Risk Management Manual of Examination Policies - FDIC

BANK SECRECY ACT, ANTI-MONEY LAUNDERING,
AND OFFICE OF FOREIGN ASSETS CONTROL
financial institution has received the order or the funds in
question. Once these funds are blocked, they may be
released only by specific authorization from the Treasury.
Full guidelines for releasing blocked funds are available on
the OFAC website. Essentially, either the financial
institution or customer files an application with OFAC to
obtain a license or authorization to release the blocked
funds.
Rejected transactions are those that are to be stopped
because the underlying action is prohibited and cannot be
processed per the sanctions program. Rejected
transactions are to be returned to the sending institution.
Transactions include, but are not limited to, the following:
• Cash deposits;
• Personal, official, and traveler’s checks;
• Drafts;
• Loans;
• Obligations;
• Letters of credit;
• Credit cards;
• Warehouse receipts;
• Bills of sale;
• Evidences of title;
• Negotiable instruments, such as money orders;
• Trade acceptances;
• Wire transfers;
• Contracts;
• Trust assets; and
• Investments.
OFAC Reporting Requirements
OFAC imposes reporting requirements for blocked
property and blocked or rejected transactions. OFAC does
not take control of blocked or rejected funds, but it does
require financial institutions to report all blocked property
to OFAC annually by September 30th. Additionally,
financial institutions must notify OFAC of blocked or
rejected transactions within 10 days of their occurrence.
When an institution identifies an entity that is an exact
match, or has many similarities to a subject listed on the
SDN and Blocked Persons List, the institution should
contact OFAC Compliance at 1-800-540-6322 for
verification. Unless a transaction involves an exact match,
it is recommended that the institution contact OFAC
Compliance before blocking assets.
Issuance of OFAC Lists
Section 8.1
OFAC frequently publishes updates to its list of SDNs and
Blocked Persons. This list identifies individuals and
companies owned or controlled by, or acting for or on
behalf of, targeted countries. It also includes those
individuals, groups, and entities, such as terrorists and
narcotics traffickers designated under programs that are not
country-specific. OFAC adds and removes names as
necessary and appropriate and posts those updates to its
website. The Special Activities Section in Washington
D.C. notifies FDIC-supervised institutions that updates to
the SDN and Blocked Persons List are available through
Financial Institution Letters.
Maintaining an updated SDN and Blocked Persons list is
essential to an institution’s compliance with OFAC
regulations. It is important to remember that outstanding
sanctions can and do change and names of individuals and
entities are added to the list frequently. Financial
institutions should establish procedures to ensure that its
screening information is up-to-date to prevent accepting,
processing, or facilitating illicit financial transactions and
the potential civil liability that may result.
Financial Institution Responsibilities – OFAC
Programs and Monitoring Systems
Financial institutions are subject to the prohibitions and
reporting required by OFAC regulations; however, there
are not any regulatory program requirements for
compliance. Neither OFAC nor Federal financial
institution regulators have established laws or regulations
dictating what banking records must be screened for
matches to the OFAC list, or how frequently reviews
should be performed. A violation of law occurs only when
the institution conducts a blocked or rejected transaction,
regardless of whether the financial institution is aware of it.
Additionally, institutions that fail to block and report a
transfer (which is subsequently blocked by another bank)
may be subject to adverse publicity, fines, and even
criminal penalties.
OFAC has the authority to assess CMPs for any sanction
violation, and these penalties can be severe. Over the past
several years, OFAC has had to impose millions of dollars
in CMPs involving U.S. financial institutions. The
majority of these fines resulted from institution’s failure to
block illicit transfers when there was a reference to a
targeted country or SDN. While the maximum penalties
are established by law, OFAC will consider the Federal
banking regulator’s most recent assessment of the financial
institution’s OFAC compliance program as one of the
mitigating factors for determining any penalty. In addition,
OFAC can pursue criminal penalties if there is any
evidence of criminal intent on the part of the financial
DSC Risk Management Manual of Examination Policies 8.1-49 Bank Secrecy Act (12-04)
Federal Deposit Insurance Corporation