[Federal Register: January 12, 2006 (Volume 71, Number 8)]
[Rules and Regulations]
[Page 1971-1976]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12ja06-16]
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DEPARTMENT OF THE TREASURY
Office of Foreign Assets Control
31 CFR Part 501
Economic Sanctions Enforcement Procedures for Banking
Institutions
AGENCY: Office of Foreign Assets Control, Treasury.
ACTION: Interim final rule with request for comments.
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SUMMARY: The Office of Foreign Assets Control (``OFAC'') of the U.S.
Department of the Treasury is issuing this interim final rule,
``Economic Sanctions Enforcement Procedures for Banking Institutions,''
along with a request for comments. This interim final rule supercedes
OFAC's proposed rule of January 29, 2003,\1\ to the extent that the
proposed rule applies to ``banking institutions,'' as defined below.
These administrative procedures are published as an appendix to the
Reporting, Procedures and Penalties Regulations, 31 CFR Part 501.
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\1\ 68 FR 4422-4429 (2003).
DATES: The interim final rule is effective for enforcement cases
involving banking institutions commencing on or after February 13,
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2006. Written comments may be submitted on or before March 13, 2006.
ADDRESSES: You may submit comments by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Agency Web site: http://www.treas.gov/offices/enforcement/ofac/comment.html
.
Fax: Assistant Director of Records, (202) 622-1657.
Mail: Assistant Director of Records, ATTN: Request for
Comments (Enforcement Procedures), Office of Foreign Assets Control,
Department of the Treasury, 1500 Pennsylvania Avenue, NW., Washington,
DC 20220.
[[Page 1972]]
Instructions: All submissions received must include the agency name
and the FR Doc. number that appears at the end of this document.
Comments received will be posted without change to http://www.treas.gov/ofac
, including any personal information provided.
FOR FURTHER INFORMATION CONTACT: Assistant Director of Records, (202)
622-2500 (not a toll-free call).
SUPPLEMENTARY INFORMATION:
Electronic Availability
This document and additional information concerning OFAC are
available from OFAC's Web site (http://www.treas.gov/ofac) or via
facsimile through a 24-hour fax-on-demand service, tel.: 202/622-0077.
Procedural Requirements
Because this interim final rule imposes no obligations on any
person, but instead simply explains OFAC's enforcement practices based
on existing substantive and procedural rules, prior notice and public
procedure are not required pursuant to 5 U.S.C. 553(b)(A). Because no
notice of proposed rulemaking is required, the provisions of the
Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. Finally,
this interim final rule is not a significant regulatory action for
purposes of Executive Order 12866.
Although a prior notice of proposed rulemaking is not required,
OFAC is soliciting comments on this interim final rule in order to
consider how it might make improvements in its enforcement procedures
in the future. Comments must be submitted in writing. The addresses and
deadline for submitting comments appear near the beginning of this
notice. OFAC will not accept comments accompanied by a request that all
or part of the submission be treated confidentially because of its
business proprietary nature or for any other reason. All comments
received by the deadline will be a matter of public record and will be
made available on OFAC's Web site: http://www.treas.gov/offices/enforcement/ofac/index.html
.
Background
On January 29, 2003, OFAC published, as a proposed rule, Economic
Sanctions Enforcement Guidelines. Though this proposed rule has not
been finalized, OFAC has used the Guidelines as a general framework for
its enforcement actions. OFAC has decided that the enforcement
procedures with respect to banking institutions should be modified and
is publishing enforcement procedures for these entities as an interim
final rule. OFAC is also requesting comments on this interim final
rule.
In conjunction with issuing this interim final rule, OFAC is
withdrawing the January 29, 2003 proposed rule to the extent it applies
to banking institutions, as defined herein. For purposes of this
interim rule, ``banking institutions'' means depository institutions
regulated or supervised by one of the regulators that belongs to the
Federal Financial Institutions Examination Council (``FFIEC''), i.e.,
the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the National Credit Union
Administration, the Office of the Comptroller of the Currency, and the
Office of Thrift Supervision. Please note that a depository institution
may be a ``banking institution,'' as that term is defined in OFAC
regulations, see, e.g., 31 CFR 500.314, 515.314, but not a ``banking
institution'' for purposes of these enforcement procedures. Because
this interim final rule only applies to enforcement procedures for
banking institutions, as defined herein, OFAC plans to issue guidance
on its enforcement procedures for other types of institutions and other
sectors in the future.
OFAC is publishing enforcement procedures for banking institutions
because of their unique role in the implementation of OFAC sanctions
programs and the nature of the transactions in which such institutions
engage. The new enforcement procedures take into account that each
banking institution's situation is different and that its compliance
program should be tailored to its unique circumstances. This includes
an analysis of its size, business volume, customer base, and product
lines.
In order to implement this new approach, OFAC has been working and
will continue to work in partnership with the federal banking
regulators. OFAC worked with FFIEC members to develop standards to
evaluate compliance programs at banking institutions. In June 2005, the
FFIEC released its Bank Secrecy Act Anti-Money Laundering Examination
Manual. Portions of this manual relate to compliance with various OFAC
sanctions programs. In addition, working with FFIEC members, OFAC has
developed risk matrices, which may be used by depository institutions
as ``best practices.'' \2\ The matrices provide a guide for evaluating
a banking institution's risk of encountering accounts or transactions
subject to OFAC regulations and for determining the quality of an
institution's compliance program. As indicated in the FFIEC examination
manual, the banking regulators evaluate a banking institution's overall
OFAC compliance program using a similar methodology.
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\2\ These matrices can be found in Annex A to the interim final
rule and can be accessed online at http://www.treas.gov/offices/enforcement/ofac/faq/matrix.pdf
.
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Also, in administering its enforcement authority with respect to
various sanctions statutes, Executive orders, and regulations, OFAC
will provide the federal banking regulators with information related to
apparent violations or compliance concerns as it becomes aware of them.
In turn, OFAC will receive information from the banking regulators,
including, for those institutions with apparent violations, evaluations
of the sufficiency of each such institution's implementation of
policies, procedures, and systems for ensuring OFAC compliance.
Prior to taking enforcement actions, OFAC generally will review
apparent violations by a particular institution over a period of time,
rather than evaluating each apparent violation independently. However,
in regard to what appears to be a particularly egregious violation,
OFAC may evaluate the situation as it presents itself and take prompt
enforcement action.
Under the revised procedures, OFAC will periodically evaluate a
banking institution's apparent OFAC-related violations in the context
of the institution's overall OFAC compliance program and specific OFAC
compliance record. OFAC will not conduct such a review if there are no
apparent violations. The information reviewed will include but not
necessarily be limited to: the evaluation of the banking institution's
OFAC compliance program by its primary federal banking regulator; the
institution's history of OFAC compliance; the circumstances surrounding
any apparent violation, including what appear to be patterns or
weaknesses in an institution's compliance program and whether they
indicate negligence or a fundamental flaw in the compliance effort or
system and whether they were voluntarily disclosed; enforcement
information provided by the institution to OFAC; the number of
transactions or accounts that the institution handled improperly during
the period under review and its responses to any administrative
subpoenas that OFAC sent with regard to those transactions or accounts;
the number of transactions successfully blocked or rejected by the
banking institution during the period; the actions taken by the banking
institution to correct any violations and to ensure
[[Page 1973]]
that similar violations do not happen again; and other relevant
information available to OFAC at the time of the evaluation.
After a review of apparent violations, OFAC will contact the
banking institution, either by phone, in-person, or in writing,
regarding OFAC's preliminary assessment of the appropriate action with
respect to the institution. OFAC's staff will discuss the results of
its review with the institution, including any patterns or weaknesses
in an institution's compliance program. With respect to particular
transactions, the discussion will cover the actions taken by the
banking institution to ensure that similar transactions do not take
place in the future and the adequacy of responses to any administrative
subpoenas OFAC has sent with regard to the transactions. OFAC will
indicate the intended administrative action to be taken for each
transaction or set of related transactions that appear to constitute
violations of OFAC-administered sanctions programs.
Once OFAC has reached a decision, it will notify the institution in
writing as to its proposed action with regard to each apparent
violation during the period under review. OFAC will provide a copy of
this letter to the institution's primary federal banking regulator. In
the event that OFAC has notified the institution of its intent to
pursue a civil penalty with regard to any or all of the apparent
violations, existing civil penalty procedures under OFAC regulations
will be followed. These include the opportunity for informal settlement
prior to formal initiation of penalty action through the issuance of a
prepenalty notice.
In subsequent periodic reviews relating to the institution's
apparent violations, all prior actions and decisions taken by OFAC,
including cases in which the decision is to take no action, will be
considered in deciding what action to take.
In addition to detailing these new procedures, the interim final
rule clarifies that, for a banking institution, a voluntary disclosure,
a factor that OFAC considers in its enforcement decisions, does not
include a disclosure when another party is required to file a report
concerning the same transaction. This is the case whether or not the
other party actually files a report. However, OFAC considers reporting
of violations important for its compliance and enforcement programs and
will consider such reports by a banking institution a mitigating factor
in its enforcement decisions even if they do not meet the definition of
``voluntary disclosure'' contained in these enforcement procedures.
While reports that are not voluntary disclosures will generally not be
accorded the same importance as voluntary disclosures, OFAC will give
such cooperation due consideration.
Though this interim final rule becomes effective in 30 days, OFAC
is soliciting comments for a 60-day period with a view to improving its
enforcement procedures.
In particular, commenters are invited to address how much
significance, separately or collectively, OFAC should attribute in its
enforcement decisions to such factors as a banking regulator's
assessments of a banking institution's compliance program, a banking
institution's historical OFAC compliance record, and a comparison of
that record to similarly situated banking institutions.
Also, this interim final rule does not apply to entities regulated
by the Securities and Exchange Commission (``SEC'') and the Commodity
Futures Trading Commission (``CFTC''), such as broker-dealers, mutual
funds, investment advisers, hedge fund advisers, futures commission
merchants, commodity trading advisers, and commodity pool operators,
even if such legal entities are affiliated with a banking institution.
OFAC plans to issue separate enforcement procedures for SEC- and CFTC-
regulated entities in recognition that the regulatory regimes
administered by the SEC and the CFTC are significantly different from
the regime administered by federal banking regulators. Commenters are
asked to address whether there is current information about the
compliance programs of SEC- and CFTC-regulated entities that OFAC could
use in a similar manner to the way compliance information will be used
for making enforcement decisions for banks. Commenters are also
requested to provide any suggestions concerning how the enforcement
procedures described in this interim final rule should be modified for
entities regulated by the SEC or CFTC.
OFAC also plans to issue enforcement procedures for certain
financial sector entities regulated by state government agencies but
not by federal financial regulators. This sector includes entities that
are similar to federally-regulated banking institutions, such as
certain credit unions and banks not insured by an agency of the U.S.
Government, and it includes some money service businesses. Commenters
are asked for suggestions concerning how the enforcement procedures in
the interim final rule should be modified for the purpose of providing
separate enforcement procedures for these entities.
The interim final rule does not apply to other financial sector
entities, such as insurance companies (including property and casualty,
life, and reinsurance lines of business), pension funds, finance
companies, mortgage bankers, and government-sponsored enterprises.
Commenters are asked for their suggestions on how enforcement
procedures should be modified to apply to these other financial sector
entities and whether and how enforcement procedures for financial
sector firms should vary depending on the regulatory regime, if any, to
which various financial sector firms are subject.
Commenters are also requested to provide suggestions concerning
appropriate enforcement procedures for non-financial sectors, such as
import-export businesses, the computer and software industries, and e-
commerce.
These procedures apply to banking institutions that may be part of
a larger corporate structure, with a parent holding company. Commenters
are asked how OFAC should consider for enforcement purposes complex
corporate structures, which may include entities regulated by the Board
of Governors of the Federal Reserve System, the Office of the
Comptroller of the Currency, the Office of Thrift Supervision, the SEC,
and the CFTC. Other affiliates, such as insurance companies, may be
regulated by state regulators; some affiliates may be subject to the
jurisdiction of foreign regulators; and some entities may not have a
functional regulator. Such complicated structures pose challenges for
assessing compliance programs and making determinations about
enforcement actions when there are violations. Commenters are invited
to address the proper enforcement approach for complicated holding
company structures.
List of Subjects in 31 CFR Part 501
Administrative practice and procedure, Banks, banking, Reporting
and recordkeeping requirements.
0
For the reasons set forth in the preamble, 31 CFR part 501 is amended
as follows:
PART 501--REPORTING, PROCEDURES AND PENALTIES REGULATIONS
0
1. The authority citation for Part 501 continues to read as follows:
Authority: 18 U.S.C. 2332d; 21 U.S.C. 1901-1908; 22 U.S.C. 287c;
22 U.S.C. 2370(a); 31 U.S.C. 321(b); 50 U.S.C. 1701-
[[Page 1974]]
1706; 50 U.S.C. App. 1-44; Pub. L. 101-410, 104 Stat. 890 (28 U.S.C.
2461 note); E.O. 9193, 7 FR 5205, 3 CFR, 1938-1943 Comp., p. 1174;
E.O. 9989, 13 FR 4891, 3 CFR, 1943-1948 Comp., p. 748; E.O. 12854,
58 FR 36587, 3 CFR, 1993 Comp., p. 614.
0
2. Part 501 is amended by adding the following appendix A, with
annexes, to read as follows:
Appendix A to Part 501--Economic Sanctions Enforcement Procedures for
Banking Institutions
Note: This appendix provides a general procedural framework for
the enforcement of all economic sanctions programs administered by
the Office of Foreign Assets Control (``OFAC'') only as they relate
to banking institutions, as defined herein.
I. Definitions
A. Banking regulator means the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, the
National Credit Union Administration, the Office of the Comptroller
of the Currency, or the Office of Thrift Supervision.
B. Banking institution, for purposes of this appendix to Part
501, means a depository institution supervised or regulated by a
banking regulator.
C. OFAC means the Department of the Treasury's Office of Foreign
Assets Control.
D. Voluntary disclosure means notification to OFAC of an
apparent sanctions violation by the banking institution that has
committed it. However, such notification to OFAC is not deemed a
voluntary disclosure if OFAC has previously received information
concerning the conduct from another source, including, but not
limited to, a regulatory or law enforcement agency or another
person's blocking or funds transfer rejection report.
Notification by a banking institution is also not a voluntary
disclosure if another person's blocking or funds transfer rejection
report is required to be filed, whether or not this required filing
is made. Responding to an administrative subpoena or other inquiry
from OFAC is not a voluntary disclosure. The submission of a license
request is not a voluntary disclosure unless it is accompanied by a
separate disclosure.
II. Enforcement of Economic Sanctions in General
A. OFAC Civil Investigation and Enforcement Action. OFAC is
responsible for civil investigation and enforcement with respect to
economic sanctions violations committed by banking institutions. In
these efforts, OFAC may coordinate with banking regulators. OFAC
investigations may lead to one or more of the following: an
administrative subpoena, an order to cease and desist, a blocking
order, an evaluative letter summarizing concerns, or a civil penalty
proceeding. In addition to or instead of such actions, if the
banking institution involved is currently acting pursuant to an OFAC
license, that license may be suspended or revoked.
B. OFAC's Evaluation of Violative Conduct. The level of
enforcement action undertaken by OFAC involving a banking
institution depends on the nature of the apparent violation, the
enforcement objectives, and the foreign policy goals of the
particular sanctions program involved. In evaluating whether to
initiate a civil penalty action, OFAC determines whether there is
reason to believe that a violation of the relevant regulations,
statutes, or Executive orders has occurred. In making determinations
about the disposition of apparent violations by banking
institutions, including evaluative letters and civil penalties, OFAC
will consider information provided by the banking institution and
its banking regulator concerning the institution's compliance
program and the adequacy of that program based on its OFAC risk
profile. Further information about the evaluation of compliance
programs commensurate with the risk profile of a banking institution
and a description of a sound OFAC compliance program are provided in
Annexes A and B.
C. Criminal Investigations and Prosecutions. If the evidence
suggests that a banking institution has committed a willful
violation of a substantive prohibition or requirement, OFAC may
refer those cases to other federal law enforcement agencies for
criminal investigation. Cases that an investigative agency has
referred to the Department of Justice for criminal prosecution also
may be subject to OFAC civil penalty action.
III. Periodic Institutional Review
A. Except for those significant violations for which prompt
action, such as a civil penalty proceeding or referral to other
federal law enforcement agencies, is appropriate, OFAC will review
institutions with violations or suspected violations on a periodic
basis. OFAC will review each such institution's apparent violations
over a period of time deemed appropriate in light of the number and
severity of apparent violations and the institution's OFAC
compliance history.
B. Upon completing this review, OFAC will preliminarily
determine the type of enforcement action it will pursue for each
apparent violation or related apparent violations. OFAC will then
seek comment from the banking institution and ask it to provide
additional information with regard to the apparent violation or
violations. OFAC also will ask the institution to explain what
actions led to the apparent violation or violations and what
actions, if any, it has taken to overcome the deficiencies in its
systems that led to the apparent improper handling of the
transactions or accounts. Depending on the number and complexity of
the apparent violations, OFAC may grant up to 30 days for a banking
institution to respond and may grant further extensions at its sole
discretion where it determines this is appropriate. Upon receipt of
the institution's response, OFAC will decide whether to pursue the
intended administrative action or whether some other action would
serve the same purpose.
C. OFAC will subsequently send the banking institution a letter
detailing its findings and further actions, if any, concerning the
apparent violations. OFAC will provide the banking institution's
primary banking regulator with a copy of this letter.
IV. Factors Affecting Administrative Action
In making its decision as to administrative action, if any, OFAC
will consider a number of factors, including, but not limited to,
the following:
A. The institution's history of sanctions violations.
B. The size of the institution and the number of OFAC-related
transactions handled correctly compared to the number and nature of
transactions handled incorrectly.
C. The quality and effectiveness of the banking institution's
overall OFAC compliance program, as determined by the institution's
primary banking regulator and by its history of compliance with OFAC
regulations.
D. Whether the apparent violation or violations in question are
the result of systemic failures at the banking institution or are
atypical in nature.
E. The voluntary disclosure to OFAC of the apparent violation or
violations by the banking institution.
F. Providing OFAC a report of, or useful enforcement information
concerning, the apparent violation or violations. Providing a
report, but not a voluntary disclosure, of the apparent violation or
violations will generally be accorded less weight as a mitigating
factor than would provision of a voluntary disclosure.
G. The deliberate effort to hide or conceal from OFAC or to
mislead OFAC concerning an apparent violation or violations or its
OFAC compliance program.
H. An analysis of current or potential sanctions harm as a
result of a violation or series of related violations. This analysis
will focus both on the specifics of the apparent violation or
violations and the institution's compliance effort.
I. Technical, computer, or human error.
J. Applicability of a statute of limitations and any waivers
thereof.
K. Actions taken by the banking institution to correct the
problems that led to the apparent violation or violations.
L. The level of OFAC action that will best lead to enhanced
compliance by the banking institution.
M. The level of OFAC action that will best serve to encourage
enhanced compliance by others.
N. Evidence that a transaction or transactions could have been
licensed by OFAC under an existing licensing policy.
O. Whether other U.S. government agencies have taken enforcement
action.
P. Qualification of the banking institution as a small business
or organization for the purposes of the Small Business Regulatory
Enforcement Fairness Act, as determined by reference to the
applicable regulations of the Small Business Administration.
V. License Suspension and Revocation
In addition to or in lieu of other administrative actions, OFAC
authorization to engage in a transaction or transactions pursuant to
a general or specific license may
[[Page 1975]]
be suspended or revoked with respect to a banking institution for
reasons including, but not limited to, the following:
A. The banking institution has made or caused to be made in any
license application, or in any report required pursuant to a
license, any statement that was, at the time and in light of the
circumstances under which it was made, false or misleading with
respect to any material fact, or it has omitted to state in any
application or report any material fact that was required;
B. The banking institution has failed to file timely reports or
comply with the recordkeeping requirements of a general or specific
license;
C. The banking institution has violated any provision of the
statutes enforced by OFAC or the rules or regulations issued under
any such provision or relevant Executive orders and such violation
or violations are significant and merited civil penalty or other
enforcement action;
D. The banking institution is reasonably believed to have
counseled, commanded, induced, procured, or knowingly aided or
abetted the violation of any provision of any legal authority
referred to in paragraph C;
E. Based on the information available to it, OFAC considers the
banking institution's compliance program inadequate; or
F. The banking institution has committed any other act or
omission that demonstrates unfitness to conduct the transactions
authorized by the general or specific license.
VI. Civil Penalties
The procedures for addressing the actions of banking
institutions that OFAC decides merit civil penalty treatment are
provided in the regulations governing the particular sanctions
program involved, or, in the case of sanctions regulations issued
pursuant to the Trading with the Enemy Act, in this Part. The
factors listed in Section IV will be considerations in the civil
penalty process.
Annex A.--OFAC Risk Matrices
[The following matrices can be used by banking institutions to evaluate
their compliance programs. Matrix A is from the FFIEC Bank Secrecy Act
Anti-Money Laundering Examination Manual published in 2005, Appendix M
(``Quantity of Risk Matrix--OFAC Procedures'')]
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Low Moderate High
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Matrix A
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Stable, well-known customer Customer base A large, fluctuating
base in a localized changing due to client base in an
environment. branching, merger international
or acquisition in environment.
the domestic market.
Few high-risk customers; A moderate number of A large number of
these may include high-risk customers. high-risk
nonresident aliens, foreign customers.
customers (including
accounts with U.S. powers
of attorney) and foreign
commercial customers.
No overseas branches and no Overseas branches or Overseas branches or
correspondent accounts with correspondent multiple
foreign banks. accounts with correspondent
foreign banks. accounts with
foreign banks.
No electronic banking (e- The bank offers The bank offers a
banking) services offered, limited e-banking wide array of e-
or products available are products and banking products
purely informational or non- services. and services (i.e.,
transactional. account transfers,
e-bill payment, or
accounts opened via
the Internet).
Limited number of funds A moderate number of A high number of
transfers for customers and funds transfers, customer and non-
non-customers, limited mostly for customer funds
third-party transactions, customers. transfers,
and no international funds Possibly, a few including
transfers. international funds international funds
transfers from transfers.
personal or
business accounts.
No other types of Limited other types A high number of
international transactions, of international other types of
such as trade finance, transactions. international
cross-border ACH, and transactions.
management of sovereign
debt.
No history of OFAC actions. A small number of Multiple recent
No evidence of apparent recent actions actions by OFAC,
violation or circumstances (i.e., actions where the bank has
that might lead to a within the last not addressed the
violation. five years) by issues, thus
OFAC, including leading to an
notice letters, or increased risk of
civil money the bank
penalties, with undertaking similar
evidence that the violations in the
bank addressed the future.
issues and is not
at risk of similar
violations in the
future.
-----------------------------
Matrix B. This matrix consists of additional factors that may be
considered by banking institutions in assessing compliance programs in
addition to Appendix M of the FFIEC Bank Secrecy Act Anti-Money
Laundering Examination Manual.
------------------------------------------------------------------------
Management has fully Management exhibits Management does not
assessed the bank's level a reasonable understand, or has
of risk based on its understanding of chosen to ignore,
customer base and product the key aspects of key aspects of OFAC
lines. This understanding OFAC compliance and compliance risk.
of risk and strong its commitment is The importance of
commitment to OFAC generally clear and compliance is not
compliance is satisfactorily emphasized or
satisfactorily communicated communicated communicated
throughout the organization. throughout the throughout the
organization, but organization.
it may lack a
program
appropriately
tailored to risk.
The board of directors, or The board has The board has not
board committee, has approved an OFAC approved an OFAC
approved an OFAC compliance compliance program compliance program,
program that includes that includes most or policies,
policies, procedures, of the appropriate procedures,
controls, and information policies, controls, and
systems that are adequate, procedures, information systems
and consistent with the controls, and are significantly
bank's OFAC risk profile. information systems deficient.
necessary to ensure
compliance, but
some weaknesses are
noted.
Staffing levels appear Staffing levels Management has
adequate to properly appear generally failed to provide
execute the OFAC to adequate, but some appropriate
properly execute the OFAC deficiencies are staffing levels to
compliance program. noted. handle workload.
Authority and accountability Authority and Authority and
for OFAC compliance are accountability are accountability for
clearly defined and defined, but some compliance have not
enforced, including the refinements are been clearly
designations of a qualified needed. A qualified established. No
OFAC officer. OFAC officer has OFAC compliance
been designated. officer, or an
unqualified one,
has been appointed.
The role of the
OFAC officer is
unclear.
[[Page 1976]]
Training is appropriate and Training is Training is sporadic
effective based on the conducted and and does not cover
bank's risk profile, covers management provides important
applicable personnel, and adequate resources regulatory and risk
provides necessary up-to- given the risk areas.
date information and profile of the
resources to ensure organization;
compliance. however, some ares
are not covered
within the training
program.
The institution employs The institution The institution does
strong quality control employs limited not employ quality
methods. quality control control quality
methods. control methods.
------------------------------------------------------------------------
Annex B--Sound Banking Institution OFAC Compliance Programs
A. Identification of High Risk Business Areas. A fundamental
element of a sound OFAC compliance program rests on a banking
institution's assessment of its specific product lines and
identification of the high-risk areas for OFAC transactions. As OFAC
sanctions reach into virtually all types of commercial and banking
transactions, no single area will likely pass review without
consideration of some type of OFAC compliance measure. Relevant
areas to consider in a risk assessment include, but are not limited
to, the following: retail operations, loans and other extensions of
credit (open and closed-ended; on and off-balance sheet, including
letters of credit), funds transfers, trust, private and
correspondent banking, international, foreign offices, over-the-
counter derivatives, internet banking, safe deposit, payable through
accounts, money service businesses, and merchant credit card
processing.
B. Internal Controls. An effective OFAC compliance program
should include internal controls for identifying suspect accounts
and transactions and reporting to OFAC. Internal controls should
include the following elements:
1. Flagging and Review of Suspect Transactions and Accounts. A
banking institution's policies and procedures should address how it
will flag and review transactions and accounts for possible OFAC
violations, whether conducted manually, through interdiction
software, or a combination of both methods. For screening purposes,
a banking institution should clearly define procedures for comparing
names provided on the OFAC list with the names in its files or on
the transaction and for flagging transactions or accounts involving
sanctioned countries. In high-risk and high-volume areas in
particular, a banking institution's interdiction filter should be
able to flag close name derivations for review. New accounts should
be compared with the OFAC lists prior to allowing transactions.
Established accounts, once scanned, should be compared regularly
against OFAC updates.
2. Updating the Compliance Program. A banking institution's
compliance program should also include procedures for maintaining
current lists of blocked countries, entities, and individuals and
for disseminating such information throughout the institution's
domestic operations and its offshore offices, branches and, for
purposes of the sanctions programs under the Trading with the Enemy
Act, foreign subsidiaries.
3. Reporting. A compliance program should also include
procedures for handling transactions that are validly blocked or
rejected under the various sanctions programs. These procedures
should cover the reporting of blocked and rejected items to OFAC as
provided in Sec. 501.603 of this Part and the annual report of
blocked property required by Sec. 501.604 of this Part.
4. Management of blocked accounts. An audit trail should be
maintained in order to reconcile all blocked funds. A banking
institution is responsible for tracking the amount of blocked funds,
the ownership of those funds, interest paid on those funds, and the
release of blocked funds pursuant to license.
5. Maintaining License Information. Sound compliance procedures
dictate that a banking institution maintain copies of customers'
OFAC specific licenses on file. This will allow a banking
institution to verify whether a customer is initiating a legal
transaction. If it is unclear whether a particular transaction is
authorized by a license, a banking institution should confirm this
with OFAC. Maintaining copies of licenses will also be useful if
another banking institution in the payment chain requests
verification of a license's validity. In the case of a transaction
performed under general license (or, in some cases, a specific
license), it is sound compliance for a banking institution to obtain
a statement from the licensee that the transaction is in accordance
with the terms of the license, assuming the banking institution does
not know or have reason to know that the statement is false.
C. Testing. Except for a banking institution with a very low
OFAC risk profile, a banking institution should have a periodic test
of its OFAC program performed by its internal audit department or by
outside auditors, consultants, or other qualified independent
parties. The frequency of the independent test should be consistent
with the institution's OFAC risk profile; however, an in-depth audit
of each department in the banking institution might reasonably be
conducted at least once a year. The person(s) responsible for
testing should conduct an objective, comprehensive evaluation of
OFAC policies and procedures. The audit scope should be
comprehensive and sufficient to assess OFAC compliance risks across
the spectrum of all the institution's activities. If violations are
discovered, they should be promptly reported to both OFAC and the
banking institution's banking regulator.
D. Responsible Individuals. It is sound compliance procedure for
an institution to designate a qualified individual or individuals to
be responsible for the day-to-day compliance of its OFAC program,
including at least one individual responsible for the oversight of
blocked funds. This individual or these individuals should be fully
knowledgeable about OFAC statutes, regulations, and relevant
Executive orders.
E. Training. A banking institution should provide adequate
training for all appropriate employees. The scope and frequency of
the training should be consistent with the OFAC risk profile and the
particular employee's responsibilities.
Dated: December 22, 2005.
Robert W. Werner,
Director, Office of Foreign Assets Control.
Approved: December 23, 2005.
Stuart A. Levey,
Under Secretary of the Treasury, Office of Terrorism and Financial
Intelligence.
[FR Doc. 06-278 Filed 1-11-06; 8:45 am]
BILLING CODE 4810-35-P