Additional Questions from Financial Institutions

40. If my financial institution receives a wire going to an embassy in a sanctioned country, can we process the transaction?

This depends on the program. If you have a payment involving an embassy in a targeted country, please contact OFAC Compliance for directions (1-800-540-6322).

43. Does a financial institution need to scan names against OFAC's list of targets upon account opening or can it wait for 24 hours to receive a report from its software vendor on whether or not there is a hit?

There is no legal or regulatory requirement to use software or to scan. There is a requirement, however, not to violate the law by doing business with a target or failing to block property. OFAC realizes that financial institutions use software that does not always provide an instantaneous response and may require some analysis to determine if a customer is indeed on OFAC's Specially Designated Nationals List (or any of OFAC's other sanctions lists). The important thing is not to conclude transactions before the analysis is completed.

44. Is there a dollar limit on which transactions are subject to OFAC regulations?

There is no minimum or maximum amount subject to the regulations.

45. Does my bank need to check the OFAC list when selling cashier's checks and money orders? In the case of cashier's checks, do I need to check both the purchaser and the payee? As a mortgage lender, do I need to check both the purchaser and the seller's name against the Specially Designated Nationals list? Do I need to check their names against all of OFAC's other sanctions lists?

Every transaction that a U.S. financial institution engages in is subject to OFAC regulations. If a bank knows or has reason to know that a target is party to a transaction, the bank's processing of the transaction would be unlawful.

46. If a loan meets underwriting standards but is a true "hit" on OFAC's Specially Designated Nationals (SDN) list, what do we use as a denial reason on the adverse action notice?

If you have confirmed with OFAC that you have a "good hit" on the SDN list or one of OFAC's other sanctions lists, there is no reason not to explain that to the customer. The customer can contact OFAC directly for further information.

47. Through corporate giving programs, many banks contribute toward charities and other non-profits. To what extent does a bank need to review the recipients of these gifts or the principals of the charities?

Donations to charitable institutions must be handled as any other financial transaction. The donating bank or institution should crosscheck the recipient names against OFAC's sanctions lists and assure that the donations are in compliance with OFAC sanctions programs.

52. Can U.S. financial institutions open correspondent accounts for Iraqi financial institutions, or process funds transfers to and from Iraqi financial institutions?

Yes, U.S. financial institutions are authorized to open correspondent accounts for, and process funds transfer to or on behalf of Iraqi financial institutions.

95. Does a financial institution have the obligation to screen account beneficiaries for compliance with OFAC regulations?

"Property," as defined in OFAC regulations, includes most products that financial institutions offer to their clients. "Property interest," as defined by OFAC, includes any interest whatsoever, direct or indirect, present, future or contingent. Given these definitions and as a matter of sound banking practice, it is prudent for financial institutions to screen account beneficiaries upon account opening, while updating account information, when performing periodic screening and, most definitely, upon disbursing funds. Where there is a property interest of a sanctions target under a blocking program, the property must be blocked. Beneficiaries include, but are not limited to, trustees, children, spouses, non-spouses, entities and powers of attorney.

116. On February 14, 2008, OFAC issued guidance stating that the property and interests in property of an entity are blocked if the entity is owned, directly or indirectly, 50% or more by a person whose property and interests in property are blocked pursuant to an Executive Order or regulations administered by OFAC. We act as an intermediary bank in wire transfers between other banks. Does OFAC expect banks that are acting as financial intermediaries to research non-account parties that do not appear on the SDN List, but are involved with or referenced in transactions that are processed on behalf of correspondents?

A wire transfer in which an entity has an interest is blocked property if the entity is 50% or more owned by a person whose property and interests in property are blocked. This is true even in instances where such a transaction is passing through a U.S. bank that (1) is operating solely as an intermediary, (2) does not have any direct relationship with the entity (e.g., the entity is a non-account party), and (3) does not know or have reason to know the entity’s ownership or other information demonstrating the blocked status of the entity’s property. In instances where all three conditions are met, notwithstanding the blocked status of the wire transfer, OFAC would not expect the bank to research the non-account parties listed in the wire transfer that do not appear on the SDN List and, accordingly, would not pursue an enforcement action against the bank for having processed such a transaction.

If a bank handling a wire transfer currently has information in its possession leading the bank to know or have reason to know that a particular individual or entity involved with or referenced in the wire transfer is subject to blocking, then the bank will be held responsible if it does not take appropriate steps to ensure that the wire transfer is blocked.

OFAC expects banks to conduct due diligence on their own direct customers (including, for example, their ownership structure) to confirm that those customers are not persons whose property and interests in property are blocked.

With regard to other types of transactions where a bank is acting solely as an intermediary and fails to block transactions involving a sanctions target, OFAC will consider the totality of the circumstances surrounding the bank’s processing of the transaction, including the factors listed above, to determine what, if any, enforcement action to take against the bank.

335. Firms operating in the securities industry as custodians and securities intermediaries often face the question of how to accurately identify the beneficial owner of assets within an account or transaction. What can these firms do to protect themselves from the risk of directly or indirectly providing services to—or dealing in property in which there is an ownership or other interest of—parties subject to sanctions?

OFAC encourages firms operating in the securities industry, including securities intermediaries and custodians, to implement measures that mitigate the risk of providing services to, or dealing in property in which there is an ownership or other interest of, parties subject to U.S. sanctions. Such measures should be tailored to and commensurate with the sanctions risk posed by a firm’s business activities. Best practices include:

  • Making customers aware of the firm’s U.S. sanctions compliance obligations and having customers agree in writing not to use their account(s) with the firm in a manner that could cause a violation of OFAC sanctions. Sanctions may be implicated when the United States is the jurisdiction of issuance or custody of an underlying security or when a U.S. person acts as a custodian or other service provider.

  • Conducting due diligence, including through the use of questionnaires and certifications, to identify customers who do business in or with countries or persons subject to U.S. sanctions. Such customers may warrant enhanced due diligence because of an increased risk that they will use their accounts to hold assets or conduct transactions for third parties subject to sanctions.

  • Imposing restrictions and heightened due diligence requirements on the use of certain products or services by customers who are judged to present a high risk from an OFAC sanctions perspective. Restrictions might include limitations on the use of omnibus accounts, where a lack of transparency can be exploited in order to circumvent OFAC regulations.

  • Making efforts to understand the nature and purpose of non-proprietary accounts, including requiring information regarding third parties whose assets may be held in the accounts. Red flags may arise relating to geographic areas or the nesting of third-party assets.

  • Monitoring accounts to detect unusual or suspicious activity – for example, unexplained significant changes in the value, volume, and types of assets within an account. These types of changes may indicate that a customer is facilitating new business for third parties that has not been vetted for possible sanctions implications.