Six Tips for Complying With OFAC and FINRA Enforcement - Federal Lawyer
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Six Tips for Complying With OFAC and FINRA Enforcement

OFAC and FINRA Enforcement

U.S. securities professionals occupy a complex place in the global financial landscape. They manage and invest billions of dollars of other people’s money and stand between investors who want to maximize their returns and organizations who desperately need an influx of cash to expand or just to get off the ground.

This triggers an important and, for 2023, increasingly chaotic area of the law: International economic sanctions. Securities professionals have to ensure that they are not providing their investment services and advice for the benefit of entities that are under U.S. economic sanctions – sanctions that are enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).

Violating OFAC sanctions can lead to serious penalties, as well as an additional and independent enforcement action by the Financial Industry Regulatory Authority (FINRA).

The costs of a violation are severe. Here are six tips for complying with this important area of the law, according to OFAC and FINRA defense counsel at Oberheiden P.C.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden



Lynette S. Byrd
Lynette S. Byrd

Former DOJ Trial Attorney


Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

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

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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)

1. Whenever Possible, Combine Compliance Efforts

Many compliance executives and officers at brokerage firms feel overwhelmed by the obligations that they have to satisfy in order to insulate their securities company from legal liability. What many of them fail to notice are the numerous opportunities for “double compliance,” where a single step can further the compliance efforts on multiple fronts.

An excellent example is the “Know Your Customer” (KYC) requirements that securities professionals have to satisfy. Other laws that regulate securities professionals require them to take steps to ensure that the person purporting to be their customer is actually their customer, and not just an intermediary for someone else.

The KYC requirements, however, can also be very useful for complying with the U.S. economic sanctions that are enforced by OFAC. It is very common for sanctioned parties to use intermediaries to continue to conduct business with American companies. Applying your KYC efforts to foreign parties can help you see through this common tactic used to evade sanctions. This can preserve your company’s integrity.

2. Constantly Monitor SDN Lists

International sanctions law is usually a fairly sleepy legal landscape. However, the global turmoil that began in the past couple of years – culminating in the Russian invasion of Ukraine and the economic sanctions that subsequently fell on well-connected Russian nationals and companies – completely changed that. Now, it is a rapidly evolving area.

Nowhere is that more apparent than in the Specially Designated Nationals and Blocked Persons List (SDN) that OFAC maintains, and that FINRA mirrors on its website for the benefit of regulated securities professionals.

The SDN list is where OFAC names all of the parties, individuals, companies, and other organizations that are currently subjected to U.S. sanctions. While it used to get changed rarely and only slightly, in 2023 it has gotten changed fairly drastically nearly every week.

Keeping up-to-date with all of those amendments is essential for OFAC compliance and to avoid FINRA scrutiny. Signing up for email or RSS notifications for new versions of the list is paramount in 2023.

3. Predict Where New Sanctions Will Get Imposed

Securities professionals can get ahead of OFAC, though. By monitoring international news for the signs of conflict that often precede the imposition of U.S. sanctions, you and your brokerage firm can take appropriate action before those sanctions get imposed.

Remember that the U.S. imposes economic sanctions on entities that threaten national security or America’s interests abroad.

If you notice one of these threats developing and escalating, it can be a wise move to prepare for the possibility that sanctions will be imposed so you can satisfy your compliance obligations immediately, rather than scramble to keep up.

4. Determine Whether Your Firm is a “Financial Institution” Under OFAC Regulations

A serious issue that some securities firms make is that they presume that OFAC compliance obligations are the same for everyone. However, entities that fall under the guise of a “financial institution” have significantly higher standards to meet and obligations to satisfy.

Worse, 31 C.F.R. § 561.309 defines “financial institution” under OFAC law far broader than some securities professionals would anticipate. Its definition covers U.S. entities that “purchase or sell foreign exchange, securities, commodity futures or options.”

If your brokerage firm handles foreign securities, that can mean that you are a financial institution and subject to the additional compliance obligations that come with the title.

5. Make Sure the Basic Components of OFAC Compliance are Accounted For

The good thing about coming into compliance with OFAC requirements is that OFAC is very up front about what they expect. This is because it is in the agency’s interests to give domestic companies the tools they need to take the steps necessary to avoid violating sanctions. If U.S. companies were not guided by the hand through this complex process, sanctions violations would be far more common and OFAC’s job would be far more difficult.

To this end, OFAC releases extensive guidance on how to avoid dealing with sanctioned parties and entities. That guidance is often broken down into five component parts:

  1. A commitment from management to take OFAC compliance seriously, as that can create an attitude that seeps down to the workers who are actually in charge of seeing it through,
  2. Risk assessments and reviews that find areas of increased risk for the company,
  3. Internal controls that give employees the procedures they need to detect potential OFAC violations and report them up the chain of command,
  4. Auditing that tests the compliance system to ensure it is working properly, and
  5. Training and retraining of relevant professionals within the company.

However, OFAC also stresses that each company will have unique needs to address in order to come into compliance and avoid violating economic sanctions.

6. Remember, FINRA Can Also Conduct an Investigation

OFAC investigations for potential violations of U.S. sanctions are not the only thing that you have to worry about: They frequently lead to FINRA investigations that can lead to significant administrative penalties against you or your firm.

“While the penalties of violating OFAC sanctions are often more severe than the ones that FINRA can apply, that does not mean that FINRA’s penalties are trivial. You could get suspended for a long time or completely lose your license to trade securities if you violate U.S. economic sanctions, even if it is inadvertent.” – Dr. Nick Oberheiden, founding partner of the OFAC and FINRA compliance and defense firm Oberheiden P.C.

Nick’s bio:

Dr. Nick Oberheiden is the founding partner of the national securities litigation defense firm Oberheiden P.C. A firm that only employs senior-level lawyers and investigators, Oberheiden P.C. has helped numerous securities professionals and broker-dealers through the complicated and extremely important area of American economic sanctions, guiding them towards an efficient compliance with the law or defending them against allegations by OFAC or FINRA that there was a violation.

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