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OFAC Compliance: Finding Financial Stability & Compliance Balance in 2024

In an elastic debate of enduring regulations and accelerated compliance demands, businesses with foreign clients are the most influenced entities that find it troublesome to navigate the path around financial stability and growth within a compliance dominated system. If you are one of those businesses who strive to find a balanced equation between success and compliance, then aligning your existing compliance with the OFAC compliance program is the key.

Let’s not ponder on how grave it can be if you happen to violate these set of guidelines outlined by the Office of Foreign Assets Control (OFAC), but if we must, OFAC penalized firms with fines of more that $984 million in just second half of the year 2023 for breaching the OFAC compliance program. The mountaineering scale of monetary penalties and weakening integrity of the global financial ecosystem provides a sound reason to navigate through the web of regulations which keep on changing with every passing moment.

This digital piece of paper will allow you to build a concise idea on what OFAC is and how it works while highlighting the need of drafting a robust compliance program which must align with OFAC regulations to thrive in the global business environment.

What is OFAC?

With inherited facets of an unforgiving watchdog, the Office of Foreign Assets Control or OFAC originated in 1950 as an integral substitute to the Office of Foreign Funds Control (FFC) which administered the freezing of assets of individuals and countries who were involved in political and regional conflicts. China’s involvement in the Korean war was the motivation behind formally designing a regulatory body known as OFAC under the Department of US Treasury which enforces and monitors the economic sanctions while restricting the flow of money owned by terrorists and drug traffickers.

What is OFAC Compliance?

To restrict access of targeted entities including sanctioned individuals, regimes, terrorist, and drug traffickers to the freezed or blocked assets, OFAC with its trade based and various economic sanctions outline specific guidelines to be adhered to for member jurisdictions and those who are directly trading through U.S financial platforms. The office of Treasury reinforces the anti-money laundering compliance by means of advocating the implementation of effective screening and due diligence while dealing with individuals and businesses from sanctioned regions. The multilayered sanctions require institutions to adhere to these regulations which are formally motivated by the United Nations mandate on sustaining the global peace and security against organized crimes.

Why Must Comply with OFAC Sanctions Regulations?

Power hunger and political motivations in the global ecosystem has erupted a storm of sanctions enforced by the superpowers such as US, UK, and EU (European Union) which has made it imperative for the businesses both national and international to must comply with these regulations or face hefty monetary penalties for unknowingly or knowingly developing business relationships with sanctioned entities. Reinforcing the sanctions compliance as outlined by the OFAC regulations, the year 2023 witnessed fines and asset seizure of worth $3.96 billion pressed by the state and federal authorities as a consequence of US sanctions and AML (anti-money laundering) violations. The distinct nature of sanctions violations makes it an unforgivable offense with or without the intent of breaching compliance while the institutional need to screen the individuals or businesses against global sanctions list is an inevitable measure. Let’s take a look at the gore consequences of sanctions violation in terms of heavy monetary and civil penalties imposed by different enforcing authorities.

a pictorial representation of sanctions violations penalties imposed by global regulatory bodies.

Note: Read more about how effective sanctions compliance aligned with OFAC regulations aids in achieving business goals.

Who is Influenced by OFAC Sanctions Compliance?

Adherence to the OFAC regulations is obligated to the following,

  • Every individual with US citizenship no matter in which corner of the world they are.
  • Businesses both financial and non-financial who are trading or dealing in US territory
  • Incorporated companies or businesses with branches operating abroad
  • Foreign subsidiaries of US businesses extending the regulatory compliance beyond national borders
  • Owners of US origin goods and services

How does SDN List Aid in Compliance?

Composed by the Office of Foreign Assets Control, a consolidated list of specially designated nationals (SDN) and blocked persons consisting of individuals and firms that act or made allies with sanctioned or targeted entities. The list identifies non-country specific individuals and businesses that should not be brought in the financial fabric to restrict the money laundering activities of terrorist and drug traffickers.

Other than the SDN list, OFAC has orchestrated a uniform set of files containing non-SDN lists which are subjected to updates when required. It is imperative for businesses and compliance forces to align their screening measures with the updating sanctions data to stay ahead of the compliance challenges.

Update on OFAC Sanctions Penalties: What’s New?

With an enforcement to regularly align existing compliance measures and update risk profiles of clients with the OFAC compliance, an increase of 7.7% in the existing civil monetary penalty (CMP) has been made while encouraging businesses of all types and sizes to implement robust sanctions check before onboarding a new client or maintain persistent monitoring on the existing business relationships. Implemented from Jan 2023, the CMP update is applied to the violations of below acts.

A brief display of previous and new civil monetary penalties against the statutes of TWEA, IEEPA, FNKDA, AEDPA, and CDTA, issued by OFAC in the wake of sanctions compliance.

How does OFAC Compliance Influence Banks?

The financial institutions, particularly banks being at the frontdesk of the global financial empire, are more vulnerable to be exploited by the sanctioned entities to facilitate the flow of foreign seized assets contributing to money laundering offenses. Sending a lesson to the violators of OFAC sanctions regulations, the office of Treasury imposed a civil penalty of $30 million coupled with $67.8 million fine by the Federal Reserve on Wells Fargo for processing prohibited transactions of worth $532 million.

Reinforcing the OFAC compliance for banks, the shortcomings for weak AML compliance measures of banks including SHBA (Shinhan Bank America) and Metropolitan Commercial Bank were highlighted with a non-compliance cost of $100 million by the DFS (New York’s Department of Financial Services). Driving an aggressive environment to effectively maintain OFAC compliance checklist, the increasing penalties on financial institutes to actively screen, monitor, and report the suspicious client and transactions through SARs (Suspicious Activity Reports).

Why Lawyers & Accountants Need to Pay Attention to OFAC Compliance?

Other than banks, law firms and accountants reside on the potential edge of sanctions risks and associated money laundering offenses. According to EUROPOL Spotlight on shadow money and illicit finance networks, legal business structures are abused by almost 80% of crime actors in Europe while the majority of them establish their own ventures to pollute businesses.

The sanctions regime in the United Kingdom controlled by the OFSI (Office of Financial Sanctions Implementation) has issued supporting guidelines for more than thousands law firms to construct and implement effective sanctions and AML compliance programs. In the wake of strengthening AML compliance for certain accounting and legal service providers, a revision in the ENABLERS Act has been proposed with extension of AML measures and major legislative changes. Such extensions in AML compliance for law firms, non-profit trust companies, and accounting firms would require to employ and be obligated to the OFAC compliance program.

Along with heightening the regulatory burden, the emerging compliance needs bring elevated challenges of implementing an effective yet employable sanctions check.

Alignment of Compliance Tools with OFAC Regulations: What are Non-negotiable Measures?

With an orchestration of AML umbrella for all firms both financial and non-financial, the commitment to deploy a compliance culture is advised by the OFAC which includes,

  • Effective due diligence of clients while onboarding them and maintaining impactful monitoring during the business relationships.
  • Adaptation of risk based approach to foster a swift client relationship and build a resilience against the sanctioned money launderers.
  • A structured approach towards keeping the record of due diligence and transactions is essential for regulatory trails and compliance audits.
  • Deployment of technology into the compliance program to screen the clients against automatically updating sanctions lists and regulatory changes.
  • An intricate balance of compliance and clients privacy rights is paramount to foster a successful business and compliance environment.

a visual display of key measures needed to be employed for an effective OFAC compliance program within the institutional framework. It includes customer due diligence, risk based approach, record keeping and audits, integration of technology, last but not least a mandatory balance between compliance and customer data confidentiality.

How AML Watcher Can be Your Compliance Partner?

It is evident that compliance is a non-negotiable fundamental against organized crimes and those who pollute the financial system. A robust screening against sanctioned entities protects the firms from allowing corrupt individuals to be facilitated through sophisticated ways of money laundering.

Operating with a consolidated and extensive database in perfect alignment with OFAC compliance, AML Watcher is committed to empower your compliance program with a partnership that relies on research and innovation. Laced with advanced technology, our  screening tools make it easier for you to stay compliant within a dynamic regulatory and technological landscape.

Learn more about our easy and effective user friendly interface by experiencing the live screening tool against sanctioned entities and employ an unbreakable measure against financial crimes not later than today.

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