The U.S. uses sanctions to combat financial crime, money laundering, terrorism, and threats to its national security. Current sanctions are collated and published in the OFAC sanctions lists, which include names and other information about sanctioned entities.
Companies that violate OFAC sanctions face severe penalties, including multi-million dollar fines and even prison sentences for executives. American businesses that trade with non-U.S. entities must understand what sanctions are and how to implement an efficient and effective OFAC sanctions list screening program.
What is the Office of Foreign Assets Control?
The Office of Foreign Assets Control (OFAC) is the U.S. Department of Treasury division that administers economic and trade sanctions against foreign countries, entities, and individuals. OFAC’s sanctions programs aim to prevent sanctioned entities from accessing the U.S. financial system.
OFAC sanctions lists identify individuals, companies, vessels, and organizations subject to various restrictions and prohibitions on dealing with U.S. citizens and businesses. The nature of sanctions ranges from blocking funds and assets to selective restrictions on exports, imports, and financial transactions. To avoid penalties, businesses must screen customers, suppliers, and transactions against OFAC lists.
For additional information, view our overview of best practices for compliance with OFAC screening requirements.
OFAC Sanctions Lists You Need to Know About
OFAC manages dozens of active sanctions programs targeting countries like Iran, Syria, North Korea, and Russia and activities like narcotics trafficking, cybercrime, and terrorism. Active sanctions are collated into the OFAC sanctions lists. Let’s look at the key OFAC sanctions lists your business needs to be aware of and run sanctions checks against.
Specially Designated Nationals and Blocked Persons (SDN) List
The SDN List contains names of prohibited parties blocked under various sanctions and regulatory programs. Their assets are blocked, and U.S. citizens and businesses are prohibited from conducting any transactions with them. The list helps enforce economic sanctions and trade embargoes.
Learn more about the OFAC SDN List.
Non-SDN Menu-Based Sanctions (NS-MBS) List
The Non-SDN Menu-Based Sanctions List contains entities subject to “menu-based” sanctions. In contrast to the SDN, the NS-MBS lists entities subject to sanctions that are limited in scope compared to full asset blocking.
For example, the sanctions may block imports but permit exports to the listed entity. NS-MBS provides more flexible targeting than the total blocking sanctions.
Foreign Sanctions Evaders (FSE) List
The FSE List identifies foreign individuals and organizations that have violated U.S. sanctions against Iran and Syria. Listed entities are cut off from the U.S. financial system and marketplace. U.S. persons are prohibited from transactions with listed FSEs even if they are not on the SDN list.
Sectoral Sanctions Identifications (SSI) List
The SSI List list imposes sanctions on entities operating in sectors critical to the Russian economy, including finance, defense, and energy. It mandates restrictions or puts conditions on transactions with listed entities, including limiting certain types of financing or dealing in new debt.
List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (CAPTA) List
As the name suggests, the CAPTA List identifies foreign financial institutions subject to various correspondent or payable-through account sanctions under different regulatory authorities. U.S. banks are prohibited from opening or maintaining correspondent and payable-through accounts for listed institutions.
Non-SDN Palestinian Legislative Council List (NS-PLC) List
The NS-PLC list contains members of the Palestinian Legislative Council affiliated with Hamas or other foreign terrorist organizations (FTOs). U.S. financial institutions must reject transactions with listed members.
Non-SDN Chinese Military-Industrial Complex List (NS-CMIC)
The NS-CMIC contains Chinese companies affiliated with the Chinese military. It prohibits U.S. investors from purchasing or investing in publicly traded securities of listed Chinese companies.
Blocking Sanctions vs. Non-Blocking Sanctions
Blocking sanctions, which are in place for entities on the SDN list and some others, prohibit U.S. persons from conducting any transactions with the listed entity. Non-blocking sanctions, which are in place for entities on lists like the Non-SDN Menu-Based Sanctions List, only restrict certain types of transactions like imports or exports while permitting other interactions.
SDN vs. Non-SDN OFAC Sanctions Lists
While the SDN list contains fully blocked entities, Non-SDN lists like NS-MBS and NS-CMIC contain entities subject to limited, targeted, or sectoral sanctions that are not entirely blocked. The severity and scope of restrictions vary across the two types of lists.
In addition to the lists described above, OFAC publishes a consolidated sanctions list that includes entities from all its Non-SDN sanctions lists in one place. The consolidated list makes it easier for businesses to check whether a potential customer or business partner is on any OFAC sanctions list.
OFAC Sanctions List Compliance Challenges
Complying with OFAC sanctions poses significant challenges. One major difficulty is keeping up-to-date with frequent changes made to sanctions lists. OFAC updates its lists by adding or removing entities without much prior warning. Companies must vigilantly monitor these changes and update their compliance procedures accordingly.
Another key challenge is allocating sufficient resources for compliance. Comprehensive sanctions compliance requires investment in compliance staff, training, and legal support. Small businesses find the cost prohibitive, and larger organizations may have to set up entire departments focused on sanctions screening and due diligence.
Thoroughly checking customer bases, third parties, and transactions against OFAC’s complex and evolving lists can lead to operational delays and poor customer experience if the sanctions screening process is not handled efficiently. Companies often struggle to integrate sanctions checks into business processes, workflows, and systems.
Even if a business has implemented efficient sanctions screening processes, sanctions checks can still throw up false positives that require wasted effort to investigate and resolve. False positives reduce operational efficiency and heighten business costs. They also inconvenience customers when transactions are held up because of an incorrect sanctions match. Businesses are often put in the position of balancing risk avoidance with customer experience.
Simplifying OFAC Sanctions Compliance With Alessa
Alessa’s Watchlist and Sanctions Screening Software helps businesses with fast, accurate, timely OFAC sanctions list screening. Our sanctions compliance solution provides:
- Global PEP and sanctions screening, including OFAC list screening
- Real-time, periodic, and event-based screening
- Machine learning and rules-based analytics
- Configurable workflow management for flagged transactions
- A sophisticated and configurable scoring model to reduce sanctions screening false positives
- Cost-effective sanctions data, where you only pay for the lists you use
Contact our AML and sanctions compliance experts today to learn how Alessa can streamline and optimize your sanctions compliance program.