19 Tips from ABA's Compliance Conference

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Earlier this year ABA held its annual National Regulatory Compliance Conference in New Orleans. Dozens of bankers, consultants, and regulators dispensed advice to attendess. Here is what they said, organized by subject area.

"OFAC" ISSUES

The Treasury Department's Office of Foreign Assets Control is so obscure to most working bankers that the conference session devoted to its role was titled, simply, "OFAC--Who are these guys?"

Not so obscure are the laws that OFAC enforces. Virtually any economic sanction involving the private sector of this country is overseen by OFAC, notably its Compliance Programs Division. Among the laws OFAC is empowered to enforce are the Trading with the Enemy Act, the International Emergency Economic Powers Act, and the Iraqi Sanctions Act. Various statutes allow OFAC to impose a variety of criminal and civil penalties on companies and individuals who fail to block transactions--including a wide range of credit, deposit, and funds-transfer transactions--conducted for the benefit of parties barred from commerce with the U.S. under a sanctions program.

Dennis P. Wood, chief of OFAC's Compliance Programs Division, and John J. Byrne, ABA senior federal legislative counsel, presented tips banks can use for ensuring compliance with OFAC provisos.

1 Be prepared for bank examiners asking about OFAC compliance. OFAC is not a bank regulatory agency and therefore exercises an after-the-fact role in compliance oversight. The office can't, for instance, ask a bank to develop a program for compliance in advance of a problem.

However, banking agencies know banks need to comply with the program and are expected to ask more questions about the bank's preparedness for OFAC-related action.

ABA's Byrne noted that there are five key questions that FDIC examiners are being trained to ask in this area:

(a) Does the bank have policies and procedures in place for complying with OFAC laws and regulations?

(b) Does the bank maintain the current OFAC-released list of countries, entities, and individuals with whom trade is barred or controlled? (Officially this document is called the "Specially Designated Nationals and Blocked Persons" list; anyone appearing on the list is referred to as an "SDN.")

(c) Does the bank routinely disseminate updated OFAC information to its foreign offices, if any?

(d) Are new accounts applications routinely compared to OFAC SDN listings?

(e) Are international accounts--such as one maintained in a U.S. bank by a foreign national or company--regularly compared to current OFAC listings?

One other point of interest: In any transaction involving multiple U.S. banks, any bank preceding one in the chain that blocks a transactions on sanctions grounds is liable for not blocking the transaction itself (assuming the bank blocking the transaction has done so correctly).

2 Beware the Samaritan trap; OFAC impacts many areas of banking beyond wire transfers. Dennis Wood pointed out that many bankers have the mistaken notion that the only place in their bank that is open to OFAC-related transactions is the wire-transfer area. Actually, he said, almost any aspect of banking is rife with exposure, including letters of credit, checking accounts, and bank cards. Even seemingly domestic transactions or account openings may be conducted by entities that are known fronts for terrorists or other banned parties and the bank is liable if it fails to intercept such business conducted through its bank or on behalf of a customer.

However, said Wood, the liability doesn't stop there. Banks are known for their widespread charitable contributions and he warned that they must take care when making donations to ethnic organizations, for they too may be fronts. He says some supposed ethnic charities have been found to be funnels to terrorist groups. Checking the groups against the SDN listings would be a good idea. …