The Treasury Department's Office of Foreign Assets Control, or OFAC, oversees U.S. economic and trade sanctions against governments, as well as financial restrictions on groups and individuals involved in terrorism, drug trafficking, money laundering and other illegal activity. Financial institutions and others are required to periodically perform an "OFAC check" to see whether any of the names in their customer databases match those on the government's watch lists.
OFAC maintains lists of people and groups with whom it's illegal to do business. Companies in certain industries -- including financial services, import/export and insurance -- must check their customer databases against these lists. Certain non-governmental organizations, such as charities, must run OFAC checks, too. How often companies and organizations must conduct checks depends on the specific regulations that apply to their industry. Commercial software is available that compares databases with OFAC lists, or companies can manually compare their customer names with those on the lists.
When There's a Match
When a customer name appears to match a name on a watch list, OFAC lays out a series of steps that a company should take to verify the "hit." Often, matches turn out to be false alarms that can be disregarded -- but not without following the OFAC procedure first. Failure to conduct due diligence related to OFAC and other government watch lists can result in severe civil and criminal penalties. These include up to 30 years in prison and $20 million in fines, depending on the situation.
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