OFAC Search – Guide to Sanctions, Compliance, and Due Diligence

In the 1812 war, secretary of Treasury Gallatin imposed sanctions on Britain because they harassed American Sailors. Congress made a law during the Civil War known as Foreign Funds Control(FFC), and OFAC is its successor, which was created in 1950 when China entered into war with Korea.

OFAC develops and administers several economic sanctions to protect the national security interests of government, firms, and individuals.

Usually, it saves people from the impacts of narcotics trafficking, terrorism, weapons proliferation and human rights abuse.

However, its success requires the support and active participation of every private and public financial institution.

Let’s explore OFAC sanctions in more detail in this blog.

What is OFAC List –  Economic Sanction Imposed by U.S.

The OFAC list is a blacklist of companies and countries that are under economic sanctions imposed by the US government, ranging from asset freezes, trade restrictions, and travel bans.

Why is the OFAC List Essential?

National Security

OFAC sanction tool promotes objectives of US foreign policy and national security.

Risk Mitigation

Due diligence processes are actively updated, and OFAC lists are monitored to recognize potential risks.

Compliance

OFAC lists make it mandatory for individuals and firms to follow OFAC rules to avoid illegal activities in businesses that lead to severe penalties.

OFAC Sanctions Lists Types

To compel economic sanction, OFAC search maintains different lists, including:

Sectoral Sanctions Identification List (SSI)

SSI recognizes different sectors of foreign countries subjected to sanction, involving limitations on certain transaction types and trading with different entities. This includes the defense, finance and energy sectors.

Specially Designated Nationals (SDN) and Blocked Individuals

SDN is a famous list of entities, individuals, and groups selected by OFAC for different reasons. For example, human rights abuses, terrorism, and narcotics trafficking.

Iran Sanctions Act List (Non-SDN)

Regulations apply to entities and individuals involved in different Iranian activities under the Iran Sanction Act. However, the list is non-SDN, which means entities and individuals aren’t blocked from all economic activities.

Consolidated Sanction List

Following is the most comprehensive list of all sanctions imposed by OFAC, including:

• Sudan Sanction List
• Cuban Assets Control Regulations
• Venezuela Sanction Regulations
• Foreign Narcotics Kingpin Designation Act List ( NKDL)

OFAC usually updates and maintains its lists through a certain process that includes:

• Intelligence Gathering
• Legal Analysis
• Publication
• Ongoing Monitoring

Essential Steps Involved in the Updation Procedure

Gathering Intelligence Sources

For recognition of sanction targets, OFAC search depends upon a network of intelligent sources and gathers information from different foreign governments, agencies, and other authentic sources.

Legal Analysis

After depicting potential targets, legal professionals analyze gathered evidence to investigate if an entity or company is entitled to sanction by carefully examining laws, international treaties, and regulations.

Publication

After legal analysis, OFAC search issues a PR announcing the next action and adds the subject to the sanction list. The general public can also access the updated OFAC list through any website or other electronic means.

Ongoing Monitoring

OFAC search constantly analyzes targeted companies or entities for any positive change. If required, they remove penalties and change listings that are published regularly.

OFAC’s Role in Financial Regulations

The OFAC administers laws to enforce economic sanctions against potential targets for national security and to align with US foreign policy.

It develops, promulgates, and administers the sanctions for targeted subjects under 8 basic statutes.

The OFAC functions according to bank regulatory agencies to ensure that all financial organizations comply with the laws.

OFAC Regulations, Seized Countries, and Criminal Sanctions

The US imposed diverse sanctions on the following countries and urged people to limit their trade with them:

Trading with Enemy Act (TWEA), 50 U.S.C 1-44

Penalties for North Korea and Cuba:

• 10 years imprisonment
• $100,000 fine on individuals
• $1,000,000 fine for firms or entities

Moreover, 18 U.S.C declared that a single entity or firm violating a criminal statute would be fined greater than the amount mentioned in the decree. Individuals can be penalized $250,000 for felonies or twice the loss or gain from breaking the regulations.

Iraqi Sanctions Act (ISA), Pub.L. 101-513 Stat. 2047-55

Iraq has a sanction of 12 years imprisonment and a $1,000,000 fine on individuals or corporations. Also, 18 U.S.C 3571 declares that firms or single entities violating the regulations will be fined according to the written amount in the statute or can be doubled from loss or gain of violation.

International Emergency Economic Powers Act (IEEPA), 50 U.S.C 1701-06

Sanctions on Iran, Balkans, Sudan, Burma, Syria, and Zimbabwe in Narcotics, Terrorism, Diamond trading, and Non-proliferation include:

• Upto 20 years imprisonment
• $500,000 fine for organizations
• $250,000 for a single entity or individuals
• Administratively imposed civil charges of more or less than $50,000

Moreover, 18 U.S.C 3571 states that individual criminals or firms violating statutes will be fined greater than the amount of the decree, a single entity will pay $250,000 for felonies and $500,000 for felonies.

Foreign Narcotics Kingpin Designation Act (FNKA), 21 U.S.C 1901-1908, Pub L. No. 106-120

113 Stat 1606, 1626-1636 impose a criminal penalty of $10,000,000 at a single count against firms and imprisonment of 30 years and $5,000,000 per count for the single entity for violating rules.

The Antiterrorism and Effective Death Penalty Act, U.S.C 219, 18 and 2339b

Sanctions in Iran, Syria, Sudan, Cuba, North Korea and Iraq have a criminal penalty of $500,000 for organizations, 10 years of imprisonment and $250,000 oper count for a single entity.

United Nations Participation Act (UNPA) 22 U.S.C 287c

Sanction on Diamond trading in Iraq will face :

• 10 years of imprisonment
• $10,000 fine for individuals and firms
• Property included in the violation
• Criminal forfeiture of funds

According to 18 U.S.C, a single entity or firm subjected to penalties will be fined $500,000 for felonies, and an individual will be fined $250,000.

International Security and Development Cooperation Act (ISDCA), U.S.C 22

According to this statute, Iran has no criminal penalty. However, general customs and related penalty provisions can be applied to specific circumstances.

The Cuban Liberty and Democratic Solidarity (LIBERTAD), 22 U.S.C 6021-91

Cuba imposes the same pattern of fines as TWEA and implements Cuban Assets Control regulations.

These were the penalties that were imposed by the US to protect their people at the national level. Let’s move forward to understand the consequences that governments and individuals face if they don’t comply with OFAC lists.

Due Diligence and OFAC Verification

Although an OFAC search is necessary, it does not reduce risks. That’s why firms should enforce an enhanced due diligence (EDD) process that can quickly recognize and manage OFAC compliance issues.

Enhanced Due Diligence (EDD) for High-Risk Entities

The following entities have higher OFAC risks, including:

• Shell Companies – firms with shallow ownership hierarchy.
• Politically Exposed Persons (PEPs) – single entity having distinguished public positions.
• High-Risk Jurisdictions – regions with CTF and weak AML regimes.
• High-Risk Activities – individuals or organizations involved in industries such as remittance services, trade finance and banking.

EDD will resolve the issues of high-risk entities by doing the following:

• In-Depth Background Investigation
• Investigating Financial Transactions
• Scrutinizing Ownership

Screening of Related Parties and Beneficial Owners

Recognizing beneficial owners is necessary as they want to control the firm or individual without having any right to do so. Screening other related parties, including shareholders, management personnel and directors, is also important.

Implementation of Advanced Technology for Effective Verification

Advanced technology can quickly improve OFAC Compliance through:

• Automated Screening Tools – Live customer data screening against OFAC lists.
• Case Management Systems – Track compliance efforts and implement due diligence procedures.
• Advanced Analytics – Quickly recognize anomalies and suspicious patterns in transactional data.