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Posers
by Mary Beth Guard, Esq.
"Hmmmm. That's a poser!" The dictionary defines the term as "difficult problem." The Hotline receives lots of posers. Here is a recent one, along with the answer.
If I am approached by a person who wants to open an account with us, and I find his or her name on the OFAC list, can I just turn down the account on the basis of that? What do I tell the person? Can I tell them I won't open it because their name is on the list? Am I protected by safe harbor if I do?
This is, as you might imagine, a delicate situation, and there are several factors to take into consideration. First, consider why OFAC (Office of Foreign Assets Control) exists. The goal of the OFAC sanctions is to put the financial squeeze on certain individuals or entities in order to effectuate U.S. foreign policy and national security goals. The government wants to turn off the tap on funds flowing to terrorists, narcotics traffickers, and countries that engage in objectionable conduct. Financial institutions play a key role in this endeavor.
Next, consider your legal obligations. In some instances, the OFAC sanctions require transactions to be rejected. If that is the case, you simply should refuse to do business with the individual or entity. In other instances, however, the sanctions require assets of the affected individual or entity to be blocked, which means they must be frozen and placed in a separate interest-bearing account and reported to OFAC. If your institution holds assets of an individual or entity that is subject to blocking under OFAC, you must freeze the funds.
Here's where it gets tricky. When someone comes in to open a new account, if you discover they are on the OFAC list and subject to blocking before they tender their opening deposit to you, you technically are not holding their assets and you could simply refuse to open the account. Once their check or cash is in your possession, however, you are holding their assets - and you must freeze them. At that point, you cannot hand their funds back to them and refuse to open the account.
That leads us to our third consideration - employee safety. No customer would be happy to learn their funds have been frozen and placed beyond their grasp. You have three choices. l) You could check the OFAC list the moment you learn the prospective customer's name (before they give you the opening deposit) and if you determine they are subject to blocking, refuse to open the account. The downside of this approach is that it allows the "bad guy" to walk out of your institution without his funds being interdicted by OFAC. 2) The second option is to open the account for the blocked person/entity and accept the opening deposit. After doing so, immediately inform the customer that the funds have now been frozen pursuant to the OFAC regulations. The obvious problem with this approach is that the customer may become hostile towards the CSR. 3) The third option is probably the most desirable. Open the account, accept the deposit, freeze the funds, then notify the customer after-the-fact by mail that the funds have been frozen and why. Point to the OFAC sanctions program as the reason for your action.
There is no prohibition against telling the customer that the reason you have taken certain action is due to OFAC regulations. Even revealing that the customer's name appears on the OFAC list is permissible since there is no law forbidding it and, after all, the list is a publicly available document.
Copyright © 2002 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 12, No. 1, 1/02
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