Regulations

OFAC Corporate Compliance Software

OFAC violations can lead to criminal prosecution with penalties up to 30 years in prison. Corporate fines can be up to $10 million per transaction, individual fines to $5 million per count. Civil penalties, per incident, vary with the value of the underlying transaction—the sky is the limit.

While the OFAC list of Specially Designated Nationals (SDNs) with whom no company can do business pre-dates September 11, 2001, the terrorist attacks prompted the adoption of new counterterrorism laws, a sharp rise in new designations, and more aggressive enforcement by the Treasury Department and other federal and international agencies.

Most names on the lists are designated by the U.S. government as being linked to terrorism, narcotics trafficking, foreign governments subject to U.S. sanctions, or the proliferation of weapons of mass destruction. While the specific requirements of the laws giving rise to these designations vary, in general, no one in the United States may do business with anyone on the list.

In addition to freezing assets of suspected terrorists and their supporters, the law forbids anyone in the United States from engaging in "any transaction or dealing" with designated persons.

There's a dangerous misconception that only companies offering "financial services" are susceptible to terrorist financing—however, financial companies, credit and securities dealers, car and boat agencies, insurance firms, travel agencies, real estate agencies, and charities in particular are all subject to the regulations. Nothing could be further from the truth! The regulations extend responsibility to all U.S. citizens, permanent residents, entities organized under U.S. law, and anyone present in the United States. In addition, the order makes no exception for minimal transactions: even sales worth just a few hundred dollars have been penalized. The publically available list of offenders includes companies across the spectrum from banks to manufacturers to cruise lines—and everything in between.

Companies across the nation are beginning to check names against lists before they open an account, close a sale, make a purchase, or offer a job.

Those who start checking manually soon find the task a dreadful burden. Molly Millerwise, Treasury Department spokeswomen acknowledges, "There are challenges in complying with the rules, but with the help of technology [a] company is not only sure that they are complying with the law, but they're also being good corporate citizens." Minimizing the impact on normal business processes requires smart, sophisticated matching algorithms, workflows, audit controls, and expert-level knowledge packaged into bite sized, process-specific units.

The steep penalties for businesses that engage in transactions with designated persons, coupled with the government's broad definition of financial services and requirement to screen all parties and transactions regardless of industry or risk-level has led to the expansion of OFAC screening in a great many circumstances.

OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, imposes controls on transactions and requires the freezing or blocking of assets of designated entities. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.

OFAC sanction programs rely on U.S. business blocking or freezing the assets of sanctioned parties, refusing to transact business with them, and abiding by trade restrictions. Therefore, given the ease with which U.S. markets can be accessed and the degree to which globalization has affected businesses across industries at all trade levels, OFAC penalties for non-compliance necessarily carry heavy penalties.