It is clear — especially in the aftermath of September 11th — that no bank or financial institution wants to see its name in the headlines as the source of funds that facilitated an act of terrorism. Effective screening of Specially Designated Nationals (SDN) and other government terrorist and law enforcement lists is one method by which the financial services industry and the government can work together to ensure that terrorists don't use our own banks against us. Doing so is now the law.

About OFAC

The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury administers and enforces a series of new laws that impose economic and trade sanctions against targeted foreign countries and their agents, terrorism sponsoring organizations and agencies, and international narcotics traffickers based on U.S. foreign policy and national security goals.

Under these laws, financial institutes, securities firms, and insurance companies are obligated to block or "freeze" property and payment of any funds transfers or transactions, and to report all blockings to OFAC within 10 days of occurrence. Any institution in non-compliance is open to adverse publicity, fines, and even criminal penalties.

Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close co-operation with allied governments.

OFAC acts under presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction.

New Treasury Rules

Recently, as an extension of the U.S.A. Patriot Act, OFAC created new Rules impacting on financial institutions. The objective of these Rules is to eliminate the flow of funds in any form to terrorists (broadly referred to as "money laundering").

These Rules require all U.S. financial institutions (banks, insurance companies, credit unions, etc.) to screen new customers against federal lists of known and suspected terrorists, with an emphasis on Specially Designated Nationals (SDN).

Executive Responsibility

Responsibility for this process will be held at the executive level, and must be a component of an executive involved and approved plan.

U.S.A. Patriot Act, Section 326

Specifically, Section 326 of the U.S.A. Patriot Act calls for the following:

  1. Verifying the identity of any person seeking to open an account, to the extent reasonable and practicable, and;
  2. Maintaining records of the information used to verify the person's identity, including name, address, and other identifying information, and;
  3. Determining whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency.

This means —

  • Financial institutions must have a customer identification and verification program.
  • All new accounts need to be screened against OFAC Specially Designated Nationals and other published lists of blocked persons, criminal suspects, known and suspected terrorists, and designated terrorist organizations.
  • Documents used to identify the new account holder (such as driver's license, passport, social security card, or credit cards) need to be verified to a reasonable and practical extent to determine that the identity is valid.
  • A certified database of all accounts needs to be maintained containing the name, date of opening, identification presented, and the identity verifications, with records retained for 5 years after the account is closed.

Additional related rules are also coming into effect for other large money-handling interests, such as lottery corporations and casinos.

Be prepared for mandatory screening

Screening for Blocked Persons is mandatory under OFAC regulations. Homeland Security meets your screening needs by providing all the tools and content you need to make sure you and your company stay on the right side of the law, and contribute to U.S. national security.

Homeland Security

  • Has a screening process with a proven track record.
  • Is professionally designed to be accurate, fast, economical, and efficient.
  • Is sophisticated yet easy to learn and use.
  • Is Web-based to provide accessibility and the most current data available (you don't have to purchase and load any software, maintain the database, or download lists yourself).
  • We update the lists daily and notify you by email that changes have been made.
  • You have access to an extensive list of applicable federal regulations, rules, and notices in an easy searchable format.
  • Has fuzzy logic to handle all types of spelling problems in order to lessen false-positive flags: for example, missing or extra letters, incorrect letters, transposed letters, names run together, and varying name order, initials, abbreviations, and alternate foreign transliterations.
  • Can batch process large CIF customer databases and provide detailed reports.
  • Provides the option of automatically emailing the search results to yourself to provide an audit trail of all your searches. If a search produces no positive hits, a complete report of all the lists searched is provided for your records.

The MSR E-Mail Escalation System

These features are supported by a real-time notification system. The Homeland Security E-Mail Alert System is configured to suit your needs. You don't need to rely on screening data-entry personnel to ensure senior management is fully informed. Reports are automatically dispatched by email to everyone on your institution's notification list — whether at your local, regional, or national offices — when a possible security breach is detected.

Using Government Lists Can Be Time Consuming

Homeland Security screens all your new accounts against Denied lists from several federal departments, commissions, and agencies, some available over the internet. Some of this information is not published by the government agencies, but appears only in the daily Federal Registry. Using these lists, one by one, is time consuming, cumbersome, inefficient, and extremely prone to errors.

Comprehensive Screening

Homeland Security provides the most comprehensive available service for Blocked Persons screening, including the following lists of particular pertinence to the new banking rules.

Banking and Securities Blocked Party and Law-Enforcement Screening (Domestic)

  • Specially Designated Nationals and Blocked Persons (OFAC)
  • FBI Wanted Fugitives
  • FBI Ten Most Wanted Fugitives
  • FBI Most Wanted Terrorists
  • U.S. Marshals Service - Top 15 Most Wanted
  • U.S. Marshals Service - Major Fugitive Cases
  • U.S. Drug Enforcement Administration - Major International Fugitives
  • U.S. Customs Most Wanted
  • U.S. Postal Inspection Service - Most Wanted
  • U.S. Secrect Service - Most Wanted
  • Bureau of Alcohol, Tobacco and Firearms Most Wanted
  • Air Force Office of Special Investigations - Top Ten Fugitives
  • Naval Criminal Investigative Service - Wanted Fugitives

Banking and Securities Blocked Party and Law-Enforcement Screening (International)

  • European Union Council Regulation on Restrictive Measures to Combat Terrorism [Designated Persons, Groups, and Entities]
  • Interpol Recently Wanted
  • United Nations Consolidated List
  • World Bank Listing of Ineligible Firms
  • OSFI Consolidated List - Individuals
  • OSFI Consolidated List - Entities
  • OSFI Warning List
  • Royal Canadian Mounted Police - Wanted

Alerts are provided for Financial Action Task Force on Money Laundering (FATF) Non-Cooperative Countries and Territories.

Restricted Party Screening

Homeland Security also covers all lists published by other government departments. Principally the Bureau of Industry and Security [BIS] of the Department of Commerce, and the Office of Defense Trade Controls [ODTC] of the Department of State (for exports and munitions orders) as well as the U.S. General Services Administration, and the Office of Inspector General.

  • Arms Export Control Act Debarred Parties (ITAR)
  • Denied Persons List (BIS)
  • Entity List and "Unverified" List (BIS)
  • Specially Designated Nationals and Blocked Persons (OFAC)
  • Foreign Persons Designated Under the Weapons of Mass Destruction Trade Control Regulations (OFAC)
  • Department of State Nonproliferation Orders: Missile Sanctions, Lethal Military Equipment Sanctions, Chemical and Biological Weapons Sanctions, Nuclear Sanctions
  • Department of State ITAR Munitions Export Orders (ODTC)
  • Japan Foreign End Users of Concern
  • GSA List of Parties Excluded from Federal Procurement, Non-procurement, and Reciprocal Programs
  • OIG List of Individuals/Entities Excluded from Federal Health and Medicare Programs

Affected Financial Institutions

The new OFAC regulations are not limited to banks. Insurance companies, securities and investment firms, and import/export trading companies are also subject to OFAC Rules.

More specifically, Section 352 amends the definition of a financial institute to now include:

  • An insured bank (as defined in section 3(h) of the Federal Deposit Insurance Act)
  • A commercial bank or trust company
  • An agency or branch of a foreign bank in the United States
  • A private banker
  • A broker or dealer in securities or commodities
  • A thrift institution
  • A broker or dealer registered with the Securities and Exchange Commission under the Securities and Exchange Act of 1934
  • An uninsured institution (as defined in section 401(a) of the National Housing Act)
  • An investment banker or investment company
  • A currency exchange
  • An issuer, redeemer, or cashier of travelers' cheques, money orders, or similar instruments
  • A dealer in precious metals, stones, or jewels
  • A loan or finance company
  • A pawnbroker
  • A travel agency
  • An operator of a credit card system
  • A licensed sender of money
  • A telegraph company
  • A business engaged in vehicle sales, including automobile, airplane, and boat sales
  • Persons involved in real estate closings and settlements
  • The United States Postal Service
  • An agency of the United States Government.

OFAC acts under presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction.