OFAC
I recently ran across my first OFAC hit and thought I would share my experience in hopes it may educate others who have not experienced an OFAC hit.
OFAC is the abbreviation for Office of Foreign Assets Control. It is the specific branch of the United States Department of the Treasury that administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.
OFAC searches are a requirement of Section 326 of the United States Patriot Act which states that, among other things, in addition to verifying every borrower’s identity we must determine whether the customer appears on any list of suspected terrorists or terrorist organizations. In most if not all cases, your credit bureau is likely running the borrower data through OFAC listings and rendering a determination with the credit report. If your company utilizes any third party compliance or quality control related software, you may also receive OFAC checks and alerts there as well.
So what should you do if you DO get an OFAC alert on the credit report or other resource that may be used in the required OFAC search process? First, never assume that the hit is golden. You always need to assume that your borrower is “innocent until proven guilty” when it comes to an OFAC hit because there can be a lot of false positives. The Treasury Department provides a helpful guide that tells you exactly how to go about evaluating the OFAC information. I followed these steps personally and was able to eventually rule out that I had a 100% accurate match.
You can access these steps in entirely at http://www.treas.gov/offices/enforcement/ofac/regulations/faccr.pdf.
1. Is the “hit” or “match” listed on the credit re port against OFAC’s SDN list or
targeted countries, or is it “hitting” for some other rea son (i.e., Control List or
PEP, CIA, Non-Cooperative Countries and Territories, Canadian Consolidated
List (OSFI), World Bank Debarred Parties, Blocked Officials File, or government
official of a designated country), or can you tell what the hit is?
• If the name is hitting against OFAC’s SDN list or targeted countries.
• If it is hitting for some other reason, you should contact the “keeper” of
which ever other list the match is hitting against. For questions about:
1) The Denied Persons List and the Entities List, please contact the Bureau of Industry and Security at the U.S. Department of Commerce at
202-482-4811,
(2) The FBI’s Most Wanted List or any other FBI-issued watch list, please see the Federal Bureau of Investigation’s website at www.fbi.gov/con tact/fo/fo.htm,
(3) The Debarred Parties List, please contact the Office of Defense Trade Controls at the U.S. Department of State, 202-663-2700,
(4) The Bank Secrecy Act and the USA PATRIOT Act, please contact the Financial Crimes Enforcement Network (FinCEN) at 1-800-949-2732.
If you are unsure whom to contact, please contact the provider of the interdict software that told you there was a hit.
If you are able to exclude your borrower based on file documentation or knowledge, be sure to clearly document the file and make sure that you communicate your research to the underwriter with your loan submission and maintain the explanations and documentation in the file in case of future audit.
If you have the need to request additional documentation from your borrower in order to exclude the borrower from the OFAC hit. You may wish to provide your borrower with or direct your borrower to the following informative consumer brochure explaining more about OFAC: http://www.treas.gov/offices/enforcement/ofac/regulations/cons.pdf
If you have reason to know or believe that allowing this person to do business in
the United States would violate any of the Regulations, you should call the hotline and explain this knowledge or belief.
Lastly, I feel it’s important to communicate the potential fines and penalties for violating the regulations that require institutions to conduct and review OFAC lists for potential matches. I warn you, these are hefty which is why it’s so important that you get yourself into the habit of watching for the OFAC information on each and every loan file. The fines for violations can be substantial. Depending on the program, criminal penalties can include fines ranging from $50,000 to $10,000,000 and imprisonment ranging from 10 to 30 years for willful violations. Depending on the program, civil penalties range from $250,000 or twice the amount of each underlying transaction to $1,075,000 for each ofac violation.
