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.