In the alphabet soup of government agencies, OFAC looms large for financial institutions.
Sometimes considered one of “the most powerful yet unknown” government agencies, the Office of Foreign Assets Control—a part of the Treasury Department—enforces economic and trade sanctions in support of U.S. national security and foreign policy.
Simply put, many bad actors attempt to realize their plans via financial means, including fraud, theft, banned commercial trading, or the funding of terrorism. Banks that fail to adequately screen their customers can face huge penalties.
In addition to national security, many countries including the U.S. have established Know Your Customer (KYC) and Anti Money Laundering (AML) requirements to head off fraudulent transactions. A key way for banks to do this is to clearly identify their legitimate banking clients and business relationships so the bad operators become more obvious and identifiable.
Paying the OFAC Penalty
Not doing so adequately can be costly.
In 2014, OFAC imposed penalties amounting to $963 million (as part of a $8.9 billion total settlement) against the French banking group BNP Paribas for actively obscuring the identities of OFAC-targeted parties and their financial transactions within the U.S.
BNP Paribas was guilty of more than just violating an obscure U.S. banking policy. The court found that some of the monies transferred illegally were used to fund terrorist bombings. In the world we live in today, it has never been more important for financial institutions to “know your customer,” a process with immense moral as well as financial consequences.
Helpfully, OFAC has published extensive lists of sanctioned countries, regimes, terrorists, narcotics traffickers, and others who pose threats to our national security and economy—and threats as well to the risk exposure of banks.
OFAC’s Specially Designated Nationals And Blocked Persons list, SDN for short, provides a searchable online database of such persons. Alternately, you can access an immense list, either in PDF or Text format, of every designated SDN in the world, screened by country.
I said initially that the OFAC list is helpful, but in a real world I don’t think it really is. Most egregiously, it’s not automated. The search process is name-by-name requiring you to fill in numerous fields.
Moreover, any list goes stale quickly. OFAC updates its SDN list regularly, but sometimes days go by with no changes.
A more advanced OFAC tool is its Sanctions List Search tool, which employs “fuzzy logic” for name searches. This is intended to parse people with aliases, or match spelling and transcription variations against sanctioned individuals.
A score of 100 means a perfect match, but in reality there’s no such thing as perfection. Where does a bank set its red-flag alerts? At 50? At 25? Again, bankers need a finer, more granular tool.
Other OFAC sanctions lists include one of foreigners who have aided other sanctioned entities in the past, and a list to identify shady operators within the Russian economy. No doubt the recent indictments against Russian political email hackers will be part of an updated list here, if they haven’t been added already.
While the various OFAC lists are helpful and as current as humanly possible, many of them overlap, some decay more frequently, and others are updated less regularly than others.
Bankers should spend their time providing banking services, not continually updating watchlists. Especially when a bank crosses country borders, the number of lists and items to account for can grow extremely rapidly.
The Melissa Solution
Just as the digital world has enabled bad players and victimized banks worldwide, technology is fighting back with sophisticated Know Your Customer tools.
Melissa’s identity verification service allows corporations to the authenticity and credentials of new or existing customers and transactions.
The first step of our service validates and corrects the individual contact pieces. We can correct and standardize incoming address, names, phone numbers, and emails so that we are comparing apples to apples.
The next level is the matching of contact pieces, like confirming the name, address, and national ID are consistent and valid. This allows our clients to gain a degree of confidence against fraud and mistakes.
Additionally, watchlists (including OFAC) are deeply integrated and continually updated to allow you to check against authoratitive sources of known fraudulent as well as suspicious individuals and corporations. Currently, Melissa has over 20 U.S. and international sanctions and watchlists available and it is growing constantly. You can view the up-to-date list here.
The bottom line is this:
Financial services institutions are increasingly under the OFAC gun for making sure they deal only with customers and institutions that comply with U.S. national security regulations. Melissa’s fintech technology helps you stay on top of your AML and KYC initiatives by identifying legitimate customers and flagging suspicious data, all in real time.