Q: Are banks required to perform OFAC checks on incoming domestic wire transfers?
A: OFAC requires banks to implement a program in accordance with the bank’s size, complexity, risk-factors, and other criteria, in order to block transactions with certain individuals and counties on the OFAC list. There is no exception to doing business with a party or geography on the OFAC list. However, that being said, a bank’s program will not necessarily cover every single transaction the bank engages in.
For example, cashing non-customer’s checks. While banks often do not perform an OFAC check during this transaction, OFAC does not exempt non-customer check cashing from its requirements. That is, if a non-customer is an SDN individual, the bank is still technically violating OFAC by engaging in the transaction. However, regulators and the OFAC program itself recognizes the limitation of resources of an institution and other more prevalent OFAC-related risks that the institution may encounter. For that reason, if a bank implements and follows an OFAC program under which checking each non-customer check cashing is not feasible, it is likely regulators would not criticize such a practice. This being said, it is important to consider the context. An isolated check-cashing or two without an OFAC verification will likely be compliant in light of the above. However, consistently cashing checks for the same non-customer who happens to be on an OFAC list will almost certainly result in an OFAC violation.
A similar principle applies to incoming wire transfers. Generally, OFAC allows institutions to rely on the verification process of another institutions that is subject to OFAC provisions. Nonetheless, this should be addressed under the bank’s OFAC program and the bank would have the burden to show why an OFAC check was not performed, in the event of accepting a wire transfer from an OFAC party.
Reference: https://bsaaml.ffiec.gov/manual/OfficeOfForeignAssetsControl/01
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