An FAQ on OFAC Basics - Compliance Blog - NAFCU

An FAQ on OFAC Basics. The mere mention of the Office of Foreign Assets Control (OFAC) can strike fear into the hearts of some credit union ... 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Withthatinmind,herearesomefrequentlyaskedquestionsrelatingtoOFACcompliance: IsanOFACcheckrequired?Areanyotheractionsrequired? TheNAFCUComplianceTeamoftenreceivesquestionsaskingifacreditunionisrequiredtorunanOFACcheckincertaincircumstances.TheOFACregulationsandapplicablefederallawsdonotactuallyrequireacredituniontorunanOFACcheckatanypoint.However,theydorequireacredituniontoavoidengagingintransactionswithsanctionedindividualsorentities.OFACrequirescreditunionsto: “Blockaccountsandotherpropertyofspecifiedcountries,entitiesandindividuals Prohibitorrejectunlicensedtradeandfinancialtransactionswithspecifiedcountries,entitiesandindividuals;”and Reportblockedassetsandkeeprecordsofblockedtransactions. ThisOFACFAQexplainswhatthosetermsmean–blockinganaccountrequiresthecredituniontoplacethefundsintoaninterest-bearingaccount“fromwhichonlyOFAC-authorizeddebitsmaybemade.”Theinterestratemustbecommerciallyreasonable.Asfor“rejecting”atransaction,theTreasuryDepartmentexplainsthatsometransactionsdonotinvolvea“blockable”interestfromapersonorentityontheSDNlistoraforeigngovernmentbutmayimplicateOFACsanctions–andthereforethetransactionshouldberejectedandnotprocessed.  RunninganOFACcheck,whilenotrequiredbytheOFACregulations,isonetoolforcreditunionstousewhendeterminingifatransactionneedstoberejectedoraccountsneedtobeblocked.Creditunionswillneedtomakearisk-baseddecisionastowhentorunOFACcheckstomitigatetheriskofengaginginprohibitedtransactions.Additionally,howtoconductthecheck–suchasmanuallycheckingOFAC’sSpeciallyDesignatedNationals(SDN)listorsimplyhiringavendortorunOFACchecks–willbeabusinessdecisionforthecredituniontomake. WhileOFACchecksarenotrequiredbyOFACregulations,theNationalCreditUnionAdministration(NCUA)hassupervisoryauthoritytoexaminefederallyinsuredcreditunionsforOFACcompliance.Thus,theNCUAguidanceonthistopicwillalsobeanimportantresourceforcreditunionswhencraftingarisk-basedOFACcomplianceprogram.Asexplainedbelow,NCUAtendstosuggestOFACchecksshouldbeconductedinmostsituations. WhichaccounttypesorindividualsshouldbesubjecttoanOFACcheck? TheFFIECBSA/AMLExaminationManualstatesthattheextenttowhichotherpartiesshouldbeincludedinOFACchecksorreviewswillbearisk-baseddecision:“[T]heextenttowhichthebankincludesaccountpartiesotherthanaccountholders(e.g.,beneficiaries,guarantors,principals,beneficialowners,nomineeshareholders,directors,signatories,andpowersofattorney)intheinitialOFACreviewduringtheaccountopeningprocess,andduringsubsequentdatabasereviewsofexistingaccounts,willdependonthebank’sriskprofileandavailabletechnology.” However,this2006OFACComplianceReviewReport,whilenotimposinganyofficialregulatoryrequirements,summarizestheNCUA’sguidanceonthistopicandstates:“creditunionsmustcheckthenamesofallpartiestoatransaction(i.e.beneficiaries,collateralowners,cosigners/guarantors,receiving/sendingparties)againsttheSDNlist”(emphasisadded). Theguidancealsostatesthatalltypesofmembertransactionsshouldbereviewedforcompliance,including:“shareaccounts,loansandloanpayments,creditcards,lettersofcredit,linesofcredit,safetydepositboxes,wireandACHtransfers,currencyexchanges,depositingandcashingchecks,moneyordersortraveler’schecks,andtrustaccounts.” Asmentionedabove,theseareagencysupervisoryexpectationsratherthanformalregulatoryrequirements,butacreditunionmaywanttotakethisguidanceintoaccountwhencraftingitsrisk-basedOFACcomplianceprogram. Whatifthecreditunioncan’trunanOFACcheckbeforeopeningtheaccount? TheNCUA’sAIRESQuestionnaire(usedbyNCUAExaminers)addressesthistopic.Itasksexaminerstoconsider:“DoesthecreditunioncomparenewaccountswiththeOFACprohibitedlistingwhenopeningnewaccountsand/orperforminganewtransaction?” WhilethatmayseemliketheNCUArequiresacredituniontoruntheOFACcheckbeforetheaccountisopened,thequestionnaireincludesanotefromNCUAthatsays: “ThecreditunionshouldcomparenewaccountswiththelistofSpeciallyDesignatedNationalsandBlockedPersons(SDNlist)publishedbyOFAC.WhileacreditunionshouldnotopenanaccountforapersonnamedontheSDNlist,OFACunderstandsitmaynotbeoperationallypossibletochecktheSDNlistbeforeopeningaccounts. Therefore,OFAChasagreedthatacreditunionmayopenanaccountandacceptaninitialdepositbeforecheckingtheSDNlist,aslongastheSDNlistischeckedbeforeanytransactionsareallowedontheaccount. Pleasenotethatacreditunioncannotprovidecashbackontheinitialdeposit,iftheSDNlisthasnotbeenchecked.SeetheFFIECBSA/AMLManualforfurtherdiscussion.” (emphasisadded). Thus,itseemsthatNCUAexaminersmaylookatwhetherthecreditunionrananOFACcheckbeforeopeningtheaccount,andifnot,whetherthecreditunionallowedanytransactionsontheaccountbeforerunningtheOFACcheck.Additionally,theNCUAguidancenotesthatifacredituniondoesbecomeawarethattheaccountisownedbysomeoneontheSDNlist,thenthecreditunionisrequiredtoblocktheproperty,suchasblockinganinitialdepositthathadbeenacceptedataccountopening. tags OFAC ShareThis AbouttheAuthor NickSt.John,NCCO,NCBSO,RegulatoryComplianceCounsel,NAFCU NickSt.John,wasnamedregulatorycompliancecounselinMarch2020.Inthisrole,Nickhelpscreditunionswithavarietyofcomplianceissues. Readfullbio Nevermissapost. GetemailupdatesforComplianceBlog Categories AccountsAdvertisingBSABoardandGovernanceBusinessLendingCUSOsandThirdPartiesConsumerLendingCybersecurityandDataSecurityExamination&EnforcementHome-SecuredLendingOperationsPrivacyTaxUCC