Do we have to check the OFAC lists against 401(k) plan participants? The question is applicable to the 401(k) plan of the bank as well as for other 401(k) plans for which our Trust department is trustee. For the trust dept. purposes, 401(k) plans are just one account with the participants' interests all lumped together. But the outside record keepers are the parties that have lists of individual participants in the plans. Probably there is not a risk at the employee level since the contributions are made through salary deferrals.

Could you please give your opinions.!!
Thank you.

Meryem,

Good question and in fact the same question I have been seeking an answer to. Unfortunately I have no answer or wisdom to impart.

My bank has procedures in place to check new and existing Trust accounts. We are also checking all identifiable beneficiaries and interested parties. We (in theory, in practice it is easier said than done) prohibit distributions to any party that is not set-up internally as interested party and tied to an account. That way we avoid having to monitor at the distribution end.

(The problem we have in checking at the distribution end is that our trust accounting system provider is not coming through with any type of automated filter, so the distributions numbering into the thousands on some days would have to be checked individually on a manual basis, thus slowing down the distribution process by at least a day. And in a highly competitive world such as our business operates, the timeliness of the distribution process is key)

The process is working relatively smoothly until we get to the retirement plan participants. As the trustee (discretionary or directed) we do not have access to the individual participant data. But the distributions to the plan participants are processed through the plan account.
And while checking the payees on the distributions against the SDN lists may not seem like much of an ordeal, in reality it is a nightmare

Sorry no answers but I'm with you on this one.

Thanks Karen.
I called OFAC Compliance Hotline and I was told that we should either access the individual names or put the burden on the record keeper through the operating agreement for OFAC monitoring.
It sure is a complicated issue.

Small voice from Planet Reality here...

Honestly, how many OFAC persons are going to be enrolled in a 401(k) plan???!!!!!

I know, I know... OFAC covers ANY and ALL accounts including 401(k), but this is going down the road of a Zero Tolerance Policy. You know, the one where the honor student who helped his grandmother move over the weekend is kicked out of school because a butter knife from her silverware set fell out in the back of his pick-up truck?

Oh bad..Zero Tolerance for weapons of any kind at school. Poor kid tries to help out his family, and now his college future is in jeopardy.

Okay - Rant over..., but you see my point on what happens with this type of mentality. Now, if your 401(k) plan is being opened for the Army to Liberate the Holy Lands, then I should hope some alarm bells are set off....

I agree with your zero tolerance comments, but I know examiners, and many follow the regulation with blinders on. That is, they don't look at any extenutating circumstance, the reg is THE REG.

What I am wondering: if a potential OFAC risk has any smarts, would they use their real name? Don't they have access to false identification? How do we screen for the really smart creeps?

Bonnie,

I don't disagree with you as for the lesson in reality. However the reality of my situation is this.....

We have some 401(k) plan sponsors that hire non-english-speaking, minimum wage workers, that may or may not be US citizens. Some of the plan documents call for an automatic employer contribution, regardless of whether the employee themselves contribute to the plan. In other instances, an automatic percentage is withdrawn from the employees payroll as the employee contribution to the plan, regardless of the employee's knowing participation in the plan. The point here is that the participant does not always know they are a plan participant.

However, once they do find out, they frequently attempt to find a way to get to those funds. For instance, with the automatic withdrawals for the employee contribution, they might obtain a loan against their contributed balance. That loan constitutes a distribution that according to my reading we have an obligation to check against the SDN list.

That may not seem like such a big deal, but there are days when these loan distributions come in by the bundles.

I understand your frustration and desire to vent. But at the end of the day, when the venting is done the requirements are still there waiting to be met. I've gotta work to find a way to work with this stuff, even if I don't want to or don't agree with it.

Such is the life of a compliance officer. (Compliance is what we do, not who we are)

Karen,

Doe your institution check the 401k plan participants against the SDN List which you only act as the trustee? If you do not check it, does your record keeper check it?

Meryem,

Right now, our bank is only checking the name of the plan sponsor and the names of any persons authorized under the document to provide instruction (i.e. investments, investment election changes, etc) against the SDN and Blocker Persons List. The software we are using does not at this time include politically exposed persons.

As for checking participants, we are not doing anything yet except hoping for some regulatory guidance for the OCC and/or DOL. Absent something soon from them, we are going to have to start doing something - just don't know what yet.

Karen,

I called OFAC hotline again, and got the following response. If we do not have an access to the individual names, then we are not required to check it. We would only required to check the sponsor/ administrator. It makes sense!. OFAC applies to all US persons and anyone in the jurisdiction of United States, so the sponsor/administrator should have already checked their participants!

Karen,
The OFAC requirements are non-forgiving, and I know that technically we should be checking everything and everyone all the time.

The reality of the OFAC list is - the people identified are usually the "higher-ups" in an organization be it drug traffickers, terrorist groups, or unfriendly governments. What is the likelihood that the #2 person in a major drug cartel is now working for a U.S. employer and contributing a few $$ out of his or her paycheck to a 401(k) plan?

We are talking about people who can launder more money in a month that most people make in a year!

Funny thing is - if you call folks at OFAC, I think they understand the realities of the situation as well. That could explain one answer I received when I called OFAC about the 150 Hispanic customers who were identified as potential "hits." I asked if we should freeze the accounts, and the person at OFAC asked me, "Well do YOU think these people are the same as on the OFAC list?"

(Hmmm...average balance is $1,200, account has about 2/4 regular deposits each month, same level of checks going out that would match rent/mortgage payment, car payment, utilities, no wire activity... okay so we won't freeze Mr. Gonzales out of his account.)