MTRA, MSBs, & OFAC
A Synergy of Compliance
Gerard (Jerry) W. LiVigni
Senior Compliance Officer
Office of Foreign Assets Control
PH: 202/622-2490
FAX: 202/622-2426
November 13, 2006
Mission, Jurisdiction, and Objectives
PROGRAM
POLICY
THE PRESIDENT
National Security
Council
Secretary of the Treasury
Sanctions and
Assistant Secretary for
Money Laundering and
Terrorist Financing
State
Embargo Programs
FBI
Customs
MSB/IVTS &
Bank Regulatory
Agencies
Commerce
Local Law
Enforcement
Justice
(U.S. Attorneys)
Intelligence
Community
What is OFAC?
• Administers and enforces economic sanctions
– Imposed by President or mandated by Congress
– Apply to all U.S. persons, not just financial institutions
• Not a Securities Industry 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
Regulator’s Role
• To observe if MSBs have an effective
risk based compliance program
• An effective program will vary by
Money Service Business – types,
products, and size
• New AML/BSA Exam & OFAC
guidelines – risk assessment for
banks – YES BANKS but may be
used by MSBs for guidance in
developing their own programs
• Elements to consider
• User base
• Types of transactions
• Level of automation
Sanctions (general)
In varying degrees, U.S. sanctions restrict
or prohibit trade and financial transactions
with targeted countries and their agents, as
well as terrorists and narcotics traffickers.
Use of sanctions goes back to the earliest
days of the republic, when embargoes and
naval blockades were imposed during times
of war to weaken the enemy.
Today, sanctions are employed not only to
augment armed force, but increasingly in
times of peace to achieve a range of foreign
policy and national security goals.
Underlying Statutes
• Trading with the Enemy Act
• International Emergency
Economic Powers Act
• Iraq Sanctions Act
• Antiterrorism and Effective
Death Penalty Act of 1996
• Drug Kingpin Act
Penalties and Consequences
Criminal Penalties
•
•
Up to $10 million and 30 years in jail
IEEPA – up to 20 years for willful violation
beginning 05/22/2006
Civil Penalties
•
Up to $1,075,000 per violation
– TWEA: $65,000
– IEEPA: $50,000 as of 05/22/2006
– Kingpins:
$1,075,000
Violations may result in:
•
•
Blocked funds and seized goods
Negative publicity and loss of business
good will
Antiterrorism Act of 1996
•
Criminal Penalties
(Terrorism List Governments Sanctions Regulations ; Foreign Terrorist Organizations Sanctions
Regulations)
– fines under Title 18 of the United States Code
– imprisonment for up to 10 years
– Or both
•
Civil Penalties
(Foreign Terrorist Organizations Sanctions Regulations)
– the greater of $55,000 per violation or twice the amount the financial
institution was required to block
* Syria, Cuba, Iran, Iraq, Libya, North Korea, Sudan;
* Foreign Terrorist Organizations
OFAC Jurisdiction
OFAC Jurisdiction
Who must comply with U.S. sanctions?

American citizens and permanent resident aliens
wherever located in the world

Any individual physically located in the United States

Corporations organized under U.S. law, including foreign
branches of U.S. companies (and subsidiaries - Cuba
and North Korea)

Corporations physically located in the United States,
including US branches, agencies and representative
offices of foreign corporations
Money Service Businesses
• Currency dealers or
exchangers
• Check cashers
• Issuers of traveler’s checks,
money orders and stored value
cards
• Sellers or redeemers of
traveler’s checks, money
orders or stored value cards
• Money transmitters
Informal Value Transfer Systems (IVTS)
• IVTS include various ethnic
traditions or practices
• Hawala
• Hundi
• Fei Chen
• Phoe Kuan
• Black Market Peso
Exchange
Primary Tools
• Blocking Property
• Trade Controls
* Selective or Comprehensive
Definitions
•
•
•
•
•
•
Blocking
Property
Property Interest
General License
Specific License
Specially Designated National
Blocked Property
Title to “blocked” property remains with the sanctions target
(designated country, national, or blocked person), but the
exercise of rights normally associated with ownership is
relegated to the U.S. Treasury Department and controlled by
OFAC specific licenses
31 CFR 550.314
Sec. 550.314
Property; property interests.
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,
debts,
indebtedness,
obligations,
notes,
debentures, stocks, bonds, coupons, any other financial
securities, bankers' acceptances, mortgages, pledges, liens
or other rights in the nature of security, warehouse
receipts, bills of lading, trust receipts, bills of sale,
any other evidences of title, ownership or indebtedness,
letters of credit and any documents relating to any rights
or obligations thereunder, 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
or
copyrights, insurance policies, safe deposit boxes and their
contents, annuities, pooling agreements, contracts of any
nature whatsoever, and any other property, real, personal,
or mixed, tangible or intangible, or interest or interests
therein, present, future or contingent.
[51 FR 2463, Jan. 16, 1986]
“Interest”
31 C.F.R. §550.315 Interest
… the term “interest” when
used with respect to property
shall mean interest of any
nature whatsoever, direct or
indirect.
Licenses
• Allows something that is
otherwise prohibited
• General License
* Regulatory Provision
• Specific License
* Case by case
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, and
support networks
Specially Designated Nationals
SDN Persons or entities owned or controlled by, or acting
for or on behalf of a targeted country;
SDT Specially Designated Terrorists;
SDGT Specially Designated Global Terrorists;
SDNT Specially Designated Narcotics Traffickers;
FTO Foreign Terrorist Organizations;
SDNTK Specially Designated Kingpins;
FRYM Milosevic Supporters.
Terrorist Targets (SDGT’s)
• All previously designated
SDTs and FTOs are now
SDGTs;
• Have authority to designate
supporters of terrorism;
• Thus far, mostly individuals
and charities.
SDN List
• Over 5,000 SDNs and blocked persons
identified by OFAC
• Published and accessible on:
– OFAC website
– Federal Register
Sanctions at a Glance
Comprehensive
Sanctions Against:
• Terrorists
• Narcotic Traffickers
• Cuba
• Iran
• Sudan
Sanctions at a Glance
Limited Sanctions Against:
•
•
•
•
•
•
•
•
•
•
•
Balkans
Belarus
Burma (Myanmar)
Cote D’Ivoire (Ivory Coast)
Diamonds
Iraq
Liberia
Non – Proliferation (WMD)
North Korea
Syria
Zimbabwe
Blocks and Rejects
Blocks
Rejects
 SDNs
 Cuban citizens unless U.S.
residents
 Individuals or entities in
Cuba
 Governmental entities and
officials of Cuba, Cote
D’Ivoire, and Sudan
 Named banks in Burma
 Commercial transactions
involving Iran, Sudan and
Burma, unless an SDN is
involved
 Accounts belonging to
persons or entities in Iran
 SDN vessels
Cuba
• All Cuban Nationals Blocked
• Applies to foreign subs as well
as branches
• All trade prohibited
– Limited exceptions (food,
medicine, info material)
– Limited remittances allowed
– Travel transactions severely
limited
FFIEC BSA/AML Examination Manual
• Complete OFAC section of the
manual;
• Although meant for banks,
provides guidance that can be
used across industries;
• Requires OFAC Risk
Assessment;
• Quality/Quantity of Risk
Matrices;
• OFAC’s Enforcement
Guidance issued on January
12, 2006.
Who’s at High Risk?
• International transactions,
including foreign
transmissions or wires
• Foreign customers or
consumers
• Non-resident alien
customers or consumers
What Does This Mean?
• No SDN clients or Customers/Consumers
• No sending funds to or through SDN
• No business with a sanctioned country (SC)
– Certain Nationals or Locations.
When There is an SDN or Sanctioned Country
• What should U.S. institution do if there is an SDN or
sanctioned country?
What should be done?
• Research SDN or SC reference
• Contact Compliance and/or Legal in your firm or
institution
• Refuse new accounts or transactions
• Block (or reject) and report
• Submit license application, as appropriate
Manual or Electronic Screen
• Interdict Software
– Sold by private vendors
– PC based to mainframe
• Is it necessary?
– Depends on customer base
and transactions
– International at far greater
risk
– Manual program may be
fine for small institutions
Effective Compliance Strategies
• Designate an OFAC
compliance officer within the
MSB even in “mom & pop
operations,” someone must
take responsibility.
• Make sure sanctions
information/SDN list is up-todate.
• Using a risk-based
approach, check all
individuals using the MSB
services to ensure that your
business is not party to a
prohibited transaction with
SDNs or sanctions programs
• Make OFAC regulations an
integral part of overall
compliance efforts.
• Take full advantage of OFAC
compliance resources.
OFAC Compliance Resources
OFAC Website
http://www.treas.gov/ofac
OFAC automated fax-on-demand service
(202) 622-0077
OFAC Hotline
(800) 540-6322
Monday - Friday
7:00 am to 7:00 pm EST
OFAC Contacts
www.treas.gov/offices/enforcement/ofac/contacts.shtml
OFAC Homepage
www.treas.gov/ofac