Introduction

As a lender in the United States, there are many regulations and statutes that you must comply with. One of those is not doing business with specially designated nationals (SDN). The SDN list is compiled by the United States Department of Treasury. 

This article will give you some background on Office of Foreign Assets Control (OFAC) compliance, and explain what to do if you get a positive match. For a step-by-step guide, see our article Running OFAC InstaCheck.

Background

This is largely an outline of information from the Treasury Department. For more information, see their FAQ page.

1. What is OFAC & what does it do? – The Office of Foreign Assets Control administers and enforces economic sanctions programs primarily against countries and groups of individuals, such as terrorists and narcotics traffickers. The sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals. [09-10-02]
2. What does “Prohibited Transactions” mean? – Prohibited transactions are trade or financial transactions and other dealings in which U.S. persons may not engage unless authorized by OFAC or expressly exempted by statute. Because each program is based on different foreign policy and national security goals, prohibitions may vary between programs. [06-16-06]
3. Who must comply with OFAC regulations? – U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, all U.S. incorporated entities and their foreign branches. In the cases of certain programs, foreign subsidiaries owned or controlled by U.S. companies also must comply. Certain programs also require foreign persons in possession of U.S.-origin goods to comply. [01-15-15]
4. How much are the fines for violating these regulations? – The fines for violations can be substantial. Depending on the program, criminal penalties for willful violations can include fines ranging up to $20 million and imprisonment of up to 30 years. Civil penalties for violations of the Trading With the Enemy Act can range up to $65,000 for each violation. Civil penalties for violations of the International Emergency Economic Powers Act can range up to $250,000 or twice the amount of the underlying transaction for each violation. Civil penalties for violations of the Foreign Narcotics Kingpin Designation Act can range up to $1,075,000 for each violation. [10-08-13]

Action Items

1. What do I need to do? – For financial transactions such as giving loans or leases you are required to verify that you are not doing business with someone or entity that is on the current OFAC/SDN list. LoanPro Software maintains a “In-Sync” list published by the US Treasury Department. This will allow you to test your customer against this list to verify that they are not on the list at the time of testing.
2. How does the Software help me stay compliant? – When you run OFAC InstaCheck against a customer or list of customers it will check their information against the published list. We will also record the testing action and results of the InstaCheck in the Customer System notes. This will let you audit and verify that the InstaCheck has been done.

Ways to Use OFAC InstaCheck 

In LMS, you can run OFAC InstaCheck from any customer's page. You could either find them from a loan they're linked to, or find them directly through the customer manager. On that you can click OFAC InstaCheck directly on the Customer Contact & Personal Information page to run the check.

The process is pretty straightforward, but involves enough steps that we cover it in its own article, Running OFAC InstaCheck.

What To Do If Your OFAC InstaCheck Results In A Positive Match

As LoanPro Software outlines & provides to you directly on the OFAC InstaCheck page, these are the following steps that you should follow if you have a positive match on the test:

Step 1

Is the hit or match against OFAC’s SDN list or targeted countries, or is it hitting for some other reason (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 are you unable to determine the reason for the hit?

• If there is a positive match with OFAC’s SDN list or targeted countries list, continue to Step 2 below.
• If there is a positive match for some other reason, you should contact the agency that oversees the list where the match is coming from:
  • 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.
  • The FBI’s Most Wanted List or any other FBI-issued watch list, please contact the Federal Bureau of Investigation (http://www.fbi.gov/contact/fo/fo.htm).
  • The Debarred Parties list, please contact the Office of Defense Trade Controls at the U.S. Department of State, 202-663-2700.
  • The Bank Secrecy Act and the USA PATRIOT Act, please contact the Financial Crimes Enforcement Network (FinCEN), 1-800-949-2732.

Step 2

Now that you’ve established that the hit is against OFAC’s SDN list or targeted countries list, you must evaluate the quality of the hit. Compare the name of your customer with the name on the SDN list. Is the name of your customer an individual while the name on the SDN list is a vessel, organization or company (or vice-versa)?

• If yes, you do not have a valid match.*
• If no, please continue to 3 below.

Step 3

How much of the SDN’s name matches the name of your customer? Do just one of two or more names match (e.g., just the last name)?

• If yes, you do not have a valid match.*
• If no, please continue to 4 below.

Step 4

Compare the complete SDN entry with all of the information you have for your customer. An SDN entry often will have, for example, a full name, address, nationality, passport, tax ID or cédula number, place of birth, date of birth, former names and aliases. Are you missing a lot of this information for the customer?

• If yes, go back and get more information and then compare your complete information against the SDN entry.
• If no, please continue to 5 below.

Step 5

Are there a number of similarities or exact matches?

• If yes, please call the hotline at 1-800-540-6322.
• If no, you do not have a valid match.*