About OFAC

The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury administers and enforces a series of new laws that impose economic and trade sanctions against targeted foreign countries and their agents, terrorism sponsoring organizations and agencies, and international narcotics traffickers based on U.S. foreign policy and national security goals.

Under these laws, financial institutes, securities firms, and insurance companies are obligated to block or "freeze" property and payment of any funds transfers or transactions, and to report all blockings to OFAC within 10 days of occurrence. Any institution in non-compliance is open to adverse publicity, fines, and even criminal penalties.

Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close co-operation with allied governments.

OFAC acts under presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction.

New Treasury Rules

Recently, as an extension of the U.S.A. Patriot Act, OFAC created new Rules impacting on financial institutions. The objective of these Rules is to eliminate the flow of funds in any form to terrorists (broadly referred to as "money laundering").

These Rules require all U.S. financial institutions (banks, insurance companies, credit unions, etc.) to screen new customers against federal lists of known and suspected terrorists, with an emphasis on Specially Designated Nationals (SDN).

Executive Responsibility

Responsibility for this process will be held at the executive level, and must be a component of an executive involved and approved plan.

U.S.A. Patriot Act, Section 326

Specifically, Section 326 of the U.S.A. Patriot Act calls for the following:

1. Verifying the identity of any person seeking to open an account, to the extent reasonable and practicable, and;
2. Maintaining records of the information used to verify the person's identity, including name, address, and other identifying information, and;
3. Determining whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency.

This means —

• Financial institutions must have a customer identification and verification program.
• All new accounts need to be screened against OFAC Specially Designated Nationals and other published lists of blocked persons, criminal suspects, known and suspected terrorists, and designated terrorist organizations.
• Documents used to identify the new account holder (such as driver's license, passport, social security card, or credit cards) need to be verified to a reasonable and practical extent to determine that the identity is valid.
• A certified database of all accounts needs to be maintained containing the name, date of opening, identification presented, and the identity verifications, with records retained for 5 years after the account is closed.

Additional related rules are also coming into effect for other large money-handling interests, such as lottery corporations and casinos.

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Copyright © 2010 MSR International Inc.   All rights reserved.   Last Update: JAN 2 2009