Checking Names Against The OFAC List For Each Transaction?

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Question:

Is a financial institution responsible for checking the OFAC List for ALL names on EVERY transaction provided to a noncustomer? For example, cashing payroll checks drawn on our bank are we required to check the OFAC list for the payee's name? Or the payee of a Cashier's check, etc.? Will a name match only (since we would not have any other information, in the case of a payee of a Cashiers check) be enough for us to call OFAC?

Answer:

I believe that each institution must devise its own OFAC checking program that takes into account the risks and costs involved.

The risks of missing an OFACsanctioned name are found in the laws that OFAC rules implement. Permitting a payment to a barred person or country can result in a significant penalty.

The flip side of this analysis is the cost involved in checking data against OFAC lists. The more names checked, the higher the cost to the bank (and the greater the likelihood the bank will get bogged down in something akin to "paralysis by analysis"). And the greater the number of referrals to OFAC for clarification, the more difficult it becomes for OFAC to respond effectively to any of them!

The risk analysis will differ for each type of transaction and increase with the dollar amount and frequency of the transaction. Wire transfers are inherently more risky than the payees on individual customers' checks. It makes sense to check the former; it's probably overkill to check the latter. Everything else lies somewhere in between.

At the same time, the location and clientele of a bank will affect this analysis.

First published on BankersOnline.com 05/12/03