What is OFAC
OFAC is a division of the U.S. Department of the Treasury responsible for implementing and enforcing economic and trade sanctions based on U.S. foreign policy and national security. Sanctions may target states, organizations, individuals, and entities associated with terrorism, international drug trafficking, human rights violations, and other threats.
Role and tasks
OFAC maintains the SDN List, issues waivers, and regulates transactions that would normally be prohibited. U.S. banks are required to screen all dollar transfers, including transactions between Russian banks, and block them if they meet sanctions restrictions.
Why are transfers blocked?
Obvious reasons
- Direct application of sanctions regulations (for example, according to Executive Orders, 50% rule).
- The sender, recipient or intermediary bank is on the SDN or similar sanctions lists.
- The translation is related to a prohibited activity or country.
Implicit reasons
- A name that matches (or is similar to) a sanctioned person – for both individuals and legal entities (false positive).
- Incomplete or incorrect response to a compliance request.
- Failure to respond to a compliance request within the specified time frame.
- Error or inaccuracy in the SWIFT payment details (the purpose was not changed after copying, etc.).
- Bank overcompliance is excessive compliance with regulations due to increased internal risks.
- Internal bank triggers (e.g. suspicious keywords in the payment purpose, abnormal amounts or frequency of payments).
Legal Framework - Executive Orders
Key orders of the US President regulating sanctions against Russia:
- Executive Order 13660— sanctions in response to actions in Crimea.
- Executive Order 13661— expansion of the list of sanctioned persons.
- Executive Order 13662— sanctions against key sectors of the economy.
- Executive Order 13685— a ban on trade and investment in Crimea.
- Executive Order 14024— sanctions for cyberattacks, interference in elections, etc.
- Executive Order 14066— a ban on the import of Russian oil and gas.
- Executive Order 14068— restrictions on technology exports and financial measures.
- Executive Order 14071— a ban on investments and services in key sectors of the Russian Federation.
What to do if a SWIFT transfer is blocked
If the transfer is blocked, it is necessary to request an OFAC license. To do this, prepare a package of documents:
- Copies of MT-103, MT-199 and correspondence with the bank.
- Transaction documents (contract, invoice, etc.).
- Passport/residence permit (for individuals) or registration documents (for legal entities).
- Details in an unauthorized bank.
- Prepare a series of evidences demonstrating that SDN funds are not controlled by individuals and that there are no violations of US sanctions legislation.
It is important to interact with the bank correctly so that the license is executed and the transfer is unblocked.
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