OFAC Compliance in Accounts Payable
What Is OFAC?
The Office of Foreign Assets Control (OFAC), a division of the US Department of Treasury, publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries as part of its enforcement efforts. OFAC also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific—or Specially Designated Nationals (SDNs). SDN assets are blocked by OFAC and all U.S. persons are prohibited from dealing with SDNs. The Specially Designated Nationals and Blocked Persons List (SDN List) has approximately 5,500 names connected with sanctions targets.
In the United Kingdom, the Consolidated List of Financial Sanctions Targets is an SDN-equivalent list. Because the US SDN list incorporates the United Nations list and the UK’s Consolidated List includes the EU list, the use of both provide nearly global coverage. By complying first with OFAC, businesses are essentially reducing their risk exposure.
Reducing OFAC Risk in Payables
The cross-checking of payees with OFAC blacklists (such as the OFAC SDN) should occur before making payments to individuals. That said, given the number of payments businesses must make and the ongoing changes in OFAC lists, manual checks take up enormous time. Adhering to OFAC processes for payables efforts greatly reduces the illegal payment risk.
Here are some key considerations for OFAC payables processes:
- Connect supplier payments directly to databases – Because it adds significant workflow to query the OFAC databases directly, a cleaner approach is to connect the payment system directly to these databases. This also means you need a proper payee onboarding process to collect the necessary data.
- Perform heuristic screening – Identity matching can be problematic because of varied names, spellings, similar names, etc. It’s important to attempt matches on a variety of fields and carefully screen accordingly.
- Conservative means are the best – It’s better to identify a false positive hit and hold payments until the identity issues are resolved than to miss a potential violator. You can always reestablish a payment, but you cannot get money back from a bad entity.
- Continue to screen beyond onboarding and before payment – It seems obvious that screening happens during onboarding as part of the procurement process. But because the SDN lists are updated regularly, screening should actually happen prior to every payment.
- Request tax documentation – By requiring tax identities in addition to backend OFAC monitoring, it gives fraudsters pause when attempting to game the system.
Employing OFAC processes to normal payables compliance, you can thwart violations before payment execution, meaning you limit the risk of funds landing into a money laundering scenario.