OFAC Compliance

Look before leaping—organizations may be subject to OFAC jurisdiction, even when not in the U.S

The American Treasury Department’s Office for Foreign Assets Control (OFAC) announces settlement with British-based financial institution (the Bank).

OFAC alleges that the Bank violated sanctions on Sudan between 2010 and 2014 by processing payments of hundreds of millions of U.S. dollars for Sudanese clients. Working to create a funding arrangement that it believed was outside the U.S. financial system, the Bank thought their transactions were not included under OFAC’s jurisdiction.

The issue at hand
The Bank is alleged to have processed 72 “bulk funding” transactions by setting up a U.S.-dollar account with a non-U.S. bank located in a country that conducts financial transactions with Sudan. However, the use of the U.S. dollar in these transactions brought them into the United States’ financial system, and several of the alleged payments the Bank processed outside of the U.S. were routed through U.S. financial institutions.

In 2014, the Bank notified OFAC about an internal investigation it had conducted regarding possible sanctions violations. Since then, they have taken steps the address the problem, including hiring new compliance officials, and exiting the Sudanese market entirely. As part of the settlement with OFAC, the Bank paid OFAC $4 million.

U.S. financial laws reach far and wide
This case demonstrates the extent to which a business or an organization may be subject to United States compliance laws and regulations—even if they think they are not. In this case, even an entity with no U.S. presence or interests found itself mired in an OFAC sanctions violation, in spite of having taken steps to stay outside American jurisdiction.

The result was that the Bank found itself involved in a public inquiry that resulted in adverse media coverage, and a sizable fine. Having a comprehensive financial compliance program in place, with checks and balances, may have helped the avoid all the above.