OFAC Rules in General

In general, OFAC rules prohibit financial institutions from engaging in transactions with the governments of or individuals or entities associated with foreign countries against which federal law imposes economic sanctions. Federal law also imposes sanctions against certain countries associated with terrorists and against narcotics traffickers and their front organizations. OFAC rules prohibit transactions with these entities as well.

OFAC maintains a list of entities and individuals against whom these restrictions apply. You will need this list, known as the “SDN-BE list” (Specially Designated Nationals and Blocked Entities) in order to comply. You will also need what is known as “interdict” software. Interdict software searches transactions for names which match names on the SDN-BE list and alerts you of any matches so you can reexamine the transaction and decide what action, if any, you need to take. Some software will even prepare documents needed for meeting the reporting and record-keeping requirements.

Interdict software is not mandatory. It seems to us, however, that you will need it in order to comply with OFAC rules on anything more than a haphazard basis. Furthermore, OFAC says, “While OFAC does not treat even completely automated processing of violative transactions as a full defense in civil penalty proceedings, it does favorably consider a bank’s business decision to use interdict software as well as other good faith manual and electronic compliance efforts in determining mitigation.” (Foreign Assets Control Regulations for the Financial Community, p. 3, OFAC, February 16, 2007)

The SDN-BE list changes from time to time, so you need to be sure you are dealing with the current list regardless of whether you are using interdict software. Most versions of interdict software, we are told, update the list daily.

After each entry in the SDN-BE list is a bracketed reference indicating why the entry is there. For example, one of the entries in the March 7, 2007, list reads as follows:

The “[SDNTK]” at the end of the entry means that this entity’s identification as a “Specially Designated Narcotics Trafficker” is why the entity is on the SDN-BE list. If you were considering a transaction with this entity or if you held property in which this entity had an ownership interest, you would need to determine what the OFAC rules are with respect to SDNTKs. (OFAC rules vary depending on the country with which the entity is associated and/or the reason why the entity is on the SDN-BE list.)

There are a number of ways to do this. First, you could read the OFAC regulations on the sanctions against SDNTKs. Be warned, however, that reading these regulations is no small trick—they’re lengthy, complex, and obscure. You can find the regulations on SDNTKs at 31 CFR Part 598.

Second, you could refer to any one of a number of OFAC publications which are somewhat more user-friendly than its regulations. One is a 52-page booklet entitled Foreign Assets Control Regulations for the Financial Community. OFAC also has separate brochures dealing with the rules for each country. The booklet and the brochures are available through the Internet at OFAC’s home page:

http://www.ustreas.gov/offices/enforcement/ofac/

(This web site also enables you to access all the OFAC regulations cited in the previous paragraph.) The OFAC booklet also lists a number of other electronic sources for information on OFAC and its rules.

Third, you could call OFAC at its special toll-free telephone number for financial institution compliance inquiries. The number is 1-800-540-OFAC (6322). OFAC also has a Miami branch office with a special bilingual hot line relating to information about the Cuban embargo. That number is (786)845-2829. The complexity of the OFAC regulations and even OFAC’s booklet and brochures suggests to us that these hot lines might be the most useful of the compliance resources available to you.

You also need to be aware that even if an individual’s or an entity’s name is not on the SDN-BE list, you may not be free to engage in transactions involving that person. You need to be alert, therefore, to any references in your transactions to the countries listed at https://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx. Should you come across such a reference, you should contact OFAC through its hot line even if the reference does not match any name on the SDN-BE list.