May 10 0, 2013 A Author: Julia E. Zuckerman If you have questions, please co ontact your regu ular Groom atttorney or any o of the go overnmental plaans attorneys lissted below: Kimberly M. Dahm kd dahm@groom.ccom (2202) 861‐2606 Lo onie A. Hassel lh hassel@groom.ccom (2202) 861‐6634 Iaan D. Lanoff ilaanoff@groom.co om (2202) 861‐6638 D David N. Levine dlevine@groom.ccom (2202) 861‐5436 D David W. Powell dpowell@groom..com (2202) 861‐6600 A Allison Tumilty attumilty@groom.com (2202) 861‐0159 Roberta J. Ufford d ru ufford@groom.ccom (2202) 861‐6643 Ju ulia E. Zuckerma an jzzuckerman@groom.com (2202) 861‐6605 Office of Foreiggn Assets Control C Complian nce for Public Pensio on Plans our representaation of public pension plans,, we have beco ome aware of interest at Through o the federal level in emp ployee benefit plan compliance with regulations issued byy the Office n Assets Contro ol (“OFAC”). W We are also aw ware of certain locations where state of Foreign officials h have raised que estions about ppublic pension plan OFAC compliance. he branch of th he US Departm ment of Treasury that administers and enfo orces OFAC is th economicc and trade san nctions designeed to “further U.S. foreign po olicy and national security goals against targeted foreign countri es and regimes, terrorists . . . and other threats to the national ssecurity, foreiggn policy, or ecconomy of the United States..” In doing so, OFAC prohibits “U.S. Financial Institutions” ffrom engagingg in certain tran nsactions deem med to ne foreign policcy and nationaal security goals. undermin OFAC und derstands the tterm “U.S. Finaancial Institutio ons” to includee employee beenefit plans – both privaate‐sector plan ns governed byy the Employeee Retirement Income Securitty Act of 1974, as aamended, 29 U U.S.C. § 1001 eet seq., as well as public planss governed by state law. Indeed, re ecent OFAC reggulations prom mulgated pursu uant to the Com mprehensive Iran Sanctionss, Accountabilitty, and Divestm ment Act of 20010, expressly d define the term m “U.S. financial iinstitution” to include “empl oyee benefit p plans.” 31 C.F.R. § 560.327. Thus, the controls O OFAC imposes on financial in stitutions such h as banks, trusst companies, and securitiess brokers and d dealers apply w with equal force to public‐secctor employee benefit plans. ntry‐specific saanctions programs, the mostt comprehensivve of which OFAC maintains 22 coun ba, Sudan, andd Syria. Amongg the transactio ons OFAC proh hibits are are directted at Iran, Cub transactio ons with individ duals and com mpanies owned d or connected with sanctionss targets (known as “specialty de esignated natioonals” or “SDNs”) and transacctions with ind dividuals in ect to a U.S. traade embargo. countries that are subje dance is clear tthat compliancce programs arre not “one sizze fits all,” and must be OFAC guid specifically tailored to aan entity’s operrations and rissk of engaging in unlawful traansactions. ee benefit planns generally falls into two cattegories: invesstments and Compliance for employe benefit paayments. With regaard to investme ents, public rettirement systeems must ensure that internaal investment programss include screening procedurees that identifyy transactions possibly involvving SDNs so that such transactions m may be examinned with closerr scrutiny and b blocked, as appropriate. dance suggestss that training for internal invvestment can help staff can identify OFAC guid suspiccious transactio ons. Additionally, public retirrement system ms should ensurre that outsidee managers and d custodians are aw ware of the nee ed for OFAC co ompliance and have sufficien t compliance p procedures in p place. Conce erning benefit p payments, pub blic plan system ms should be a ble to identify,, and avoid traansactions with h, benefiiciaries appearring on the SDN N list or who re eside in countrries subject to a trade embarrgo. In order to o lawfully send aa benefit paym ment to an indivvidual not iden ntified as an SD DN who lives in n a country sub bject to an emb bargo (for examp ple, a retiree w who resides in Iran), the syste em must conta ct OFAC to obttain a “license..” The OFAC license can either be specific to allow payment only to the in ndividual in qu estion, or geneeral in nature tto allow the syystem to engage in all similar transactions. e working with OFAC compliaance officials too help public pension system ms devise comp pliance We haave experience proced dures and to answer questions specific to p public plans, annd we continue to monitor u updated OFAC guidance. Please e contact your regular Groom m contact or an ny of the attornneys listed in the sidebar with questions regarding your system m’s OFAC comp pliance procedures. 2 This publication is provided for educational and informational purposes only and does not contain legal addvice. The information s hould in no way be takeen as an indication of futture legal results. Acco ordingly, you should nott act on any information n provided without consulting legal counsel. To ccomply with U.S. Treasuury Regulations, we also o inform you that, unlesss expressly stated otherrwise, any tax advice contained in this communication is not intended tto be used and cannot bbe used by any taxpayer r to avoid penalties undeer the Internal Revenuee Code, and such advice cannot be quoted or referen nced to promote or markket to another party anyy transaction or matter aaddressed in this comm unication. © 2013 G Groom Law Group, Chartered • 1701 1 Pennsylvania Avve NW • Washingtoon, DC 20006. All rights reserved.