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The United States Department of Treasury Office of Foreign Assets Control released new guidance yesterday that will be useful to banks serving as intermediaries in financial transactions.

Under current sanctions programs, OFAC blocks the property and interests in property of entities that are owned or controlled 50% of more by a blocked person on the Specially Designated Nationals (SDN) list. Wire transactions involving U.S. persons and blocked persons will also be blocked. In addition, U.S. persons engaging in transactions with blocked persons can face both civil and criminal penalities for their conduct. However, the question was recently asked whether OFAC expected banks serving as financial intermediaries to research non account parties involved in the transactions who are not identified on the SDN list for compliance purposes.

OFAC stated that when viewing these types of transactions they will take into consideration a totality of the circumstances standard to determine if an enforcement action is necessary. This means that while OFAC requires banks to perform due diligence on its own direct customers, however if the bank is operating solely as an intermediary, does not have any direct relationship with the entity, and did not know or did not have reason to know the entity’s ownership information demonstrating the blocked status of the entity’s property, then OFAC would not expect the bank to research the non-account parties listed in the wire transfer that do not appear on the SDN list. As such they would not take enforcement action against the intermediary bank.

OFAC’s use of “totality of circumstances” is interesting to me. If this applies to intermediary banks, should it not also apply to enforcement actions taken against other individuals involved in transactions with an SDN? This might be wishful thinking, but I would be interested in seeing how OFAC reacts to a totality of circumstances agrument being raised in a Petition for Removal administrative reconsideration letter. I believe OFAC is being less strict that usual here. Hopefully we see further guidance like this from them in the future.

If you feel that you may have violated any OFAC administered regulations or seek assistance in complying with those regulations please contact the author at 202-329-5652 or by email at info@ferrari-legal.com

The author of this blog is Erich C. Ferrari, an attorney in Washington, DC, who specializes in Sanctions Law and White Collar Criminal Defense. If you have any questions please email him at info@ferrari-legal.com

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