Although the FAQ response is aimed at US banks providing financial intermediary services with respect to wire transfers, it also may be instructive for other types of financial intermediaries, such as in the securities industry, as well as other types of financial services transactions. As discussed below, OFAC's response clarifies the level of diligence that financial intermediaries should undertake in these circumstances, and whether OFAC would take enforcement action in such cases. These are important considerations in light of the increased penalty authority now available to OFAC in enforcement cases and the range of possible actions that OFAC may take in response to apparent violations, as set forth in its proposed Economic Sanctions Enforcement Guidelines (Guidelines), 73 Fed. Reg. 51933 (September 8, 2008). Please refer to our September 12, 2008 Email Alert for further discussion of OFAC's Guidelines.
In the FAQ response, OFAC took note of its prior guidance that property and interests in property of entities which own 50% or more of other entities that are named on OFAC's Specially Designated Nationals and Blocked Persons List (SDN List), or that are otherwise subject to blocking requirements (e.g., an entity located in Cuba), should be blocked, as should the property of SDNs themselves. The FAQ concerned the level of due diligence that OFAC expected a financial intermediary to perform on non-account parties involved with or referenced in wire transfers where the non-account party is not named on the SDN List, but might own an entity that is listed.
In these circumstances, OFAC stated that when a US bank (1) is operating solely as a financial intermediary, (2) does not have any direct relationship with such entity (i.e., the entity is a non-account party) and (3) does not know or have reason to know such entity's ownership or other information demonstrating the blocked status of such entity's property, OFAC would not expect the bank to conduct further research on such entities listed in the wire transfer that do not appear on the SDN List and would not pursue an enforcement action against the bank for processing the transaction, even if it turned out that the wire transfer involved property that should have been blocked.
The FAQ response makes clear that OFAC would still expect the names of the non-account parties to be screened against the SDN List, where such names were available as part of the wire transfer information. Of course, OFAC also expects financial services institutions to conduct due diligence on their direct customers (including their ownership structure) to confirm that such customers are not persons subject to blocking requirements. Finally, OFAC suggests that it would take this same approach for transactions other than wire transfers where banks are solely acting as financial intermediaries and fail to block transactions involving a sanctions target.
