OFAC Compliance Software

In the world of B2B cross-border remittance, as well as within digital economies, there is greater risk of money laundering and financing terrorist activities. Fraudsters and money launderers use remittance services as a means to mask illegal trade. These bad apples can include individuals, groups, and entities, such as terrorists, cybercriminals, and narcotics traffickers that are not country-specific. At a minimum, businesses must adhere to OFAC regulations, which in part provide guidelines for restricting business with known money launderers.

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. There are severe fines and legal action that the US Department of Treasury can take against organizations that knowingly or inadvertently neglect screening payees that are named in the SDN List.

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 with Software

The cross-checking of payees with OFAC blacklists (such as the OFAC SDN) should occur before making payments to individuals. Obviously, by not doing so, you would be in violation of the law. That said, given the amount of payments businesses must make and the ongoing changes in OFAC lists, manual checks take up enormous time. Using OFAC compliance software, the illegal payment risk is greatly reduced.

Here are some key considerations for OFAC compliance software:

  • 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.

With OFAC compliance software, you can thwart violations before payment execution, meaning you limit the risk of funds landing into a money laundering scenario.

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