Your bank is most likely creating a list of clients and checking that list against the OFAC and FinCEN lists for potential matches. The most common confusion that arises with these lists (usually in conjunction with an audit or other review) is how to apply the search requirements to the separate OFAC and FinCEN lists. These lists are maintained by separate government entities which have different missions, and as a result, differing search requirements.
The Office of Foreign Assets Control (OFAC), a division of the U.S. Treasury, is the government agency that maintains the OFAC list. The OFAC list is a publicly available list and as a result, you may disclose that someone is on the list. The list is made up of several subset lists which contain the names of foreign individuals and entities that our government has specified as illegal for U.S. citizens or companies to conduct business with. While OFAC regulations do not require that you perform name searches against the list, regulatory authorities will generally find your BSA program to be deficient if you do not have a program for mitigating the risk of doing business with an entity on the OFAC list. As a result, most community banks perform a single name search upon initially adding a new customer and periodically thereafter (such as every other week) against their entire customer base to ensure that an existing client has not been added to the OFAC list. Should a match occur between one of the entities being searched and an entity on the list, OFAC recommends that you call their hotline number to verify that it is actually a match. Once a match is confirmed the bank should reject the transaction or block funds in the account.
The Financial Crimes enforcement Network (FinCEN), also a division of the U.S. Treasury, maintains the 314_a list. The 314_a list is a confidential list of individuals and businesses that are the subject of active law enforcement investigations. Because the list is confidential, it is illegal to disclose who is on the list. Entries are submitted to the list through a vetting process by various law enforcement agencies. As opposed to OFAC regulations, FinCEN regulations require you to perform the search every time a new list is released. Should a match occur between one of the bank's customers and an entity on the list, the institution should determine what action to take by following the instructions provided by FinCEN.
The confusion occurs in determining what period of time to search for. The OFAC search is a point in time or “snapshot” look only. This is because OFAC requires that you not transact business with individuals and businesses during the time they are on the OFAC list. FinCEN requires a one-time search of the current 314_a list against all of the bank's customers for the prior 12 months.
Be aware that in addition to the bank's traditional definition of “customer,” the government's definition of “customer” includes anyone to whom you have sold a cashier's check, money order or other financial instrument, or for originators of wire transfers for wires you have sent or beneficiaries of wires you have received - even if these individuals do not have an account at your bank. There are numerous scenarios of what should be searched and when, a full discussion of which would take up this entire edition of the OBA newspaper. Should you have specific questions check with your compliance professional or your regulator. Checking with them before checking the list will be worth the effort.
Robert Mendez is a former banker and is president of BancPartner Group. He can be reached at rmendez@bancpartner.com or at 405-702-1425.