Office of Foreign Assets Control?s List of Specially Designated Nationals and Blocked Persons- Revised Guidance on filing Suspicious Activity Reports

In an effort to eliminate duplicative reporting, on December 23, 2004, FinCEN published a final rule updating previous guidance on filing Suspicious Activity Reports involving individuals or entities designated by the Department of Treasury?s Office of Foreign Assets Control (OFAC) as a threat to United States policy or national security.43 As a way of enforcing economic and trade sanctions, the Office of Foreign Assets Control requires a United States financial institution to block transactions involving people or organizations that are specially designated.44 The revised guidance generally clarifies that blocking reports filed with the Office of Foreign Assets Control will be deemed by FinCEN to satisfy the requirement to file Suspicious Activity Reports on such transactions.

Previous Guidance

The Bank Secrecy Act and FinCEN?s implementing rules require banks, securities broker-dealers, introducing brokers, casinos, futures commission merchants, and money services businesses to report suspicious activity that meets a particular threshold, which differs depending on the entity. Generally, the rules provide a financial institution with thirty days from the date of the initial detection of suspicious activity to file a Suspicious Activity Report, with an additional thirty days if the financial institution is unable to identify a suspect. Reports are filed on forms developed for each industry subject to the reporting requirement.

The Office of Foreign Assets Control requires any person, including a United States financial institution, to file reports regarding blocked financial accounts, payments or transfers in which an Office of Foreign Assets Control designated country, entity or individual has any interest.45 Reports must be filed with the Office of Foreign Assets Control within ten business days of the blocking of the property. Transactions involving an individual or entity designated on the Office of Foreign Assets Control List of Specially Designated Nationals and Blocked Persons as a global terrorist, terrorist, terrorist organization, narcotics trafficker, or narcotics kingpin may be in furtherance of a criminal act, and therefore relevant to a possible violation of law. Thus, blocking reports related to such persons also describe potentially suspicious activity.

FinCEN was receiving numerous questions about whether a financial institution was required to file a Suspicious Activity Report with FinCEN when it had a verified match on persons or entities on one of the Office of Foreign Assets Control lists. In Issue 6 of The SAR Activity Review (November 2003), FinCEN provided the following guidance on the issue:

A verified match with an entity on an OFAC list that involves funds in an amount above the applicable SAR filing threshold should trigger a SAR filing requirement.46

While this guidance ensured that the relevant information would be available to law enforcement, it also resulted in financial institutions being required to make two separate filings with the Department of the Treasury - one with the Office of Foreign Assets Control pursuant to its Reporting, Procedures and Penalties Regulations, and one with FinCEN pursuant to its Suspicious Activity Reporting rules.

Revised Guidance

Upon further consideration, FinCEN revised its prior guidance to allow a financial institution to satisfy its obligation to file a Suspicious Activity Report on a transaction involving a person designated as a Specially Designated Global Terrorist, a Specially Designated Terrorist, a Foreign Terrorist Organization, a Specially Designated Narcotics Trafficker Kingpin, or a Specially Designated Narcotics Trafficker by filing a blocking report with the Office of Foreign Assets Control. This guidance does not affect a financial institution?s obligation to identify and report suspicious activity beyond the fact of the Office of Foreign Assets Control match. To the extent that the financial institution is in possession of information not included on the blocking report filed with the Office of Foreign Assets Control, a separate Suspicious Activity Report should be filed with FinCEN including that information. This guidance also does not affect a financial institution?s obligation to file a Suspicious Activity Report even if it has filed a blocking report with the Office of Foreign Assets Control, to the extent that the facts and circumstances surrounding the Office of Foreign Assets Control match are independently suspicious and are otherwise required to be reported under the existing FinCEN regulations. In those cases, the Office of Foreign Assets Control blocking report would not satisfy a financial institution?s Suspicious Activity Report filing obligation.

The Office of Foreign Assets Control will provide FinCEN the information in the blocking reports for inclusion in the Suspicious Activity Report database. Accordingly, the revised guidance serves two useful purposes: (1) allows for expedited information to law enforcement and (2) reduces the suspicious-activity- reporting burden on the industry.

Since the issuance of the guidance, FinCEN has been asked about the filing of Suspicious Activity Reports for transactions subject to reject reports47 filed with the Office of Foreign Assets Control. When a financial institution files a reject report on a transaction, the financial institution is obligated to file a Suspicious Activity report to the extent that the facts and circumstances surrounding the rejected funds transfer are suspicious. For example, a financial institution need not file a Suspicious Activity report on a rejected funds transfer involving Iraq unless the facts surrounding the transaction are themselves suspicious.

43 See Interpretive Release Number 2004-02-Unitary Filing of Suspicious Activity and Blocking Reports, 67 FR 76847 (December 23, 2004).
44 The designations are as follows: specially designated terrorist; foreign terrorist organization; specially designated global terrorist; specially designated narcotics trafficker; specially designated narcotics trafficker kingpin. A blocked transaction relates to an account to which payments, transfers, withdrawals, or other dealings may not be made except as licensed by the Office of Foreign Assets Control or otherwise authorized by the Treasury Department. See 31 CFR parts 595, 597, 598 and the Foreign Narcotics Kingpin Act, 21 USC 1901-08, 8 USC 1182. These categories of designations are subject solely to blocking requirements.
45 See 31 CFR 501.603.
46 See page 64 at http://www.fincen.gov/sarreviewissue6.pdf.
47 Reject reports are required to be filed with OFAC by financial institutions that reject a funds transfer where the funds are not blocked under OFAC rules but where processing the transfer would nonetheless violate, or facilitate an underlying transaction that is prohibited under OFAC rules. See 31 CFR 501.604. Examples of transactions involving rejected funds transfers include funds transfer instructions referencing a blocked vessel but where none of the parties of financial institutions involved in the transactions is a blocked person, as well as transactions with Iraq, Iran, or the Governments of Iran, Syria or Sudan.

Excerpted from SAR Activity Review Issue 8, page 38