In my practice, I represent clients in the financial industry (FATCA/CRS) and in the biotech industry (legal management of foreign subsidiaries). Given the rapid fire political changes, it is important for both industries to stay on top of U.S. regulations regarding Specially Designated Nationals (SDNs) and those listed on the Consolidated Sanctions List.
Most organizations in the financial industry conduct Know Your Customer / Anti-money Laundering (KYC/AML) checks during the onboarding process. Medium to large companies in the biotechnology sector may have a designated export compliance officer. For smaller investment management companies and biotech companies the designated person may be a multi-tasker such as the investment manager herself or a controller.
It is important that not only those employees doing the final screening understand OFAC restrictions but that those on the solicitation side of the business understand. Time and money may be wasted seeking investors/buyers who are off limits.
What Does OFAC Do?
The Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the U.S.
As one part of its mandate, OFAC publishes lists of individuals and companies whose assets are blocked and who U.S. persons are generally prohibited from dealing with (e.g., owned or controlled by targeted countries, terrorists, drug traffickers).
OFAC’s Sanctions List Search Tool
OFAC maintains (and updates regularly) a Sanctions List search tool. Each of the lists included in the tool has separate parameters as to who will be included. It is possible that an individual or entity will appear on more than one list. The tool includes the following lists:
Specially Designated Nationals (SDN) List
Individuals, entities, vessels and aircraft designated under various sanctions programs.
Consolidated Sanctions List
Non-SDN, Palestinian Legislative Council List (NS-PLC List)
Members of the PLC (Palestine’s legislative body) who were elected to the PLC on the party slate of Hamas.
Part 561 List
List of foreign financial institutions (not the same definition as a FATCA FFI) for which there are restrictions on opening or maintaining in the U.S. a correspondent account or payable-through account.
Non-SDN Iran Sanctions Act List (NS-ISA List)
List of persons for whom U.S. financial institutions are prohibited from making certain loans or credits.
Foreign Sanctions Evaders List (FSE List)
Foreign individuals and entities determined to have violated, attempted to violate, conspired to violate, or caused a violation of U.S. sanctions on Syria or Iran.
Foreign persons who have facilitated deceptive transactions for or on behalf of persons subject to U.S. sanctions.
Sectoral Sanctions Identifications List (SSI List)
Persons operating in certain sectors of the Russian economy (e.g., financial services, energy, metals and mining, engineering, and defense and related materiel).
13599 List
Government of Iran and Iranian financial institutions.
Severe Penalties
Civil and criminal fines for violations can be severe. Depending on the OFAC program, criminal penalties include fines to $20 million and imprisonment of up to 30 years. Some civil penalties can range up to $1,075,000 for each violation.
Given the significant civil and criminal penalties for violating OFAC’s regulations, internal policies and procedures must address investor/customer screening. These policies and procedures should include the designation of an individual/group responsible for the final approval of investors/customers. Another critical element of an effective compliance program is training that extends across a broader range of employees including those involved in marketing and solicitation.
Stay Current!
The new U.S. political and regulatory world is changing daily so it is critical that you stay current – not just to avoid violations but to take advantage of opportunities if certain sanctions are eliminated.
For assistance, please contact me via my contact page or at elizabeth@elizabethmcmorrowlaw.com.