While administration of U.S. economic sanctions is legally entrusted to the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), its front line enforcers are U.S. depository institutions. This obviously makes sense as it is these depository institutions who are primarily responsible for catching sanctions violations, blocking and rejecting transactions, and incurring the bulk of the liability for violations which take place.

As such, U.S. depository institutions have to be very careful in their screening of transactions. It’s not sufficient just to search for exact name matches on the OFAC Specially Designated Nationals and Blocked Persons List (“SDN List”). U.S. depository institutions should also be checking for variations of the names, dates of birth, and addresses, and indeed, many depository institutions do properly set their screening software to pick up hits on those categories of information. However, there is a new trend overtaking mere screening that we are seeing more and more of these days and that is one of active compliance.

Where a few years ago many banks were comfortable with their screening software identifying suspicious activity and blocking or rejecting transactions, we have been getting increased calls from private individuals both in the U.S. and abroad that have had funds and accounts frozen and/or were undergoing investigations by their banks. These cases used to be few and far between and were typically simple to resolve, however, they are becoming more frequent and the banks line of questioning and investigations seem to be getting more aggressive and sophisticated.

When conducting these investigations the banks often focus on the relationships of the parties involved in the transaction, the purpose of the transaction, the information contained in the comments section of the wire documents, and whether additional international wires will be coming from those sources. In particular, the information contained in the comments section can be problematic, especially when foreign money exchangers are used.

In many of these cases U.S. banks will use those comments to justify their findings that although there may be no legal violation, the suspicious nature of the transactions raises the risk profile of the account holder. Once that risk profile is raised its very common for account holders to be told their accounts are being closed and that they will have to bank elsewhere. It all goes back to the fact that with the banks on the hook for violations, both from OFAC and from state regulators, they don’t want to take a chance on anyone. As such, as an account holder who may be engaged in international transactions its always a good idea to talk to your bank before receiving such funds transfers if you don’t ordinarily receive them or if they are being sent through the use of a foreign exchange house. Doing so may help avoid any unwanted blocking or investigations. After all if the banks are going to be proactive in catching sanctions violations, then so should the account holders in seeking to dispel any suspicion of sanctions violations.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.