We are currently cashing payroll checks for a few of our farming business customer's migrant workers. We only cash checks if people are our customers or the check is drawn off our bank. We do have a policy in place that requires a photo ID before we will cash these checks for any non-customer. (which all of these migrant workers are non-customers). Should or are we required to do anything special with these transactions. Most checks are between $300-$600 weekly. Our internal audit suggests we OFAC each payee weekly? As a result we plan to keep a spreadsheet documenting the type of photo ID used and if OFAC check was completed. IS this over-kill? How do others handle these types of transactions?

It's a suggestion and you need to take a risk-based approach when it comes to OFAC. One thing I hate to say is that you may run into a lot of false positives because migrant workers may have similar names to individuals on the SDN list for drug kingpins.

But remember - OFAC doesn't REQUIRE that you check anything, BUT should you inadvertently conduct a transaction with an SDN, then OFAC will look to the quality of your OFAC screening program when deciding on the amount of the penalty and whether or not you self-report the violation.

If you decide to screen the names against OFAC, be prepared to spend a bit of time deciding if the "Miguel Rodriguez" looking to cash that $300 is a match to one of the 7 "Miguel Rodriguez" on the list. And in thinking about a risk-based approach, how likely is it that a person cashing a $300 or $600 check is a South American drug lord?

One thing you might consider is asking your customer to screen his workers against the OFAC list and asking if your customer will share the results with you.

And I honestly have to ask for a show of hands - how many bankers in the room have ever identified a positive OFAC match when checking the payees of a check - especially for checks that are less than $5,000?

in 30 years of banking I can safely say none.

However if you are in NYS (or cashing checks in NYS)

http://www.dfs.ny.gov/legal/regulations/proposed/rp504t.pdf

Each Regulated Institution shall maintain a Watch List Filtering Program for the purpose of interdicting transactions, before their execution, that are prohibited by applicable sanctions, including OFAC and other sanctions lists, politically exposed persons lists, and internal watch lists, which system may be manual or automated, and which shall, at a minimum, include the following attributes:

be based on the Risk Assessment of the institution;
2. be based on technology or tools for matching names and accounts4, in each case based on the institution’s particular risks, transaction and product profiles;
3. include an end-to-end, pre- and post-implementation testing of the Watch List Filtering Program, including data mapping, an evaluation of whether the watch lists and threshold settings map to the risks of the institution, the logic of matching technology or tools, model validation, and data input and Watch List Filtering Program output;
4. utilizes watch lists that reflect current legal or regulatory requirements;
5. be subject to on-going analysis to assess the logic and performance of the technology or tools for matching names and accounts, as well as the watch lists and the threshold settings to see if they continue to map to the risks of the institution; and
6. include easily understandable documentation that articulates the intent and the design of the Program tools or technology.


And it continues...

Sadly, I don't think people up to their elbows in illegal activity actually consider checks an acceptable form of payment... Running OFAC checks on over the counter items is just something we do in order to pretend like we're doing something.

Your auditor may be competent to tell you that you should assess the risk in not doing it, but it is simply not his or her job to tell you that you should do it.

Ken - I think you give auditors too much credit...

We don't check ours. Our risk assessment states that we do not and we have not been criticized.

Same as Daisy Doodle.

We have a similar situation. We're going to maintain a secure record system with photo ID and identifying number of the gentlemen who will be cashing checks on a routine basis (last year they had both Visas and passports).

Our standard practice is to check OFAC when cashing on-us checks for non-customers of $2,500 or more. Some area banks have a higher threshold, some have a lower threshold.