What Price OFAC?

OFAC compliance is important. Penalties for failure to block funds of organizations identified as connected to or supporting terrorism are the greater of $50,000 or two times the amount of the funds that should have been blocked. This is potentially far more serious a penalty than one imposed by IRS for TIN problems. It can even be more severe than the damages in fair lending consent agreements.

Deposits subject to OFAC blocks can occur in any part of the country-not just big cities. Criminals tend to be creative in finding new ways to get around the law because if they don't, they are out of business. One technique that OFAC has identified is the continued use of student accounts, legitimately opened when an exchange student came to the United States. These accounts may be retained by the student or by a family member in the student's name for subsequent use to move funds. Thus, an account that is legitimate when opened may become suspect.

Even banks in small towns without colleges and universities can be targeted for use by criminals. Small banks in small towns have identified suspicious customers who try to use the bank for apparently criminal purposes. Perhaps these would-be account-holders approach small banks hoping that a small bank will be unaware of the names on OFAC's list or less alert to suspicious activity.

Banks must freeze funds in accounts held by individuals or organizations that are on OFAC's list. Ignorance of the list is not a defense for the bank. However, OFAC is trying to make it as convenient as possible to learn quickly about the names on the list. OFAC maintains an internet site to make the list available. The list on the internet is updated daily so that banks can always have current information. OFAC compliance is not all you have to think about. Transactions subject to OFAC rules may also be subject to related regulations, such as Bank Secrecy and Suspicious Activity Reporting. Bank staff should be alert to all of these rules and the possibility that several or all of them may apply to a single transaction. For example, a cash deposit of $11,000 would trigger the requirement to file a CTR, even though the account was blocked.

Similarly, the new Suspicious Activity Report rules operate independently of the Bank Secrecy filing requirements and of OFAC rules. Thus, if the transaction were conducted in a way that caused the Bank to consider filing an SAR, such as structuring the deposits to avoid the $10,000 limit, the decision to file an SAR would not be affected by the fact that the account should be blocked.

Recently, OFAC has become concerned about the possible use of "payable through" accounts to evade the OFAC block. Pending rules on know-your-customer and treatment of payable through accounts may be influenced by OFAC's concerns. At a minimum, the bank's compliance program should include procedures to consider this possible use of payable through accounts.

Questions? Not sure about a name on an account? Banks may call OFAC at (800) 540-OFAC. Use this number within your institution, but do not share it with non-banks. This number is a special service of OFAC for banks only!

ACTION STEPS

If you aren't the person monitoring the OFAC list of blocked accounts and depositors, make sure that someone is.
Check the procedure for identifying customers whose transactions should be blocked. Make sure it really works.
Do a mini OFAC compliance audit. Review the list of account holders and compare it to the OFAC list.
Look for any account holders that should have been blocked but were missed.
If your bank has any payable through accounts, review how those were set up. Make sure that relevant know your customer procedures were followed. Review the accounts for possible use for transactions that are designed to evade the OFAC rules.
Make sure the appropriate staff in the bank know about the OFAC rules and the bank's compliance procedures. Hold a meeting to discuss the existing or proposed process. Be sure to include operations, administration, and branch managers.
Review CTR and SAR training materials to be sure that they clearly present the way in which CTR filings, SAR filings, and account blocking under OFAC work side by side.