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 :
DIAPHANOUS
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)
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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”
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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…
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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:
• SEC. 906. FOREIGN TERRORIST ASSET TRACKING CENTER.
(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.
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PROPERTY
• 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.
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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.
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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
networks
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Sanctions at a Glance
Comprehensive Sanctions Against:
• Cuba
• Iran
• Sudan
• Anti-Terrorism Sanctions
• Counter Narcotics Trafficking Sanctions
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Sanctions at a Glance
Limited Sanctions Against:
• Burma (Myanmar)
• Diamond Trading
• Non-Proliferation (WMD)
• North Korea
• Syria
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Sanctions at a Glance
Regime – Based Sanctions Against:
• Balkans
• Belarus
• Cote D’Ivoire (Ivory Coast)
• Democratic Republic of the Congo
• Iraq
• Liberia
• Zimbabwe
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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
Sanctions
Coast)
• Cuba Diamond Trading
• Democratic Republic of
Sanctions
the Congo
• Iran
• Iraq
• Liberia
• North Korea
• Sudan
• Syria
• Zimbabwe
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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
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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
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Cross-Border ACH
• 1997 guidance on domestic ACH does NOT apply to cross-border
ACH
• 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)
• NACHA
• Proposed new cross-border SEC Code
• Fed ACH
• Screening Inbound transaction
• Real-time notification of potential hit to OFAC
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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
accounts
• Updating the compliance programs
• Reporting
• Management of blocked accounts
• Maintaining license information
• Transaction Testing
• Responsible individuals
• Training
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