Office of Foreign Assets Control (OFAC) Compliance
At Truth Technologies we are often asked, "Why do I have to check the OFAC list. Who's in the list?" and "How should I set up my OFAC program?" This case study will investigate these questions in more detail in an effort to help you design an effective and efficient OFAC program.
Truth Technologies Sentinel Customer Verification system helps organizations implement an effective OFAC compliance program and can greatly reduce the effort needed to implant and maintain such a program. We certain hope that after you have read the following case study you will take a look at Sentinel or contact us if you have any questions.
The Need for OFAC Compliance
You have to check the OFAC list because it is the law, "All U.S. persons, including U.S. banks, bank holding companies, and non-bank subsidiaries, must comply with OFAC's regulations."1 Persons are defined broadly to cover persons and corporations. Persons are defined by OFAC as "U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, all U.S. incorporated entities and their foreign branches."2
This is an obligation that must be taken seriously as OFAC has the authority to audit any business to ensure compliance, although they usually rely on regulators to enforce compliance. Regulators such as: FDIC, FinCEN, FED, NCUA, OCC, OTS and the SEC all enforce OFAC regulations. If you are not regulated by one of the above groups you are not off the hook; car dealers, wholesale jewelers, non-profits, lawyers and firms that do international business have all recently come under increased scrutiny and been subject to audits.
Setting up an OFAC Program
Before setting up a program you need to determine why you might be at risk and what that risk level is. Suggestions for determining your risk include, but are not limited to: how well you know your customers, percentage of high-risk customers, exposure to foreign customers, electronic banking access, international transactions and many more. For a full list see the OFAC Risk Matrix.3
Also consider that when checking customers you must take into account all parties in a business transaction. In the case of financial institutions may include co-signers, beneficiaries and collateral owners and cosigners.
Once you have started screening your customers you will invariable come to the problem of, "I have a potential match, now what do I do?" The first thing is that you must determine if you have a true verified match or a false positive. A false positive is when you customer appears to be the same as someone on the OFAC list but upon closer examination it is determined they are different people. No matter how good your introduction software or your screening policies and staff are you will always get some number of false positives because a person's or entities name is not a unique identifier, there is more than one John W. Smith in the world.
When considering whether a match is a "True Match" or a false positive it is important to verify that the type of entity matches, for instance you should not be comparing an individual to a political party, Sentinel does this automatically for you. Once that is complete go through the steps outlined by OFAC4.
For a full overview of setting up an OFAC program please consult Office Foreign Assets Control (Overview).
Who is in the OFAC List
As for who is in the list there are about 3,800 persons, entities and vessels listed in the OFAC list. About 58% of those listed are individuals, 41% are entities (corporations, charities or political groups) and about 1% are vessels.
OFAC maintains two types of programs: those that target a specific geographic or government and those that target individuals that could be in any location. About 34% of the persons and entities listed are assigned to specific sanctions programs reference to a geographic region or government. Examples include Cuba, Iran, Balkans, etc. The remaining 66% are attributed to more general sanctions programs such as Counter Narcotics Trafficking and Anti-Terrorism. The impact of this on organizations is that a majority of the entities listed in OFAC are part of programs that are geographically non-specific and thus could appear in a wide number of geographic regions.
An independent analysis of the OFAC list was conducted on February 13th, 2008. The program and address data was taken directly from the OFAC list itself. The nationality and location information was taken from World-Check.
Note that an OFAC entity may have more than one address, which explains why there are 4060 addresses in Columbia when the entire OFAC list has only about 3850 entries.
Program Break Down
Address - Top 20 Countries
Nationality Break Down Top 20 Countries
An OFAC entity has only one nationality and it is usually the same as the entities citizenship or place of incorporation or operations. This analysis is based on the World-Check data base
Location Break Down - Top 20 Countries
An OFAC entity may have multiple locations that they are active in. Note that locations that a person is active in may be different than nationality. This analysis is based on the World-Check data base.
End Notes and References