The Office of Foreign Assets Control (OFAC) is a department of the U.S. Treasury that is responsible for enforcing economic and trade sanctions against foreign entities, individuals and countries.
OFAC maintains an evolving sanctions list, which includes thousands of entities involved in terrorism, narcotics trafficking and human rights abuses.
U.S. citizens, both local and abroad, plus any organizations working with the U.S. are required to screen customers to ensure they are not involved in any illicit activities.
What is a Sanctions List?
Sanctions lists are tools used by governments to promote global security and stability by restricting activities of certain individuals, entities or groups deemed as high risk.
In addition to OFAC, some of the most well-known sanctions lists include:
- United Nations Security Council (UNSC) Sanctions List - Financial and travel sanctions imposed by the UNSC
- European Union (EU) Sanctions List - Economic and financial sanctions imposed by the EU
- Her Majesty’s Treasury (HMT) Sanctions Lists - Economic and financial sanctions imposed by the UK government
- Department of Foreign Affairs and Trade (DFAT) Sanctions List - Economic and financial sanctions imposed by the Australian government.
- U.S. Department of Commerce Entity List - Specific export restrictions on foreign entities due to national security concerns
Depending on who you do business with, it’s important to understand which sanctions lists impact your organization. Screening for sanctions helps avoid reputational damage, financial penalties, or being banned from doing business in certain countries.
Why does the OFAC list matter?
Risk doesn’t stand still, and neither do sanctions lists. They are continually changing to match the current risk landscape.
Here are a few examples of developments that can show how the OFAC sanctions list impacts businesses:
- U.S. Sanctions Iran's IRGC and Russia's FSB Intelligence Units
April 27th, 2023
The U.S. imposed new sanctions on the intelligence unit of Iran's Islamic Revolutionary Guards Corps (IRGC) and Russia's Federal Security Service (FSB) for allegedly taking part in the detention of Americans in Iran and Russia.
- U.S. Sanctions Crypto Mixer Tornado Cash
August 8th, 2022
The U.S. sanctioned the virtual currency tumbler, Tornado Cash, which it alleged had been used to launder more than $7 billion worth of virtual currency, marking the first time that software has been targeted for sanctions
- Airbnb Settles with U.S. for Violations of Cuban Sanctions
January 3rd, 2022
According to the U.S, Airbnb allegedly processed payments associated with guests traveling to Cuba for “reasons outside of categories authorized by the U.S. government and failed to keep certain required records for Cuba-related transactions.”
- Ukraine- and Russia-Related major event
April 6th, 2022
The U.S., along with the G7 and the EU, imposed significant sanctions on the Putin regime related to its actions in Ukraine. The sanctions include full blocking sanctions on Russia’s largest financial institution, Sberbank, and Russia’s largest private bank, Alfa Bank.
For the latest sanctions list updates, be sure to bookmark the Recent Actions page on the OFAC website.
Why Check OFAC's Sanctions List
It’s incredibly important for businesses to check the OFAC sanctions list to ensure compliance with U.S. sanctions regulations and to avoid potential legal and financial penalties. Businesses that violate OFAC sanctions laws can face severe penalties, including criminal charges.
Additionally, engaging with individuals or entities listed by OFAC can damage your company’s reputation, which can lead to loss of trust from customers, partners and investors.
Another good reason to review sanctioned individuals is because those individuals have already been flagged as a risk to your business as well as a potential threat to national security.
Avoiding OFAC’s sanctioned individuals and entities list is just good business.
How Often to Check OFAC Sanctions
Every organization has their own risk thresholds and there is no one-size-fits-all answer in terms of how often to review a sanctions list. Organizations may opt for one of two high-level strategies: ongoing monitoring or periodic reviews.
Ongoing monitoring typically involves using an automated screening solution to ensure you have the latest sanctions list at any given moment. Based on risk appetite, your organization can monitor sanctions lists in real time, or on a periodic basis such as daily or weekly.
It’s critical to check the OFAC sanctions list when starting new business relationships, especially in high-risk industries or countries.
Manual vs. Automated OFAC Screening
So how do you make sure you don’t end up transacting with an individual on OFAC’s sanctions list? Here are 4 steps involved in OFAC manual and automated sanctions screening and monitoring.
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Obtain the Latest List and Understand the Requirements
MANUAL: Go to the official website to access the sanctions list applicable to your business or industry. OFAC has different sanctions programs, including the SDN List, SSI List and FSE List among others.
AUTOMATED: If you don’t already have one, choose a screening and monitoring solution that can scan OFAC lists in real time.
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Check the latest OFAC list
MANUAL: Take your list of entity names and search on the OFAC website.
AUTOMATED: Upload your list to the screening solution to instantly surface risk on any entity.
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Conduct Ongoing Monitoring and Escalations
MANUAL: Decide on an ongoing review cadence, whether it’s every 3 months or year. During the review, check the entities in OFAC Search and escalate as needed.
AUTOMATED: Your entity list is pulled automatically and reviewed against the current sanctions list in seconds. The team is alerted of any risks and can trigger appropriate next steps.
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Keep Records for 5 years from the date of the last transaction or activity related to the screening.
MANUAL: Typically this involves tracking search criteria, search results, resolving matches, supporting documentation (such as screenshots of search results), data and timestamp and retention period for record-keeping.
AUTOMATED: Your screening solution will keep a record of your activities and you can pull customer reports as required.
For OFAC alone, there are multiple lists you may need to screen, each with their own portal to conduct searches. Not to mention there may be additional lists, outside of OFAC, your organization may be required to screen. This is why manual processes are extremely difficult to scale. For high-risk and highly-regulated industries, automating your processes with a monitoring solution will save many hours of work.
Always consult legal counsel or compliance professionals to ensure proper compliance for your business. That being said, once you know which sanctions lists are important to your organization, the process of staying compliant will generally be the same.
OFAC and AML Compliance
OFAC and AML are both regulatory frameworks that are used to combat financial crime, with some overlap. While OFAC is part of the U.S. Department of the Treasury and enforces economic and trade sanction programs to prevent money laundering, AML is a much broader framework that includes measures to prevent, detect and report money laundering and other financial crimes.
OFAC compliance is part of an effective AML program since OFAC sanctions violations may also be a form of money laundering and predicate offense under AML laws.
Final Thoughts
Given their history and diverse applications, sanctions will remain an important tool in international relations and foreign policy in the foreseeable future. Their relevance in applying pressure during geopolitical conflicts, driving awareness around human rights concerns, and providing economic leverage to influence policies and behaviors is invaluable.
Sanctions-related risks are constantly evolving, and technology plays a vital role in ensuring efficient and effective risk management. Screening technology allows for scalability and adaptability in the sanctions screening process. Integrated technology can facilitate additional risk mitigation measures that can result in a more comprehensive compliance program that addresses multiple regulatory requirements.
Automated Sanctions Screening saves time, money and resources. If you would like to understand how a risk analysis platform can help your organization become more efficient, book a time to chat with us.
