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?

Believe it or not, these companies are on the federal government's list of concerns barred 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.

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.

But two recent developments make this an area of the law that community banks should watch closely. First, 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. Second, bank examiners are beginning to look more closely to see whether your bank has procedures in place to assure that your employees follow OFAC regulations.

You and your compliance officer 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-like Cuba, North Korea, Libya and Iraq-are fairly well known through articles in the popular press. Of course, as world events change, Congress and OFAC revise the number of countries facing an economic embargo from the United States.

But 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 antiterrorism 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-that could be a substantial figure.

In the past few years, OFAC has assessed millions of dollars in penalties against U.S. banks, and many of those fines were the result of a bank failing to block a money transfer to a financial institution or company in a country banned from U. …