I attended a Michigan Bankers Assoc Seminar yesterday regarding BSA. The speaker mentioned during the OFAC section that when a teller is cashing out a check for a non-customer, the teller should do a OFAC check on the Payee of the check at the time of the transaction. We check our customer database everytime a OFAC update is done, but I've never heard of doing searches for non-customers. He said that there are teller systems that allow the teller to do this right at the teller line. Has anyone heard of this? Is anyone doing this?

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Technically, the speaker was correct. You have an obligation under the OFAC rules to take appropriate action if a non-customer comes into your institution to present a check drawn on your institution. You also have an obligation to block a transaction if the check comes through the normal collection process and the payee is on the list.

From a risk management perspective, does this occur? The fact that no one has responded up to now should give you some indication.

Thanks for taking that first step Paul. I read this one and thought about it and came to the same technical conclusion but the practical side of complying seemed almost insurmountable.
Boy, are the tellers going to scream when I tell them they need to start OFAC checks on non-customers cashing on-us checks. This might even make me re-think my position taken in the threads on charging to cash on-us checks!

Did he site a specific section of a regulation that states that non-customer payees on checks presented in the lobby must be checked against OFAC? I have not seen that section of any regulation.

OFAC has an FAQ list on its website. It states-and you can interpret what you wish from this regarding expectations to comply with the law-

Does my bank need to check the OFAC list when selling cashier's checks and money orders? In the case of cashier's checks, do I need to check both the purchaser and the payee? As a mortgage lender, do I need to check both the purchaser and the seller's name against the SDN list?

Every transaction that a U.S. financial institution engages in is subject to OFAC regulations. If a bank knows or has reason to know that a target is party to a transaction, the bank's processing of the transaction would be unlawful. [09-10-02]

The FAQ can be found here.

I haven't seen a teller system that checked OFAC but even if it had OFAC module, the teller would have to input the payee's name manually. Did that examiner mention scanning ACH's and bill payments BEFORE they are sent out?

What I don't understand is that why can't the FRB at least scan Fedline messages and ACH's? How about giving the banks rewards for confiscated assets (which could turn into nice bonuses for the employees)?

And yes, there are many banks out there that are "manually" checking payees' names on cashier's checks and money orders.

It has been well-established that OFAC regulations do not require that banks check the OFAC lists prior to cashing a check, sending a wire, sending an ACH, opening an account, or watering the lobby plants.

What the law and regulations do is impose hefty penalties for allowing a transaction to take place that would violate the regulations (with a person on the lists or with a blocked country, ship, etc.)

Every U.S. person is subject to the rules. That includes all banks. Checking the OFAC list is a risk-management step that each bank needs to weigh for different classes of transactions based on its assessment of the risk of a violation and the result of such a violation, balanced against the cost of doing a check. Examiners want to see that a risk-based decision process has taken place to determine whether various types of transactions get checked, and may opine on the sufficiency of that analysis.

A grossly simplified view suggests that certain types of transactions, such as wire transfers, involve a greater risk and should be checked carefully. ACH transfers are much less risky (generally lower dollar amounts, still restricted geographically somewhat).

Don't be cowed into a knee-jerk decision to check every transaction that flows through your bank. Reason has to prevail in this process of deciding what to check and what to leave alone, else your bank could be paralyzed by its own efforts.

Of course your bank should eliminate as many risks as it reasonably can. But totally risk-free banking doesn't exist -- ask any lender in your organization!

I agree with you, John. What I find, however, is that many compliance officers/banks try to make the risk decision without reading the OFAC requirements. Yes, OFAC does not say you must check the list. They do say you may not engage in any transactions with anyone on the list and it is up to you to figure out how to do that. The easiest way to accomplish that is to check the list. Whether that is done manually or in an automated fashion is the bank's decision.

It is also the bank's decision whether to do that for all products, or just products the bank deems the most likely to expose them to OFAC penalties.

But those decisions cannot be made in a vacuum. Go to the OFAC website, there is a wealth of information there. Read the requirements, read the FAQ, then make your decisions. But don't make your decisions without a full understanding of the law. A risk decision without a full understanding of the situation just creates more risk.

John, I am in total agreement with you. It is a risk management decision - and I don't know of any institution that reviews checks cased by non-customers or checks presented for collection through an OFAC screen.

I'm only responding to increase the volume of the chorus. The best way to eliminate OFAC compliance risk is to go out of business. Some methods of reducing OFAC compliance risk cannot be justified by the associated costs. Most banks would say checking payees on checks presented at the teller window is a prime example.

Some presenters find it difficult to explain risk based decision making - many people just want what they call a "straight answer" with no explanation. So, the cover your assets answer is condensed to "you are required to do this."