The Office of Foreign Assets Control (OFAC) is an enforcement agency of the United States Department of Treasury. Under Presidential national emergency powers, OFAC acts to restrict transactions and freeze assets under jurisdiction of the United States. Many sanctions are multinational in scope, are based on instruction by the United Nations and other international government and involve the cooperation of allied governments.
OFAC implements economic and trade sanctions based on United States foreign policy against:
OFAC enforces the Tradition with the Enemy Act, which restricts trade with countries hostile to the United States. It also enforces other national emergencies, depending on which ones are in effect. It uses sanctions to apply financial pressure to targeted individuals or nations.
OFAC gains its authority from United States federal law concerning embargoes and economic sanctions.
Preventing prohibited transactions is a goal for OFAC. OFAC describes these transactions as trade or financial negotiations or other dealings that people from the United States may not engage with unless authorized by OFAC or exempted by statute.
It also focuses highly on terrorism. OFAC has a Specially Designated Nationals (SDN) list, which is a list of individuals and companies who are affiliated with or from targeted countries. It also lists individuals, groups and entities restricted under programs that are not country-specific.
OFAC has the freedom to exempt particular transactions from prohibition and allow them to occur. This can be achieved by issuing a license for certain categories of transactions or by issuing a specific license on a case-by-case basis.
Criminal penalties apply to institutions or individuals that knowingly and willfully commit OFAC violations. Civil penalties, in contrast, apply to institutions or individuals who non-willfully commit OFAC violations.
According to OFACs Final Rule, penalties for transaction that have occurred after November 2, 2015 are as follows:
2018 Maximum Civil Monetary Penalties
If you are a financial institution or an insurance company it is important to make sure you do not do business with anyone on the OFAC SDN list. This can lead to KYC and AML violations for dealing with these individuals or countries and can result in severe fines, as noted above.
Consult with an attorney to ensure an OFAC check is right for your business. If it is deemed as an important step in safeguarding your business, consider using IDMERIT’s business verification solution, IDMkyc, to validate all businesses and individuals you interact with. IDMkyc can check that these individuals and businesses are legitimate and that they are not a part of the OFAC SDN list.
The Financial Action Task Force (FATF) describes politically exposed persons (PEP) as follows:
PEP is a term to describe individuals with formal political power along with informal, yet influential political people. This definition is closer to the political reality in many countries and how it correlates with a country’s corruption and money laundering patterns.
Former public officials and elected officials do not lose their influence once they are out of office; rather, they move their influence elsewhere and assert it in different ways than how they used it while in office.
A person who was once a PEP could always remain a PEP under the definition given by the FATF. How to deal with a previous PEP should be based on risk assessment rather than on an imposed time limit. The risk-based approach requires that an anti-money laundering and terrorism financing assessment be made on a PEP who is no longer entrusted with a prominent public function, and that effective action to mitigate risk take place.
Some factors that affect risk include:
Who to Check and When
Performing a PEP check should occur before entering a business relationship with someone. The idea is that a PEP would be discovered before any business relations are established. Existing clientele should be monitored on an ongoing basis as well. This helps ensure that their funds are not being sourced from a corrupt entity.
Who should Undertake PEP Screenings
Any bank or financial institution that must follow anti-money laundering regulations should perform PEP screenings during their client onboarding process. This should be a part of a comprehensive Know Your Customer (KYC) program.
Guidelines for Dealing with PEPs
Institutions should have appropriate risk-management system in place to determine if a customer is a PEP according to the FATF. Senior management should approve all business relations occurring with PEP customers. Before entering business with a PEP, reasonable measures should be taken to establish the source of their funds. Furthermore, ongoing monitoring should be established throughout the business relationship.
If you are a financial institution or an insurance company it is important to make sure you know when you are doing business with a PEP. These individuals are more likely than others to be involved in bribery or corruption due to the influence they hold through their position. This can lead to KYC and AML violations for dealing with these individuals or countries and can result in severe fines for violations.
Consult with an attorney to ensure a PEP check is necessary for your business. If so, consider using IDMERIT’s identity verification solution, IDMkyc, to validate all individuals your company interact with. IDMkyc can check whether an individual is a PEP or not.