OFAC Search of Originating Bank

Issue/Inquiry

When the Bank receives incoming wires to be credited to the accounts of its customers, it runs all originators through an OFAC search. If the originator is a bank located in the United States, does it need to run the bank through OFAC?

Response Summary

There is no requirement that a bank must perform an OFAC SDN search of originating banks, but only that it does not facilitate transactions with parties on the list. Whether the Bank chooses to do such a search will be a risk-based decision which should be documented.

Response Detail

There is no regulatory requirement that a bank must perform a search of OFAC’s Specially Designated Nationals (“SDN”) list for banks originating wire transfers to it, or for any other transaction, but only that it not facilitate a transaction involving entities named on the list.

In general, the regulations that OFAC administers require banks to do the following:

• Block accounts and other property of specified countries, entities, and individuals
• Prohibit or reject unlicensed trade and financial transactions with specified countries, entities, and individuals

Banks must block transactions that:

• Are by or on behalf of a blocked individual or entity
• Are to or go through a blocked entity
• Are in connection with a transaction in which a blocked individual or entity has an interest.

As a matter of sound banking practice and in order to mitigate the risk of noncompliance with OFAC requirements, banks should establish and maintain an effective, written OFAC compliance program that is commensurate with their OFAC risk profile, based on their products, services, customers and geographic locations.

Among the factors a bank’s OFAC compliance program should consider are the account and transaction parties. When a bank receives a wire transfer, the bank sending the wire is the originating bank, sending bank, or instructing bank, depending on the terminology used, and the originating bank’s customer is the originating party, since the customer is the one transferring the funds.

An OFAC SDN search should certainly be performed on the originating party. Whether it should be performed on an originating bank located in the United States is a question of risk. The receiving bank may determine that the risk does not justify the time and effort involved in making the search. It should be aware, however, that the laws and OFAC-issued regulations apply not only to U.S. banks, their domestic branches, agencies, and international banking facilities, but also to their foreign branches and often their overseas offices and subsidiaries. If a receiving bank excludes U.S originating banks, it must be able to distinguish between the U.S. bank and other offices or branches associated with it that may have a greater risk. FFIEC, Bank Secrecy Act, Anti-Money Laundering Examination Manual, Office of Foreign Assets Control – Overview.

As a practical matter, if the Bank in this case has a software program that performs OFAC SDN searches of the account transaction parties automatically, there would seem to be little reason not to use it in this way.

If the Bank determines not to perform searches of originating banks, however, it should document the decision it made, perhaps using the following template, as suggested by the ABA in the article, “How to Implement Risk-Based OFAC Monitoring Practices”(ABA Bank Compliance, September – October, 2007):

OFAC Risk Decision Template

OFAC issue:

Decision made:

Date:

Who was involved in the decision-making process:

Associated risk:

Justification of decision:

This entry was posted on Monday, September 14th, 2015 at 2:00 pm.