Businesses operating in foreign jurisdictions face numerous compliance challenges as they find it difficult to navigate the right path that simultaneously aligns with their business growth and the said compliance program. OFAC compliance is one such challenge if your business transactions in any way engage with the U.S.A. financial framework. In just the second half of 2023, the OFAC imposed more than a 984 million dollar fine on firms for not complying with the OFAC compliance program. 

The OFAC program is non-negotiable; if you violate the law or make a shipment with the one identified by OFAC, whether intentionally or unintentionally, you will have to face the sanction violation. So, companies must implement OFAC compliance programs within their business jurisdiction, as this regulation is different from the other regulations and laws that offer relaxation over the intent requirements.  

This writing will delve into the OFAC compliance program, OFAC screening lists, and the four best practices for screening OFAC. 

Understanding the OFAC Compliance Program

OFAC, the well-known unforgiving watchdog, was established in 1950 as a substitute for FFC (Foreign Funds Control). The ultimate goal behind the Office of Foreign Assets Control’s establishment is to freeze the assets of people and countries involved in any sort of conflict, including political and regional conflicts. 

The OFAC compliance program restricts individuals and businesses from accessing blocked or frozen assets. The body also enforces trade and economic sanctions on individuals and entities based on their national security goals. The body obliges every business to set up its own sanctions compliance program and comply with the OFAC rules and regulations to avoid business penalties and fines.  

Which Sanction Lists Fall Under OFAC Sanctions?

• SDN (Specially Designated Nationals) List
• Ukraine-Russia Related sanctions list 
• Syria Sanctions list 
• List of Iran Sanctions 
• Consolidated sanctions 
• CNT (Counter Narcotics Trafficking sanctions) 
• Russian Sanctions

Four best OFAC compliance screening Practices  

Businesses must follow the OFAC compliance program to avoid facing penalties and business sanctions. The screening against the OFAC designated lists can help organizations save from interacting with any individual or entity restricted from doing business in the United States of America. The four best screening practices are as follows.

1. Review SDN (specially Designated Nationals)

In the earlier part of our writing, we have outlined the list included in the OFAC search list. Screening or reviewing against the specially designated nationals can give you an early signal to avoid making any business deal with such entities. The SDN list includes individuals, groups of entities, terrorists, and traffickers. OFAC blocks and freezes the assets of such entities and strongly prohibits its residents from making any business deal with them.  

2. Understand the Half Ownership Principle

“According to OFAC’s 50 percent rule, if sanctioned individuals or entities own half of a business’s assets, the Treasury Department will also treat the other half as blocked and subject to sanctions.” Understanding the 50 rules is quite important for businesses because sanctioned individuals often try to hide behind the complex ownership structure.

In the latest update of OFAC rules, the body regulates that an entity will be blocked whether it is owned directly, indirectly, or by multiple sanctioned people. 

3. Track Entities that follow the 50 percent rule

Exporters and traders must look for a company that strictly follows the less than 50 percent rule even though the company does not have a good reputation in the market yet. At some point, the company will be more than that. Therefore, businesses, particularly exporters, must keep themselves away from those clients with more than 50 sanctioned or blocked entities in partnership.

4. Use the Advance Restricted list OFAC Scrubbing Software.

Using the advanced, integrated AI and ML OFAC search software is the best practice for following the OFAC compliance program; AML Watcher provides one such screening tool that contains the dataset of all the originated lists by the OFAC. The AML Watcher screening tool was designed with the requirements and issues faced by exporters to address the problems as per the OFAC program.

When must companies Run OFAC compliance program? 

For businesses running in the US jurisdiction, an organization needs to comply with its own compliance programs based on the OFAC program. Under the program, the management and team must be trained to minimize any chances of liability for sanctions. OFAC required the company to have a compliance program in force particularly when:

• Build business relations with high-risk customers
• Engagement with a business that has a higher risk of OFAC sanctions violations
• Financial transactions with international business at large volume
• Offer product services – particularly electronic products and services
• Engage in many transactions at a time or with a business that has more chances of having nexus to the sanctions program 

To avoid OFAC sanctions, businesses need to build relationships with the parties best at handling the compliance issue. Don’t follow traditional compliance methods anymore and share hands with AML Watcher, which offers the best screening tool not just against the OFAC sanctions lists but also against thousands of other screening lists, including the PEPs, Global watchlist, and Adverse Media screening.