Until the terrorist attacks on September 11th, 2001, most companies in the United States had few reasons to worry about laws related to financing terrorism. The passing of the Patriot Act changed that. In response to the attacks, the US Government stepped up its efforts in identifying financiers of terrorist organizations and drug cartels. This blog will answer the following questions:
- What is OFAC?
- What is the SDN list?
- What are the civil and criminal penalties for violating Treasury Department regulations?
- Who needs to perform a Patriot Act Search?
- How can I avoid these penalties and reduce my legal and financial liability?
What is OFAC?
According to Federal law, every business in the U.S. is responsible for ensuring that they do not conduct business with any individual or entity that is listed on the Office of Foreign Asset Control’s Specially Designated Nationals (SDN) List. To find out if an individual or entity is on the SDN list, a search must be performed. This is often called a Patriot Act Search or an OFAC Search.
OFAC (The Office of Foreign Asset Control) is part of the U.S. Treasury, and is the official body that determines whether or not an entity or individual is allowed to do business in the United States.
What is the SDN List?
The OFAC SDN list includes organizations that are owned by or controlled by targeted countries, like Iran, North Korea, and Cuba. It also includes specially designated individuals and groups that are not country-specific, including drug traffickers and terrorists. According to OFAC, the SDN List includes:
- The Specially Designated Nationals and Blocked Persons list (“SDN List”)
- The Foreign Sanctions Evaders List
- The List of Persons Identified as Blocked Solely Pursuant to E.O. 13599
- The Non-SDN Iran Sanctions Act List
- The Part 561 list
- The Sectoral Sanctions Identifications List
- The Non-SDN Palestinian Legislative Council List
Civil and Criminal Penalties for Violating Treasury Dept. Regulations
The Office of Foreign Asset Control has the authority to impose civil penalties for inadvertent or unintentional violations.
- Penalties for Inadvertent Violations
Civil penalties for accidently doing business with prohibited individuals and organizations can be significant. Inadvertent violations of the Patriot Act have resulted in civil penalties of up to $11,000 per violation, the seizure of goods and/or funds, and suspension from certain business activities, such as exporting overseas. It’s also important to remember that a single transaction may result in a multitude of violations under different Treasury Department Regulations, which can multiply the final penalty cost many times over.
- Penalties for Willful Violations
In cases where violations appear intentional, the Treasury Department may defer to the Justice Department for criminal prosecution which can result in up to 10 years of jail time for officers, directors or agents involved in the violations. Civil penalties for willful violations can total up to $50,000 per violation.
Who Should Perform a Patriot Act Search?
The best way to reduce the risk of facing these penalties is to have a good compliance system that includes regular searches the OFAC SDN list and other terrorist watch lists for clients, potential clients, business partners, investors, etc.
Naturally, employers would not want to hire anyone on the SDN list. Insurance companies are also barred from issuing policies to individuals on the SDN list. Financial institutions and mortgage lenders cannot conduct business or give loans to individuals or organizations on the SDN list. Those conducting business transactions will want to perform a Patriot Act Search as a standard part of performing due diligence.
Order a Patriot Act Search
If you need to conduct a prompt, accurate and efficient closing, look no further than Lakeside Title. Also, for more information on Patriot Act searches, give us a call!