Need an OFAC Compliance Checklist? Look No Further - Federal Lawyer
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Need an OFAC Compliance Checklist? Look No Further

OFAC Compliance Checklist

The U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) is tasked with enforcing the economic sanctions that the United States imposes on foreign powers and parties in order to advance American interests abroad and protect national security. Complying with those sanctions is essential, as the penalties for violating them are severe and the publicity that a violation can create is damning. However, complying with OFAC sanctions is not easy.

This is particularly true in 2023, when there is a lot of upheaval across the globe.

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Dr. Nick Oberheiden
Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd
Lynette S. Byrd

Former DOJ Trial Attorney

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Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

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Joe Brown
Joe Brown

Former U.S. Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara
Linda Julin McNamara

Federal Appeals Attorney

Aaron L. Wiley
Aaron L. Wiley

Former DOJ attorney

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (DOJ)

Chris Quick
Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow
Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Here are five essential points to include in an OFAC compliance checklist, according to OFAC compliance and defense lawyer Dr. Nick Oberheiden, founding partner of the national law firm Oberheiden P.C.

1. Stay Current on the List of Sanctioned and Blocked Entities

A fundamental part of all OFAC compliance mechanisms is to stay up-to-date on all additions and subtractions to the OFAC Specially Designated Nationals and Blocked Persons List, or SDN. This is where OFAC lists the people and companies that are subject to American economic sanctions. Conducting unauthorized business with listed people and companies would lead to serious consequences.

If you do not know who is on these lists, you cannot avoid dealing with them. There is commercial software that is available out there to scan the SDN for hits within your base of customers for the many companies that cannot do it effectively by human eye.

As you can see, though, knowing who is on the relevant lists is only half of the battle: You also need to know whether your company is doing business with them. Knowing who your business partners are can be easy for smaller companies or those that operate in sectors where they only do business with a fairly small number of parties. For other companies like, say, international banks, this can be a huge task.

To make matters worse, during times of political international upheaval, OFAC’s lists of sanctioned parties change rapidly as events unfold. In the immediate aftermath of Russia’s invasion of Ukraine, for example, thousands of Russian people and companies were added to the SDN in a matter of weeks.

2. Monitor Your Foreign Business Partners

It is not enough to avoid doing business with a sanctioned individual or company. You also have to take steps to ensure that you are not unknowingly dealing with one through an intermediary. This can be extremely difficult to do, but OFAC expects you to do it as a part of your due diligence efforts to comply with international economic sanction laws.

Worse, this sort of threat is more common than many corporate stakeholders think it is. Sanctioned individuals and companies – particularly those that have only recently been targeted for economic sanctioning – frequently turn to their networks of associates for help in evading them. When the sanctioned party is powerful, like a foreign political leader, they may go outside their normal network and put pressure on people they may have had little prior connection with, coercing them into acting as their intermediary to evade sanctions, often under threat of retribution for refusal.

This can pose a threat to companies that have a trusted business partner in a risky part of the world. It is crucial to keep a close eye on how they act to detect the signs of duress that might indicate that they have become an intermediary for a party that is the target of economic sanctions by OFAC.

3. Stay Apprised of Current Foreign Affairs

Companies should also stay up to speed with foreign developments that could lead to additions to the OFAC’s list of sanctioned parties. This can allow companies to prepare for the likelihood that sanctions will be imposed on their customers or business partners and take the appropriate steps even more quickly.

Dr. Nick Oberheiden, an OFAC compliance and defense lawyer at Oberheiden P.C., also thinks that keeping apprised of foreign affairs in areas that your company does business in has another benefit: “OFAC understands that compliance is difficult to achieve, and so will often take into consideration the steps that a company has adopted, even if they ended up failing to prevent a violation. Companies that make substantial efforts to achieve compliance but fail to do so are generally treated less severely than companies that ignore their legal obligations to avoid sanctioned parties. Showing that your business was trying its best will not just minimize the odds that it violates OFAC sanctions, it may also reduce the penalties of an inadvertent violation if it does arise.”

4. Be Wary of Cryptocurrencies

Sanctioned parties have made heavy use of cryptocurrencies to evade sanctions in the early days of digital assets. They believed the marketing of digital coins like Bitcoin that the blockchain technology that ran the asset made transactions untraceable.

Based on recent developments and the numerous criminal charges for white collar offenses that have been filed against cryptocurrency adopters, advocates, and fund managers, it seems clear that law enforcement agents have cracked that allegedly untraceable code.

Transacting with someone who insists in using cryptocurrency should be done only at your own risk. Not only is there a substantial chance that they are only demanding that business be done in a digital coin because they want to avoid some sort of international sanction against them; but now there is also a good chance that the transaction will be traceable to your company, as well.

5. Know That No Checklist Works for All Companies

Unfortunately, there is no all-encompassing OFAC compliance checklist that can be used by any company that is worried about an investigation by the agency. Each company is different and will be exposed to different risks. That will alter what the checklist should include.

For example, the checklists of financial institutions would also have to include details about how to handle a suspicious customer transaction, including when to block them and how to report them to investigators. Other types of businesses and companies will not have these same concerns.

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