More Tips and Information about OFAC Compliance

by Mary Beth Guard

COMMERCIAL SOFTWARE
Why people might want to utilize commercial OFAC interdiction software:

• don't want task of maintaining database;
• less labor-intensive;
• more effective;
• other benefits, such as a fraud list or deny list;
• augmentation of database will be handled by the third party

Pricing Varies Greatly
Compare features, compare the method of delivery, compare ease of use, employee time, additional benefits (such as fraud lists, deny lists, or CRM uses), plus pricing.

Pricing is done several different ways, depending upon the company. Examples include:

• Transaction based pricing, with annual license
• Straight annual pricing, including updates
• Annual price, but updates are extra

Look at the platform the product is intended to be run on. It may be PC-based or mainframe. What best suits your needs? Also, some companies offer Web-based capabilities. Others will do the screening for you.

Look at how you might already be covered. For example, do you process all of your wire transactions through a correspondent bank that has interdiction software? Can they /will they check the list for you before the transaction is initiated?

Do you use a service like ChexSystems, in connection with your new accounts? Is OFAC screening part of that service?

In determining what the costs are of a manual approach vs. the use of interdiction software, don't forget to take into consideration both hard costs (such as fees), as well as soft costs, such as personnel time.

Using the Downloadable List from the OFAC Page

What are your options when you use the downloadable list available on the official OFAC site?

OFAC makes available ASCII text files that list SDNs and blocked persons in 2 formats for incorporation into database tables:
Delimited and fixed-field

Plus

• DOS
• Wordprocessing and
• PDF formats

One of the lists organizes the SDNs by country of residence or incorporation. There are, however, SDNs with no fixed residence or country of incorporation. These entities are listed at the end of the Country List under the heading of "Multiple or Unknown Locations". It is advisable to check both the Country list and the Multiple or Unknown Locations list when searching for an SDN.

Other lists organize them by SDN name.

There are both delimited and fixed-field releases. Each consists of three ASCII text files

• a main file listing the name of the SDN and other information unique to that entity;
• a file of addresses; and
• a file of alternate names

Addresses and alternate names are linked to particular SDNs using unique integer values in a linking column.

Or, instead of utilizing a database, you could dump the file into a word processing program and use the "Find" command to compare names of customers associated with new transactions with the list.

Special notes: No U.S. person may deal with any Libyan or Iraqui government official whether his name appears on the list or not. A few of Libya's and Iraq's highest-level government officials have been listed as SDNs of Libya and Iraq, but they warn that this is not an exhaustive list and that the absence of the name of a Libyan or Iraqui government official from the list doesn't relieve you from the responsibility to refrain from dealing with that individual. How will you guard against a violation here? The software companies typically augment the list with additional entries culled from research into the pertinent foreign countries. Can you do the same?

HIGH RISK AREAS:

• New accounts
• Wire transfers
• Customer files

Look at whether the transaction is:

• By
• On behalf of
• To or
• Through
• A blocked entity
• Or is one in which the blocked entity has an interest.

Take precautions when dealing with checks drawn on an account or business you have never heard of, particularly if drawn on a foreign institution.

Watch for incoming and outgoing transactions from foreign countries.

Focus on your compliance infrastructure:

• Have you assessed your risk areas appropriately?
• Have you designated a compliance officer and implemented a plan?
• Do you have a workable procedure for staying current on the list?
• Are you current on checking your existing customer base against the list?
• Do you have an effective procedure for checking names on new transactions?
• Do you have an effective procedure for running new names OFAC adds to the list against your existing customer base each time new names and aka's are added?
• Have you implemented appropriate training?
• Do you monitor and test for compliance as part of your internal audit procedures?

JOINT BANK ACCOUNTS
If a joint bank account becomes blocked, and a nonblocked person claims beneficial ownership, that person can apply for a specific license to unblock a portion of or all of the blocked joint account.

• If the account is a joint account without survivorship provisions, specific licenses are issued unblocking only that amount with respect to which the applicant is able to prove beneficial ownership by documentary evidence independent of his assertions of interest.
• If the account is a joint account WITH survivorship provisions, specific licenses are issued unblocking an amount equivalent to the applicant's proportional ownership share. (I.e., if there are two owners, the unblocked applicant could apply to unblock ?. If there are three, he could apply to unblock 1/3, etc.)

ABANDONED PROPERTY
What happens when property that is blocked reaches the dormancy period set forth in state unclaimed property statutes? The state agency that accepts unclaimed property can apply for a license to allow the blocked property to be transferred to it. This can only be done, however, if the state's laws are custodial in nature - where there is no permanent transfer of beneficial interest to the state.

BLOCKED VESSELS
Blocked vessels receive special treatment with regard to the Master list of Specially Designated nationals and Blocked persons. Banks are now instructed to reject any funds transfer referencing a blocked vessel and must notify OFAC, via facsimile with a copy of the payment instructions, that funds have been returned to remitter due to the possible involvement of an SDN vessel in the underlying transaction. Banks must contact OFAC's compliance Program Division for further instructions should the name of an SDN vessel appear in shipping documents presented under a letter of credit or if noticed in a documentary collection.

LICENSING
Current information on licenses issued may be obtained by calling OFAC Licensing at 202/622/2480

FEES AND CHARGES
Under 31 CFR 500.509, a bank is authorized to debit a blocked account in payment or reimbursement for normal service charges owed to the bank by the owner of the blocked account. The term "normal service charge" includes payment or reimbursement for interest due; telephone charges; postage costs; custody fees; small adjustment charges to correct bookkeeping errors; minimum balance charges, charges for photostats, etc.

PERMISSIBLE PAYMENTS
A bank may make payments, transfers and withdrawals from accounts in the name of citizens of the U.S. while those citizens are within any foreign country in the course of their employment by the U.S. government.

Banks are also authorized to make all payments, transfers and withdrawals from accounts in the name of members of the armed forces of the U.S. and of citizens of the U.S. accompanying such armed forces in the course of their employment by any organization acting on behalf of the U.S. government while such persons are within any foreign country.

Remittances for Necessary Living expenses
Certain remittances may be made by any person to an individual who is a resident of a foreign country, if four conditions are met:

1. The remittances are made only for necessary living expenses of the payee and his household and do not exceed $100 in any one calendar month to any one household (This was adopted in 1963, when that probably still bought something!);
2. The remittances are not made from a blocked account, other than from an account at a bank in the U.S. in the name of, or in which the beneficial interest is held by, the payee or members of his household;
3. If the payee is within any designated foreign country, such remittances must be made through a domestic bank and any domestic bank is authorized to effect such remittances which, however, may be effected only by the payment of the dollar amount of the remittance to a domestic bank for credit to a blocked account in the name of a banking institution within such country;
4. This does NOT authorize a remittance to or for an SDN who is not within a designated foreign country.

TRUSTS
Special section of the regulations, 31 CFR 500.524 deals with payment from, and transactions in the administration of certain trusts.

It deals only with trusts established by gift, donation, or bequest from individuals or entities to benefit specific heirs, charitable causes, and similar beneficiaries. It does NOT apply to trusts established for business or commercial purposes.

• the trustee may make payments of distributive shares of principal or income to those legally entitled and can engage in other normal transactions under the trust EXCEPT payment or distribution of any funds, securities or other choses in action to a national of a designated foreign country must be made by deposit into a blocked account in the name of the national. The trustee is not authorized to engage in other transactions at the request, or upon the instructions, of any beneficiary, co-trustee or co-representative of the trust or estate or other person who is a national of any designated foreign country.

Throughout the various OFAC regs, you see the term "designated national" used. The term "designated national" shall mean any country designated in Sec. 500.201 and any national thereof including any person who is a specially designated national.

ESTATES
31 CFR 500.523
What about where an individual whose assets have been blocked dies?

• a personal represenative may still be appointed;
• the personal representative can collect and preserve the assets and pay costs, fees and charges in connection with the administration of the estate, as well as payment of funeral expenses and expenses of the last illness and may transfer title pursuant to a valid testamentary disposition.

BUT this does not authorize any unblocking or distribution of estate assets to a designated national.

All other transactions incident to the administration of assets situated in the U.S. of any blocked estate of a decedent are authorized if:

1. the decedent was not a national of a designated foreign country at the time of his death;
2. the decedent was a citizen of the U.S. and a national of the designated foreign country at the time of his death solely by reason of his presence in a designated foreign country as a result of his employment by, or service with the U.S. government; or
3. the assets are unblocked pursuant to a specific license.

Property of a blocked estate that is distributed to a designated national should be deposited into a blocked account.

No transfer to any person by intestate succession and no transfer to any person as administrator, executor or other fiduciary by reason of any testimentary disposition shall be deemed to terminate the interest of the decedent in the property transferred if the decedent was a designated national.

SAFE DEPOSIT
If a designated national is the lessee of a safe deposit box, or has an interest in property in a safe deposit box, access is allowed and contents may be deposited or removed IF two conditions are complied with:
a) access is permitted only in the presence of an authorized representative of the lessor of the box; and

b) in the event property in which the designated national has an interest is to be removed, access shall be permitted only in the presence of an authorized representative of a banking institution that is the lessor of the box, and the banking representative shall take custody of the property immediately upon removal and shall hold it in a blocked account under an appropriate designation.

There is also a report which must be filed by the designated national.

Return to the main BOL OFAC page.

First published on BankersOnline.com 11/30/01