The OFAC Sanctions Compliance Checklist Your Company Needs - Federal Lawyer
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The OFAC Sanctions Compliance Checklist Your Company Needs

OFAC Tornado Cash sanctions

Complying with the economic sanctions imposed by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) is difficult, even when times are quiet. When there is global upheaval and OFAC is amending its list of sanctioned individuals and companies every week, it becomes far more complicated.

2023 is shaping up to be another year of conflict. OFAC is going to continue to make rapid adjustments to its Specially Designated Nationals and Blocked Persons List (SDN), making compliance with those sanctions far more difficult for companies across America. Even well-meaning compliance experts and corporate executives can run afoul of U.S. economic sanctions and do business with a target of one of those trade embargoes.

Dr. Nick Oberheiden, founding partner of the defense firm Oberheiden P.C. and an OFAC compliance and defense attorney, thinks that every checklist should have at least these five different points on it.

1. Do Your Due Diligence on New Customers

New customers or clients probably present the biggest threat to companies when it comes to liability under U.S. economic sanctions laws. While every business needs new customers to expand, companies that want to comply with the laws enforced by OFAC need to take reasonable steps to ensure that the new customer is neither directly sanctioned by the United States nor acting on a sanctioned party’s behalf.

Running new customers through OFAC’s SDN lists can be an extremely daunting task for companies that have lots of customers, like banks. Software is available that will search the SDN for a particular name or company and that can compare the names of sanctioned individuals with your company’s existing client list to check for hits. Using it is often in your best interests.

Things get more complex when you take into account the fact that many, if not most, sanctioned parties try to evade sanctions by using intermediaries to do business on their behalf. OFAC forbids you from dealing with these intermediaries, as well. While the agency understands that it can be nearly impossible for a company to determine whether someone is acting as a middleman for a sanctioned party or not, it still expects companies to do their due diligence and to act appropriately based on what they find.

2. Watch Known Clients for a Change in Status or Behavior

Existing clients can also pose a threat for OFAC violations if they become targets for OFAC sanctioning or if they start working as an intermediary for a sanctioned party.

Closely monitoring the SDN lists is essential for finding out if a customer or business partner has been targeted by OFAC for sanctioning. Once you discover that they have been, you will likely have legal obligations to freeze their account and report the incident. This is particularly important for financial institutions, like banks and credit unions, to follow promptly, as newly sanctioned companies and individuals are likely going to try to withdraw their funds as soon as they learn that they have been sanctioned by the U.S.

It is far more difficult to detect when a known, and possibly even trusted, business partner or customer becomes an intermediary for someone who is sanctioned. Nevertheless, OFAC expects companies to investigate whenever suspicious signs present themselves.

3. Keep Up With International News

OFAC’s decision to sanction someone is rarely a surprise. The agency sanctions people, companies, movements, and organizations that pose a threat to the national security of America or who imperil America’s interests abroad. Companies can get ahead of OFAC by keeping up with international news and avoiding business transactions with anyone who seems likely to be targeted with sanctions in the near future.

Importantly for 2023, this means not getting caught up in the Ukrainian conflict to the exclusion of all other international news. While the war in Ukraine is dominating headlines, there have been lots of developments that could lead to sanctions in other areas of the world, such as:

  • The civil war in Sudan
  • Ongoing fallout from the Syrian civil war
  • Iran’s support of Russia in the Ukrainian war
  • North Korea
  • Drug- and gang-related developments in Central America forcing migrants northward

By staying up-to-date in these developments, your company can avoid exposing itself to potential legal liability.

4. Always Monitor OFAC’s Lists of Sanctioned Companies

It should go without saying that constantly monitoring the SDN and other lists of sanctioned parties is one of the most fundamental aspects of OFAC compliance.

Dr. Nick Oberheiden, an OFAC compliance attorney at Oberheiden P.C., often tells clients, “If OFAC compliance is a priority or a concern, signing up for one of the automatic notification mechanisms that OFAC provides on its website is usually the more reliable way to stay current.”

5. Never Forget That Your Business Faces Unique Legal Threats

OFAC compliance checklists are never really complete without a disclaimer that reminds readers that their business is unique, and therefore the legal risks that it is exposed to are unique as well.

Nowhere is this truer than with OFAC compliance.

Companies that do not do business abroad at all have minimal exposure to legal threats from OFAC. Those that have relatively few international business contacts will have more potential exposure, but it will really depend on who the contacts are. Financial institutions, however, can have millions of customers or clients in dozens of countries, each one with one or multiple accounts for the institution’s OFAC compliance personnel to watch over for signs of wrongdoing.

Additionally, businesses can take on new risks of legal liability in a variety of circumstances, such as:

  • A merger or acquisition with a company that has international ties or business relationships
  • Switching to an international supplier
  • Buying products from abroad

These and other business moves can lead to international contacts that need to be vetted. Taking those necessary steps can be arduous and can feel like they slow business down to a crawl. However, the penalties of violating OFAC sanctioning laws are severe and the bad publicity that companies are likely to get from a mere OFAC investigation can seriously tarnish their reputation.

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