Loan Applications & OFAC

Question: I've been asked whether loan applications MUST be checked for OFAC (as names are for deposit accounts). Do they have to be checked? And can you tell me where it says so?

Answer: The OFAC sanctions come in two flavors: blocking and rejecting. You must reject transactions (including loans) in certain instances. See the BOL OFAC Sanctions Matrix for details on rejecting transactions:

Thank goodness, the rejection sanctions are very limited. More common are the blocking sanctions. Those require you to block/freeze the assets of the OFAC-affected entity or individual. If you make a loan to someone who is on the OFAC list, any payments they make on the loan will be subject to OFAC sanctions. That means you will have to freeze the payments, put them in a separate interest-bearing account, and report them to OFAC. You won't see a dime of the money until or unless OFAC unblocks the customer. It's therefore hazardous to your institution's bottom line to enter into a loan transaction without checking the customer's OFAC status.

Thanks to Mary Beth Guard, Esq. for her answer.

Copyright © 2003 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 12, No. 10, 1/03