Lesson 2.1 — What Is OFAC?
The Office of Foreign Assets Control (OFAC) is a financial intelligence and enforcement agency of the U.S. Treasury Department. OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against:
- Targeted foreign countries and regimes (e.g., Iran, North Korea, Cuba, Russia)
- Terrorists and terrorist organizations
- International narcotics traffickers
- Proliferators of weapons of mass destruction
- Other threats to U.S. national security, foreign policy, or economy
OFAC sanctions are strict liability — intent is irrelevant. Processing a transaction with a sanctioned party violates OFAC regulations regardless of whether you knew the party was sanctioned. Civil penalties can reach $356,579 per violation (2025 FCPA/OFAC penalty maximums), and criminal penalties can include imprisonment.
The SDN List — Specially Designated Nationals
The Specially Designated Nationals and Blocked Persons List (SDN List) is OFAC's primary sanctions list. It contains the names of individuals, entities, vessels, and aircraft whose assets must be blocked and with whom U.S. persons are generally prohibited from doing business.
The SDN List is updated frequently — sometimes multiple times per day. Financial institutions must screen against the current version, not a cached or delayed version.
An entity that is 50% or more directly or indirectly owned by a sanctioned party is itself considered sanctioned — even if it is not explicitly named on any OFAC list. This means beneficial ownership screening must look through entity layers to identify potential 50% rule triggers.
Lesson 2.2 — Screening Methodology
OFAC screening is required at:
- Account opening — Screen all new customers against OFAC lists before account activation
- Transaction processing — Screen all parties to a transaction (originator, beneficiary, intermediary) before processing
- Periodic re-screening — Screen existing customers when OFAC updates its lists
- Any name change or update — Re-screen when customer name or address information changes
Match Types
| Match Type | Definition | Required Action |
|---|---|---|
| True Match | Name, DOB, ID, and other identifiers conclusively match SDN List entry | BLOCK immediately. Contact compliance. File blocked property report with OFAC. |
| False Positive | Name similarity only; other identifiers clearly do not match | Clear with documentation. Proceed with transaction. |
| Potential Match | Insufficient information to definitively confirm or rule out — common with name transliterations, aliases | Hold transaction. Escalate to compliance for enhanced review. |
Lesson 2.3 — Blocked Transaction Procedures
When a true match is identified, the following steps must be taken within 10 business days:
- Block the transaction immediately — do not process, return, or release
- Notify the compliance department and designated OFAC officer
- Segregate blocked funds in a separate interest-bearing account if they represent a property interest
- File an Annual Report of Blocked Property with OFAC by September 30 of the following year if property remains blocked
- For blocked wire transfers, report rejected (not blocked) transactions within 10 business days using OFAC's transaction reporting system
Blocking means retaining custody of funds that represent an asset of a sanctioned party (e.g., an account balance). Rejecting means not processing a transaction (e.g., a wire transfer) without any retention of the funds. The transaction is declined. Both require reporting to OFAC; the timelines and forms differ.
Module 2 complete. Continue to AML Transaction Monitoring.
Continue to Module 3: AML →