Jim Bedsole and I were chatting this morning about an OFAC issue that is troubling.

In a recent article I wrote that appeared on BankersOnline, I mentioned that if someone wanted to open an account that would involve a blocked entity under the OFAC regulations, the institution is to open the account, accept the opening deposit, then freeze the funds and report to OFAC. I wrote that based upon my understanding of the requirements, which I had confirmed with an OFAC representative during an ACB conference in the spring. Basically, I said, "So you're telling me that the banker should open the account, accept the deposits, freeze the funds, tell the customer, then RUN?" and the OFAC representative said yes, although they recommend not telling the customer at the time of the transaction, but notifying them afterwards via letter. Not a good situation any way you look at it.

Jim was noting that banks are under no obligation to ever open a deposit account, so why couldn't they simply refuse to open one in this situation? Made sense to me.

What are you all doing out there in these situations? Has anyone else talked to OFAC about this issue and gotten different feedback? What about with wire transfer scenarios? This is an area where we could all benefit from some collective knowledge.

This doesn't answer your questions, MB, but anticipates counter-questions like, "but what's my regulator going to think...?" I'm with Jim. Refuse to open the account on the basis that it can not be profitable. Extra measures to deal with OFAC and any other legal entanglements will quickly devour any profit. Let someone else deal with the enemy.

We have instructed our staff to open the account or accept the wire, then check the OFAC lists. From all that I have read the intent of the law is to stop the flow of money to those deemed as enemies to the US. In other words, OFAC would prefer that the account be opended so that the money can be frozen. OFAC goes on to say that it is not there intent to put our staff in harms way. So checking at the end of the day for potential violations is okay as long as thre are procedrues in place to block the funds in the opened account. Just for the record this is just another example of playing cop for the government without a badge and a gun.

Mary Beth, after our conversation I called OFAC. I spoke to Joe Hill, a compliance officer with OFAC. Although he refused to provide written confirmation, he did tell me that as long as the funds have not come into bank custody or control, we would not be in violation of OFAC to refuse the transaction. Once the funds have come into bank custody or control, however, we are then under a blocking obligation (unless of course it is one of the limited situations that requires rejection - see OFAC Sanctions Matrix at http://www.bankersonline.com/ofac/

The underlying message is that if you don't want to be dealing with the bad guys later on when they're gonna be upset that you've blocked their funds, it is in your interest to have OFAC screening occur as early in the process as possible rather than wait and run as a backroom operation.

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Jim Bedsole, CRCM, CBA, CFSA

Opinions expressed are my own, and do not necessarily reflect those of my employer.

Our OFAC monitoring system runs each night. So, if someone comes in to open an account and we get a hit, we find out the next day. You know what this means? We're the bank getting all those customers you have turned away! I think I need to talk to our operations staff about this!

ChexSystems has the OFAC seach capability included in their software, but an OFAC "hit" is not faxed until the next day. So, if we have a hit, we have already opened the account and will have to freeze and notify. Our main concern is our employee's (or the customer's) reaction when they find out they are sitting accross the desk from a suspected terrorist.

We've received two OFAC faxes in the past two years, but after further research, they were not true hits, just common names.

By running OFAC scans after the fact, you run the risk of paying out blocked funds on the date of receipt. Should you allow a payment to post--even a "cash-back deposit"--you've violated the freeze order (if that sanction applies to the country or group you're dealing with) and you will have to pay that amount to OFAC out of the bank's pocket.

We also use ChexSytems and would find out the next day. Personally, I'm not shaking in my boots over this. The penalties that I have seen for OFAC violations have not been significant.

I also believe that an after the fact check is safer for our associates.

Dolly Nugent
VP/Compliance Officer
Citizens Business Bank

I've been haunted by this particular discussion thread for the last two weeks (since September 11th) and would like to know if anyone else feels the same way.

If one of the 27 individuals/entities added to the OFAC list on 9/24 came to your institution today to open an account, would you really decline to open the account and pass up the opportunity to freeze assets that may belong to terrorists?

HI MB and all

I truly think that if this nation is going to back its President and if the talk of a truly global war on terrorism is to come to anything then we have no choice but to do the best we can to help block funds.

We are compling further lists of terrorists who do not appear on the OFAC list or on the list issued by the Whitw House. We will be running these and the OFAC list into database form and offering the package to our clients, hopefully next week.

We are talking to Interpol both here and at thier French headquarters, if we, as a people, expect international support for our plans we had better be prepared to help them with thier terrorists.

This is a thorny problem, Ghandi was a terrorist, as was the current President of Palastine, the first President of Israel and ther first President of Ireland but it is one that needs to be face and faced squarely we cannot expect to either be condoned for allowing terrorist money to escape the net by refusing it when we expect both our own and our allies soldiers to put thier lives on the line and we cannot expect international co-opperation if we produce only a list of terrorist likely to impact the USA and make no effort to locate and damage, financially, those who would prey on thier Nationals.

This either is an all out effort or we let a few sick individuals control our lives and leave us so full of fear that we can't even carry out our normal duties like opening new accounts.

Matthew Read
AACFE,MICM,Pivacy Officers Association, Compliance Officers Association.

Mary Beth, my thoughts exactly. I say we take their funds then freeze them. Let's get their money and take it out of circulation.

In answer to your question would I pass up the chance to freeze the assets? My answer is NO and I hope we all as bankers feel the same way. We have an obligation to try to uphold the standards that our financial system is based upon. What do we do with possible kiting suspects? Or questionable activity? Same ethics just a different situation. We have a duty to our Bank, our Directors, and to our job. If we do not feel that way then maybe we are in the wrong business or in the wrong job responsibility. Maybe I take it too seriously sometimes, but God put me in this position for a reason, so I will try to uphold the responsibilities of the position. That includes trying my best to follow the procedures that our agencies have placed upon us. Hopefully they know better than I do what will work to keep our Banking System strong and keep our country safe.

This is my opinion and not my employer.

Here's an even stickier problem that I have been wrestling with and that is - how far will we need to drill with "non-personal" entities?

And by these I mean - complex organizations that have several layers before you get to actual people. You all know what I'm talking about - the LLC's whose members are other LLC's or LLP's, or corporations or partnerships - in turn whose members or partners are other entities - and perhaps the owners/members there are trusts. Some parterships can have 50 members - especially limited partnerships. Limited partners are not necessarily natural persons, and so on.

And when you get to a trust - how far do you need to go? You can look at the trustor and trustee, but what about the beneficiaries? I don't know about other states, but in California you cannot require a copy of the entire Trust agreement - but you can rely on a Trustee certification. So how would you know if the beneficiaries are related to a terrorist organization or someone else on the OFAC list?

I know, I know - it's all part of "Know Your Customer", but I suspect that, to a certain level, we may not truly know everything we should about a customer. But in thinking through the logistics of scraping down through these layers - it's not going to be easy.

Thoughts anyone? Any of you "big" banks or private bankers have any solutions?

On 9-25-01 I posted a question about what bankers should do when an OFAC designated person wants to purchase an official check, travelers checks or a money order. So far NO ONE has responded. As you'll see in the posting - my concern, like many others', is for our employees' safety. It is simply not realistic for OFAC or Compliance professional to expect tellers to be willing to seize the money being offered to purchase these monetary instruments & then immediately inform the person standnig in front of the teller, that although the teller is keeping the money - they are not issuing the requested monetary instrument. I have not problem seizing & freezing funds used to open a deposit account or blocking a wire transfer - we use the "letter later" approach, thus the tellers wouldn't have to be in an immediate confrontational situation.

If our bank were to adopt "refusal" procedures for monetary instrument purchases requested by OFAC designanees - any suggestions for what the teller should state as the reason for refusal?

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Any opinion stated above is mine alone and not my employer's.

Reply to D. Whitney---

I gave your question some serious thought last week and we discussed it at our Branch Managers meeting. The general concensus was that we implement a new procedure in the new account area. If a NEW (not already known to the bank) customer opens an account; we do not sell him travelers checks, money orders, etc. during the first 3 days that the account is open. This will allow us to perform an OFAC search after the customer has left the bank. As others have stated, we do not want the new accounts representative to have to handle this on their own on the off chance that the person may be on the list AND we do not want to broadcast to potentially good customers that we may be suspicious or profiling them.

However, if by chance we did get one of the blocking accounts; I have no problem whatsoever of relieving them of their money.

God Bless America

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Opinions expressed are not necessarily those of my employer.

FYI --

As of Monday morning, October 1, 2001, new information has been added to the OFAC list in the form of additional descriptor information on the names that were added 9/24. This is significant additional detail that will help you identify and freeze the proper accounts:
http://www.bankersonline.com/ofac/ofacsummary1001.html

Our customer base is routinely run through our OFAC screening software, but when an existing customer purchases a cashier's check, should we also be comparing the payee's name against the OFAC list?

Just curious if anyone is aware of a financial inst. that has been hit with a penalty for failing to block illicit funds from a targeted country or agent? If you know of a site reference, I would be interested.

Mary Beth, with this new information added to the OFAC list am I correct in asking our IT people to do another customer base search even though we did one last week?

Here our recent strange experience in regard to this discussion. Two weeks after the attack we got a phone call from a person, clearly foreign, indicating that he was staying at a local hotel, here on a job from Pakistan, and was looking for a bank. Said he had a check from a bank in NY and wanted to open an account. Would we open the account, however,did not have a social security, but had a TEXAS DL and passport, to please call him back and let him know. Gave phone # and room #. Interesting he had a DL, huh? Employee who took call contacted supervisor who handled it from there. Supervisor called him back asked more ?'s and was told he would be living and working in a part of town out our market area. He was turned down. Various reasons given. He was friendly. Same day got a request from another foreign sounding person who wanted to wire funds to Saudi. He was turned down, told we do not handle int"l wires for non-customers. No info collected on this one and this guy was not too happy we would not accomodate him. We immediately called FBI, and we were told that we should have gotten more info. Didn't hear more. Would you have opened the account and then called the FBI, obviously placing normal hold on funds, etc? (He also gave us a name, not on the list.)

Gloria-
It sounds as though you have some hot ones. Money has to move, no matter how illegal the purpose. The "bad guys" are always looking for naive banks that won't notice what they are up to. It sounds like your bank may be targeted. I say open the account and grab the money.

There were several arrests made just yesterday in Virginia. The individuals are charged with facilitating illegal documents, including DLs for the terrorists. Other documents cited were notarized documents. A local attorney's secretary/notary had notarized a document that enabled the terrorists to function in our economy. Folks should be alert to this. You should also get as much information as you can before making a decision or letting them know that you suspect them.

Thanks, Lucy - great response
That's exactly what I would have advised. I felt that as long as we took all the necessary precautions we would have been OK and possibly helped catch another bad guy. Obviously, Management disagrees. I felt AND cautioned them that we were most likely targeted because we are a small bank, hence preceived unsophisticated in internal controls or "naive".

Yes, have them run the list again. The 10/1/01 OFAC issuance has much more information, including aliases. You'll need to have checked for all the original names, plus the additional aliases included in the last OFAC communication.

In response to the question about other directives from OFAC, we have actually been instructed by OFAC to refuse transactions. We had a customer who presented a wire to a blocked country. OFAC instructed us to decline the wire and notify our customer accordingly.

On another topic, I am in the same boat with Bonnie. We need specific guidance and tools to perform "enhanced due diligence" on non-individuals. Once we get past the usual: looking at customary corporate/trust/etc. documentation (which ANYONE can obtain); looking on the state's secretary of state Web site to verify a corporate entity; reviewing source of funds to make sure they don't appear to be coming if from offshore; I'm pretty much lost.

I wish each non-individual had to register with a federal or state entity. A bank could verify the registration and there you go, we're in business. We can dream, can't we?

Brenda,

Is it possible that OFAC gave you that advice in reference to countries/entities/individuals where the sanctions mandated rejecting, instead of blocking, transactions?