The Office of Foreign Assets Control (OFAC) is a division of the Department of the Treasury and is responsible for insuring that United States entities are not involved in transactions with "enemies" of the United States, as defined by various executive orders and Acts of Congress. Financial institutions are expected to comply with the set regulations and can be fined for accidental violations. OFAC has the authority to apply penalties of up to $5 million and 30 years on jail if violations are found. Large regional financial institutions have been implementing OFAC checking systems over the past few years and now make a habit of checking high risk areas such as: new accounts, wire transfers, and customer files.
Smaller financial institutions have been much slower to implement systems such as these. This is due primarily to the following reasons:
- A lack of knowledge of the regulations
- Their perception of being at low risk
- The high cost of software solutions
The OFAC issue has been the "hot topic" at many financial conferences over the past couple of years. Ignorance on this issue can result in being treated much more harshly than a mistake in a flawed system. The worst possible response a financial institution could use when confronted with an OFAC violation is "What is OFAC." As stated above, many smaller community institutions are convinced that they are at minimal risk for any of this activity; so investing in a filtering system seems ridiculous. This is a very flawed assumption since many of the violations that occur are accidental instead of intentional. For example, if a student receives wired funds from parents at an OFAC blocked institution located abroad it is in direct violation without even knowing it. Other OFAC entities that are trying to avoid having their transactions blocked may resort to targeting community financial institutions instead of regional institutions to avoid being filtered.
The federal government and the U.S. Sentencing Commission has established a methodology for managing OFAC compliance:
- High-Level Oversight
- Proper Delegation
- Effective Communication
- Auditing and Monitoring
- Uniform Enforcement
- Continuous process improvement
Knowledge about the US Patriot Act along with OFAC compliance has become commonplace as of late. The potential cost of non-compliance can be extremely high so accurate software solutions are invaluable to community financial institutions. SS&C's BANC Mall Loan Center can aid in this process. All of our consumer credit reports from Trans Union, Equifax and Experian have the option of scanning the OFAC list instantly via the Internet. It is a fast and easy way to keep your institution in compliance with the US Patriot Act.