AML and OFAC – Will Your AML Program Stand Up to Scrutiny?

It was announced in early November 2016 that $215 million will be paid to New York state by Agricultural Bank of China for engaging in “intentional wrongdoing,” including masking possibly suspicious transactions, at its New York branch. The New York State Department of Finance stated that some transactions involved parties subject to U.S. sanctions.  Red flags were raised by the branch Chief Compliance Officer and were ignored.

Broker-dealers have been subject to ever-increasing scrutiny on the topic of anti-money laundering (“AML”) since the adoption of the USA PATRIOT Act.  Both the SEC and FINRA listed AML as an examination priority for 2016.  This should not be a surprise to anyone who works for a broker-dealer, but registered investment advisors also need to understand the current requirements. Over the next months, Oyster will provide a primer of “who, what and when” to help RIAs and others develop a high level understanding of an AML program.

Part of adhering to AML requirements is complying with the Office of Foreign Assets Control (“OFAC”) regulations.

The U.S. Department of Treasury requires all U.S. Financial Institutions to comply with the OFAC regulations governing economic sanctions based on foreign policy and national security goals.  OFAC administers and enforces compliance with the sanctions programs and publishes the sanctions lists on their web site. These lists are frequently updated, and provide U.S. Financial Institutions with tools to ensure compliance with OFAC regulations.  Sanctions can be placed on a country’s government as well as individuals and entities (known as Specially Designated Nationals or “SDN”) located worldwide that are acting on behalf of the sanctioned governments.

Financial Institutions are also required to establish a compliance program to monitor the regulations governing the identification of OFAC sanctions.  When a sanctioned country or individual’s property is identified on the books and records of a Financial Institution, the Institution must block the assets and accounts (also known as property).

So, what does it mean to block property?  The Institution must place the assets into an interest-bearing account from which only OFAC-authorized withdrawals can be made.  The assets remain the property of the account owner; however, all rights to debit, withdraw or transfer the assets (including by electronic entry) are revoked and can be authorized only by OFAC.

Accounts subject to blocking must be reported to OFAC within ten days of identification.

Although OFAC does not define how often an Institution must compare the accounts in their possession and control against the sanctions lists, there may be enforcement actions taken against an Institution that fails to identify and block an account or property.  For purposes of OFAC compliance, Institutions should annually conduct risk assessments of:

  • their customers;
  • their products;
  • their services; and
  • their geographic locations

A focus of a risk assessment should be on the number of foreign accounts maintained, the number of international asset transfers and the staff the Institution has available to ensure OFAC compliance.

FINRA provides Institutions with a link to an OFAC Search Tool that is user friendly but may not include all OFAC sanctions.  A recent discussion with FINRA revealed they are in the process of updating their link to the consolidated sanctions lists published by OFAC.  It is FINRA’s goal to have this link updated by the end of the 2016 calendar year.

Oyster’s employees have been CCOs, Compliance Officers and consultants for RIAs and broker-dealers of all shapes and sizes. We have also developed, implemented, tested and remediated AML programs and served as AML Compliance Officers for financial services companies. We conduct training that is not “check the box,” but specifically targeted to your audience. When you retain the services of one Oyster consultant, you also get the combined knowledge and experience of them all. That is how Oyster creates efficient and effective AML compliance programs. For more information on how Oyster Consulting can assist your firm with the development and maintenance of its AML program, complete our contact form and one of our Relationship managers will be happy to help you.

Authors:  Oyster Associate Director Mary Catherine Wilck-Pond and Senior Consultant Michelle Craft

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