of Non-Compliance
Failing to perform an OFAC check or conducting prohibited transactions can result in severe penalties, including fines, loss of licenses, and reputational damage. In addition, individuals and entities that knowingly or willfully violate OFAC sanctions may be subject to criminal prosecution.
Sources
FAQs
What is an OFAC check?
An OFAC check is a screening process used to identify individuals, organizations, and entities that are subject to sanctions imposed by the United States Office of Foreign Assets Control (OFAC).
Why are OFAC checks important?
OFAC checks are important because they help ensure that businesses and individuals are not engaging in prohibited transactions with sanctioned parties. Failing to conduct OFAC checks can result in severe penalties, including fines, loss of licenses, and reputational damage.
Who is required to conduct OFAC checks?
Financial institutions, businesses, and individuals subject to U.S. jurisdiction are required to conduct OFAC checks.
How are OFAC checks conducted?
OFAC checks can be conducted manually or using automated screening software. The screening process involves comparing the names of individuals, organizations, and entities against the names on the OFAC lists.
What are the consequences of failing to conduct an OFAC check?
Failing to conduct an OFAC check can result in severe penalties, including fines, loss of licenses, and reputational damage. In addition, individuals and entities that knowingly or willfully violate OFAC sanctions may be subject to criminal prosecution.
What are some tips for conducting OFAC checks?
Here are some tips for conducting OFAC checks:
-
- Use a reliable OFAC screening tool.
-
- Screen all parties to a transaction, regardless of the amount or purpose of the transaction.
-
- Be aware of the different OFAC lists and the sanctions programs that they target.
-
- Train your staff on OFAC compliance requirements.
What are some common mistakes to avoid when conducting OFAC checks?
Here are some common mistakes to avoid when conducting OFAC checks:
-
- Relying solely on manual screening methods.
-
- Failing to screen all parties to a transaction.
-
- Ignoring potential matches or assigning them a low risk score.
-
- Failing to keep records of OFAC checks.
Where can I get more information about OFAC checks?
You can get more information about OFAC checks from the following resources:
-
- OFAC website