Policing Foreign Trade

Article excerpt

Some foreign transactions could be against the law If you saw a wire transfer order for Atlas Air Conditioning in London, would you be suspicious? What about Vinales Tours in Cancun? Or Fartrade Holdings in Switzerland?

All three of these entities are on the federal government's list of companies blocked from doing business with U.S. banks. And if you handle a financial transaction for one of them through your bank, you could face hefty fines or even legal penalties.

Amid the rubble of the Sept. I I terrorist bombings in New York and Washington, Congress and the federal regulators have begun taking a hard, new look at federal rules and regulations that affect bank transactions with foreign countries. However, outlawing financial dealings with certain foreign companies or individuals is not new. Such economic sanctions, enforced by the Office of Foreign Assets Control, a division of the U.S. Treasury Department, have been used for many years to support our nation's foreign policy.

Shortly after the attacks on New York and Washington, President George W. Bush enlisted the cooperation of the nation's banks to track assets belonging to a list of terrorists (see the FDIC's FIL-85-2001 issued on Sept. 27 at www.fdic.gov). Those names were additions to the existing list issued by the Office of Foreign Assets Control of designated nationals and blocked persons.

As foreign residents and corporations become more sophisticated at concealing their identities and origins, it becomes much harder to determine whether a potential customer may be on the government's roster of prohibited trading partners. Now more than ever, bank examiners will be looking closely to see whether your bank has procedures in place to assure that your employees follow OFAC regulations.

You and your compliance officer should already know most of the countries that are targets of OFAC trade sanctions. For example, constraints on U.S. banks dealing with certain foreign nations such as Cuba, North Korea, Libya and Iraq are fairly well known through articles in the popular press. However, as world events change, Congress and OFAC continually revise the list of countries and entities subject to economic embargo by the United States. Since Sept. 27, the list has been updated repeatedly.

Shielding Your Bank

OFAC regulations don't address just transactions by foreign governments. The regulations can include your financial dealings with companies and banks that front for trade-banned nations, and the fines for slipping up can be quite steep.

Depending on the country involved, penalties can range from $10,000 to $250,000. For example, under anti-terrorism laws, if your bank forwards a transaction that it should have blocked, it could face penalties double the amount of the transaction involved in the violation.

Over the years, OFAC has assessed millions of dollars in penalties against U.S. banks. Many of those fines resulted from a bank failing to block a money transfer to a financial institution or company in a country banned from U.S. trade. An innocent looking wire transfer or letter of credit could get your bank in trouble if you don't have procedures to check transactions against OFAC-banned countries.

The responsibility for blocking illegal transactions goes beyond preventing them from taking place. The bank must report attempted illegal transactions within 10 days after the attempt occurs. Failing to notify authorities not only opens your bank to possible fines, but failing to block illegal transactions could result in criminal penalties, too. …