Jerry LiVigni, US Department of Treasury OFAC Overview

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Jerry LiVigni, US Department of Treasury OFAC Overview Powered By Docstoc
					CSBS BSA/AML Emerging Issues Forum
Thursday, July 19, 2007

                 Gerard (Jerry) W. LiVigni
                Senior Compliance Officer
TRANSPARENCY – “It doesn’t matter how high you lift your leg. The
technique is about transparency, simplicity, making an earnest attempt.”
(Mikhail Baryshnikov, Premier Ballet Dancer and Choreographer)

 • Main Entry: trans·par·ent
   Pronunciation: tran(t)s-'per-&nt
   Function: adjective
   Etymology: Middle English, from Medieval Latin transparent-,
   transparens, present participle of transparEre to show through, from
   Latin trans- + parEre to show oneself
   1 a (1) : having the property of transmitting light without appreciable
   scattering so that bodies lying beyond are seen clearly : PELLUCID
   (2) : allowing the passage of a specified form of radiation (as X-rays
   or ultraviolet light) b : fine or sheer enough to be seen through :
    2 a : free from pretense or deceit : FRANK b : easily
    detected or seen through : OBVIOUS c : readily
    understood d : characterized by visibility or accessibility
    of information especially concerning business practices
   synonym see CLEAR
   - trans·par·ent·ly adverb
   - trans·par·ent·ness noun
 • (Merriam-Webster Online Dictionary)

What is OFAC ? What OFAC is Not.
•   Administers and enforces economic and trade sanctions based on U.S.
    foreign policy and national security goals against:
           • Targeted foreign countries, terrorists, international narcotics
    traffickers and those engaged in activities involving WMDs.
           • Applies to all U.S. persons, not just financial institutions

• Not a bank regulator
       • We cannot mandate compliance
       • We can (and do) impose penalties for violations
       • We work with the regulators in their role of ensuring
         compliance by U.S. financial institutions

         . We are neither the administrator nor are we the USA Patriot Act
       or its “proposed governmental list”

OFAC Distinctions
OFAC requirements are separate and distinct from the
Bank Secrecy Act, Patriot Act, as well as the Customer
Identification Program.

All, however share a common national security goal…

Underlying Statutes
• Trading with the Enemy Act (TWEA)

• International Emergency Economic Powers Act (IEEPA)

• Iraq Sanctions Act

• Antiterrorism and Effective Death Penalty Act of 1996

• Drug Kingpin Act

• Referenced in Patriot Act:
   (a) REPORT ON RECONFIGURATION.—Not later than February 1, 2002, the
      Attorney General, the Director of Central Intelligence, and the Secretary of
      the Treasury shall jointly submit to Congress a report on the feasibility and
      desirability of reconfiguring the Foreign Terrorist Asset Tracking Center and
      the Office of Foreign Assets Control of the Department of the Treasury in
      order to establish a capability to provide for the effective and efficient
      analysis and dissemination of foreign intelligence relating to the financial
      capabilities and resources of international terrorist organizations.

•   The terms property and property interest or property interests shall include,
    but not by way of limitation, money, checks, drafts, bullion, bank deposits,
    savings accounts, any debts, indebtedness obligations, notes, debentures,
    stocks, bonds, coupons, any other financial securities, bankers'
    acceptances, mortgages, pledges, liens or other right in the nature of
    security, warehouse receipts, bills of lading, trust receipts, bills of sale, any
    other evidences of title, ownership or indebtedness, powers of attorney,
    goods, wares, merchandise, chattels, stocks on hand, ships, goods on
    ships, real estate mortgages, deeds of trust, vendors' sales agreements,
    land contracts, real estate and any interest therein, leaseholds, ground
    rents, options, negotiable instruments, trade acceptances, royalties, book
    accounts, accounts payable, judgments, patents, trademarks, copyrights,
    contracts or licenses affecting or involving patents, trademarks or
    copyrights, insurance policies, safe deposit boxes and their contents,
    annuities, pooling agreements, contracts of any nature whatsoever,
    services, and any other property, real, personal, or mixed, tangible or
    intangible, or interest or interests therein, present, future, or contingent.
•   [15 FR 9040, Dec. 19, 1950, as amended at 55 FR 31179, Aug. 1, 1990]

•   The term interest when used with respect to property shall mean an interest
    of any nature whatsoever, direct or indirect.

Person Subject to the Jurisdiction of the United States

 • The universe which must comply with OFAC
   regulations. It includes American citizens and
   permanent resident aliens wherever they are
   located; individual and entities located in the United
   States (including all foreign branches, agencies, rep
   offices, etc.); corporations organized under U.S. law,
   including foreign branches; and (under TWEA based
   sanctions) entities owned or controlled by any of the
   above, the most important being foreign-organized
   subsidiaries of U.S. corporations.

Specially Designated Nationals and Blocked Persons

   • Individuals or entities all over the globe

   • Owned, controlled by or acting on behalf of
     targeted governments or groups

   • May be front companies, parastatals, high-
     ranking officials or specifically identified persons

   • Designated narcotics traffickers, terrorists,
     terrorist groups, WMD proliferators and support

Sanctions at a Glance

 Comprehensive Sanctions Against:

 •   Cuba
 •   Iran
 •   Sudan
 •   Anti-Terrorism Sanctions
 •   Counter Narcotics Trafficking Sanctions

Sanctions at a Glance

 Limited Sanctions Against:

 •   Burma (Myanmar)
 •   Diamond Trading
 •   Non-Proliferation (WMD)
 •   North Korea
 •   Syria

Sanctions at a Glance

 Regime – Based Sanctions Against:

 •   Balkans
 •   Belarus
 •   Cote D’Ivoire (Ivory Coast)
 •   Democratic Republic of the Congo
 •   Iraq
 •   Liberia
 •   Zimbabwe

Sanctions Programs
  OFAC Country Sanctions     OFAC Sanction Programs
    Programs                  Anti-Terrorism Sanctions
  • Balkans
                              Counter Narcotics
  • Belarus
                               Trafficking Sanctions
  • Burma (Myanmar)
                              Non-Proliferation
  • Cote d’Ivoire (Ivory
  • Cuba                      Diamond Trading
  • Democratic Republic of
    the Congo
  • Iran
  • Iraq
  • Liberia
  • North Korea
  • Sudan
  • Syria
  • Zimbabwe

Enforcement Guidance for Financial Institutions

•   Economic sanctions enforcement procedures published January 12,
    2006 Interim Final Rule

    May be found on OFAC’s Website under Civil Penalties and
    Enforcement Information under CFR 71 FR 1971-1976 entitled
    Economic Sanctions Enforcement Procedures for Banks Regulated
    by FFIEC-member Supervisory Agencies

• Information sharing with Regulators - MOU

• Periodic review

• Institutional vs. transactional:
   • History with OFAC
   • Regulator’s evaluation of Compliance Program

Screening ACH Transactions
 •   All parties to an ACH transaction are subject to the requirements of OFAC.
     Refer to the expanded overview section, “Automated Clearing House
     Transactions,” pages 196 - 199 of the 2006 FFIEC Manual, for additional
     guidance. OFAC has clarified the application of its rules for domestic and
     cross-border ACH transactions and is working with industry to provide more
     detailed guidance on cross-border ACH.

 •   With respect to domestic ACH transactions, the Originating Depository
     Financial Institution (ODFI) is responsible for verifying that the Originator is
     not a blocked party and making a good faith effort to determine that the
     Originator is not transmitting blocked funds. The Receiving Depository
     Financial Institution (RDFI) similarly is responsible for verifying that the
     Receiver is not a blocked party. In this way, the ODFI and the RDFI are
     relying on each other for compliance with OFAC policies. ODFIs are not
     responsible for unbatching transactions and ensuring that they do not
     process transactions in violation of OFAC’s regulations if they receive those
     transactions already batched from their customers. If the ODFI unbatches
     the transactions it received from its customers, then the ODFI is responsible
     for screening as though it had done the initial batching.

 •   ODFIs should specify in their contracts with Originators that the ACH
     system cannot be used to violate U.S. law

Cross-Border ACH
• 1997 guidance on domestic ACH does NOT apply to cross-border

• OFAC believes current cross-border SEC codes do not provide
  sufficient information to screen against. Please see FFIEC Manual
  July 2006 (Pages 141-142 and 196 -199)

   • Proposed new cross-border SEC Code

• Fed ACH
   • Screening Inbound transaction
   • Real-time notification of potential hit to OFAC

Sound OFAC Compliance Programs
• Identification of High Risk Business Areas
      (i.e. retail operations, loans and other extensions of credit,
      funds transfers, trust, private and correspondent banking,
      international, foreign offices, internet banking, etc.)
• Internal Controls
        • Flagging and review of suspect transactions and
        • Updating the compliance programs
        • Reporting
        • Management of blocked accounts
        • Maintaining license information
• Transaction Testing
• Responsible individuals
• Training