Staying Ahead of Sanctions
For compliance professionals in the U.S. financial sector, understanding the role and requirements of the Office of Foreign Assets Control (OFAC) is essential. A division of the U.S. Department of the Treasury, OFAC administers and enforces economic and trade sanctions aligned with U.S. foreign policy and national security goals. These sanctions target countries, regimes, terrorist organizations, narcotics traffickers, and individuals engaged in illicit activities.
Who Must Comply?
OFAC regulations apply broadly and affect a wide range of U.S. persons and entities, including:
Banks and credit unions
Money services businesses (MSBs)
Fintech companies
Insurance firms
Investment companies
Payment processors
Brokerage firms
Credit card networks
Virtual asset providers
Trade and export companies
Any entity that facilitates financial transactions, directly or indirectly, must ensure compliance with OFAC’s requirements. In addition to U.S.-based institutions, many businesses and financial entities outside the United States also adopt OFAC compliance practices to maintain access to U.S. markets and ensure the ability to transact with U.S. companies and financial systems.
Core Elements of an OFAC Compliance Program
A well-structured sanctions compliance program (SCP) should include:
Risk Assessment: Identify exposure to sanctioned jurisdictions, products, services, and counterparties.
Policies and Procedures: Clearly documented, risk-based guidelines tailored to the institution’s operations.
Screening and Monitoring Tools: Use automated systems to screen against OFAC’s Specially Designated Nationals (SDN) list and other watchlists. Some well-known and highly reputable programs include LexisNexis Risk Solution and Dow Jones Risk and Compliance. There are also more affordable options like ComplyAdvantage and RiskScreen.
Employee Training: Regular, role-based training on sanctions rules, red flags, and escalation procedures.
Escalation and Reporting Protocols: Processes for blocking or rejecting transactions and reporting to OFAC within required timeframes.
Independent Testing and Auditing: Periodic reviews to ensure program effectiveness and regulatory alignment.
Enforcement and Penalties
Failure to comply can result in civil penalties reaching millions of dollars, reputational damage, and operational disruption. OFAC encourages a risk-based approach and considers mitigating factors like voluntary disclosure and program maturity during enforcement evaluations.
Why It Matters
In a rapidly evolving geopolitical climate, sanctions regimes shift frequently. U.S. compliance professionals must remain proactive, leverage technology, and integrate OFAC considerations across all lines of business. A strong sanctions compliance program not only safeguards the institution but also reinforces the integrity of the U.S. financial system.
