While working with professionals in the compliance world, I have encountered two surprisingly difficult areas to make sense of, and make correct decisions about, when addressing due diligence with OFAC screening activities.
Read on, and let me know if this sounds familiar to you.
First is OFAC’s “Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked,” which was published August 13th, 2014, and roughly states that if an entity is partly owned by one or more blocked parties, and the portion of that ownership is, or adds up to, at least 50% of the entity, then that entity, even though it is not listed on any Specially Designated Nationals list, is also blocked.
WAIT, WHAT? THEY’RE NOT ON AN OFAC LIST?
How can you screen for blocked entities that are not even listed as blocked entities? Well, first of all, you need to consider whether or not this revision affects your company’s business. If you work with a large company that has an international, public-facing business, like VISA or MasterCard, or even Moody’s, then OFAC’s revision will definitely affect your compliance practice.
Credit card companies in particular work with banks and businesses in other countries to offer and support their services internationally. In their field, they have to be aware of who owns how much of which company, but fortunately for them they likely have access to this information already, and have already begun to create their own internal inclusions lists.
Regardless, there is still an opportunity to make a mistake. What’s important is your ability to show due diligence and due process. You need documentation to show that all attempts to vet any individuals and entities involved in a transaction were returned in the clear on a particular day with no information to the contrary. Typically, using a third-party OFAC screening solution takes care of this for you by recording each screening instance to a secured log of your company’s compliance activities. In the event there’s an error, and your company is audited, you will have a verified record of your diligent compliance screening.
Alternatively, look for an OFAC screening solution that is monitored and updated to reflect changes to the lists and laws. A good OFAC/AML compliance solution provider will keep a constantly updated index of lists. If a change in the law might provide an alternative result for a screening you’ve performed in the past, a good solution will send you an email with all the information about the new potential match. Make sure your screening history is being rescreened by your solution provider.
SO WHAT’S THE OTHER DIFFICULT OFAC SCREENING SURPRISE?
Right, this other area is similarly and equally cryptic and tricky, and it has to do with incidents that have yet to pass through the courts. It happens that cases pending trial will be scrutinized by the DDTC for any compliance related keywords. Companies and individuals involved in those trials cannot be listed as blocked until they’re proven guilty. Well, the DDTC has a way of blocking these entities and individuals without officially listing their names or any of the companies involved.
Every document from every trial is literally scanned by the DDTC for any reference to compliance related charges, and any individual or company involved in those court cases is listed internally with the DDTC. When a company applies for a license through the DDTC and includes one or more of these particular companies or persons, the license is returned denied. Though there are no fines for attempting to work with individuals in these cases, it is up to your Compliance Officer to determine why the application was blocked at all. How could you have possibly known?
When everything is clearly defined, it’s either one or the other—debarred or not debarred. It’s when we get into these grey areas of the law that the job of the compliance officer becomes more difficult to perform and the performance of the OFAC screening solution more vital.