What does OFAC stand for? OFAC stands for the Office of Foreign Assets Control. It is a department under the US Treasury that works towards administering and enforcing economic and trade sanctions, which is based on US foreign policy and national security goals.
OFAC imposes sanctions against targeted foreign countries and regimes, terrorists, international narcotics traffickers and people involved in the proliferation of weapons of mass destruction, according to its official site.
OFAC maintains a number of sanctions lists, each addressing a different set of targets. The following are the major sanctions lists:
Other sanctions lists from OFAC include:
Sanctions imposed by OFAC are divided into two categories:
Companies and individuals based in the US must comply with trade sanctions and regulations mandated by OFAC. OFAC sanctions must be followed by all people, banks, financial services and other obligated institutions operating under the US regulators.
In order to ensure compliance with OFAC sanctions, financial institutions and some other obligated firms conduct an OFAC check. This includes incorporating an OFAC sanctions search into internal AML/CFT systems and ensuring that new customers and clients are vetted against the list before a commercial connection begins.
Noncompliance with sanctions, according to OFAC, is a severe danger to national security and foreign relations. As a result, anyone who violates OFAC sanctions without first acquiring the required licence may face serious legal consequences.
To mitigate the risk of non-compliance with OFAC requirements and generally as a sound banking practice, banks should establish and maintain an effective, written OFAC AML compliance programme.
The compliance programme should be commensurate with the OFAC risk profile based on products, services, customers, and geographic locations. OFAC AML compliance programmes should include:
US companies are required to establish and maintain an efficient and effective OFAC compliance programme that is appropriate for the firm’s risk appetite. This risk appetite is related to the firm’s clients, beneficial owner, their transactions, products and services, and the geographic location from where they operate.
The firm’s risk profile is supposed to identify any high-risk jurisdictions and provide the internal controls which can be used to screen and report the customer’s transactions.
As part of OFAC compliance measures, the financial institution is required to hire a compliance officer who can keep appropriate training programmes for the employees. The compliance officer should make sure that the training programme is relevant to the bank’s risk profile.
There are no legislative requirements for how you must verify sanction lists. However, financial institutions often have the difficulty of finding a way to thoroughly and cost-effectively review the numerous sanctions lists without disturbing daily operations.
Manual checks would be difficult and time-consuming due to the large number of sanctions lists to be verified and can also easily lead to human error. Finding an automated system to complete these mandatory tests makes sense and is the simplest way to reach the compliance standards that regulators like OFAC require.
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