Today’s world is faced with a barrage of global crime and terrorism dangers. Due to this, countless governments throughout the globe have had to take measures to protect their nation and their citizens from international crime threats.
In the United States, the Office of Foreign Assets Control (OFAC) oversees a list of individuals, businesses, or other entities that have been blocked by the United States government. The list is called the OFAC Specially Designated Nationals list, or the OFAC SDN list. This index was created with the goal of ensuring those placed on this list are not allowed to conduct any business with or within the U.S.
The OFAC SDN list is one of the most crucial things you need to know about when it comes to U.S. sanctions compliance in your business. In this article, we will cover what the OFAC SDN list is, who is on it, screening best practices, and how to keep your company compliant.
What Is the OFAC SDN List?
The OFAC SDN list is an index of individuals, businesses, and other entities that are subject to sanctions and barred from conducting business within the U.S. This list is maintained and enforced by the U.S. Department of the Treasury OFAC division, and businesses must comply with it.
The aim of the OFAC SDN blocked persons list is to prevent individuals listed on this index from having any dealings with the U.S. and any of its citizens or business entities within the country. This is because those found to be a threat to the U.S. have been evaluated to be engaged in actions that endanger U.S. national security or foreign policy initiatives.
The index was built with the goal of protecting the U.S. and its citizens from threats to country adversaries. It also can protect your business from being associated with international companies and entities with questionable motives and business practices.
Who’s on the OFAC SDN List?
The SDN list is a key tool used by the U.S. government to combat terrorism, weapons proliferation, and other threats to U.S. national security. It includes names of those who are believed to be involved in such activities or otherwise pose a significant risk to U.S. interests and/or allies around the world. Many malicious actor organizations involved in terrorism, money laundering, cybercrime, and other related crimes seen as a threat to the U.S. can often be found on this index.
As stated by the U.S. Department of Treasury, "OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. … Their assets are blocked, and U.S. persons are generally prohibited from dealing with them.”
Several different economic sanctions are managed by the SDN list. It is updated frequently as threat actors against the U.S. and other ally countries grow daily.
It is stated by OFAC that "the SDN list is frequently updated. There is no predetermined timetable, but rather names are added or removed as necessary and appropriate." Therefore, those who are viewed to be a threat to U.S. national security can be placed on and removed from the list on a case-by-case basis.
Screening Best Practices for the OFAC SDN List
Given that the OFAC SDN list is a requirement for most individuals and businesses alike, it is important to ensure due diligence is done to maintain compliance with this sanction. Companies can search manually on OFAC’s sanctions list search tool or through an automation software to check for possible foreign sanctions evaders.
Non-compliance of the SDN list can result in penalties, fines, fees, and reputational damage to your business. Therefore, regular screening and updating can be critical to ensure your business maintains compliance and minimizes its risks working with adversaries on this SDN list.
Here are five ways you can ensure you are implementing regular screening best practices of the OFAC SDN list for your business.
1. Conduct Regular Review Scans
Whether you automate or conduct manual scans, ensure that your team is taking the steps to maintain regular review of the SDN list. For example, each time you potentially enter into a new client agreement, run a scan on the database for any alerts on that person or business entity.
2. Document the Results
On top of conducting regular scans, it is important to notate the results when a check is conducted. This allows your employees who help run the OFAC SDN list scans to ensure everything is recorded and checked thoroughly. You should also include the results of screenings and any actions to be taken to address potential matches. By doing this, it can decrease business risk and also maintain compliance with OFAC.
3. Establish Periodic Updates
Periodic updates are also a great best practice to ensure your company is maintaining compliance with OFAC and protecting your company from international adversaries. It is valuable to conduct additional scans and updates regularly to your internal data systems when monitoring the OFAC SDN list for changes. Additionally, any updates and changes should be adjusted in your screening processes accordingly.
4. Develop a Risk-Based Approach
Risk is a present piece within any business. Understanding the risks that your industry and your business may face is important to ensure you’re in compliance and not in business with international entities found on the SDN list. Developing a risk-based approach to screening the OFAC SDN list can be critical to protecting your business and its assets appropriately.
One effective approach is to use a more targeted technique, concentrating on high-risk transactions and entities with greater scrutiny. This process can include screening for transactions involving sanctioned countries or industries and companies centralized within high-risk countries.
5. Emphasize Training and Awareness for Employees
Your employees are your best advocates for maintaining the best practices and policies of your company. When you emphasize the importance of training and awareness of your employees regarding OFAC compliance, it can help you better maintain it through your teams.
Some of the training and awareness campaigns you implement can include teaching staff how to recognize potential matches and ways to escalate them to the appropriate level for greater review.
Additionally, numerous businesses and industries can utilize tools that help screen the SDN list for potential alerts against those on the list. These tools and best practices for screening can ensure your business is doing what it needs to stay compliant when conducting business with international individuals or commercial entities. You can also utilize screening best practices in coordination with other compliance-related research, such as AML compliance screening.
Penalties for Non-Compliance With the OFAC SDN List
If you don’t comply, you may face both civil and criminal penalties. These penalties for non-compliance can include monetary fines, possible imprisonment, and denial of exportation privilege from the government.
In addition to these implications, businesses can also face reputational damage, loss of revenue, and loss of contracts in conjunction with U.S.-based businesses or government entities.
According to the OFAC website, “The fines for violations can be substantial. In many cases, civil and criminal penalties can exceed several million dollars. Civil penalties vary by sanctions program, and the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Federal Civil Penalty Inflation Adjustment Act Improvements Act of 2015, requires OFAC to adjust civil monetary penalty amounts annually.”
As recently as March 2023, an India-based tobacco company called Godfrey Phillips India Limited (GPI) agreed to pay a $332,500 fine to the U.S. for violating compliance with OFAC. This fine was placed against the company in order to settle its potential civil liability for several violations of the North Korea Sanctions Regulations.
Another notable enforcement occurred in 2022 against Airbnb, a short-term rental company, where they were ordered to pay $91,000 for violating the Cuban Assets Control Regulations.
Maintaining OFAC SDN Compliance With Certa
Maintaining OFAC compliance when it comes to domestic and international sanctions with the SDN list is key. It’s important that your business take the steps to ensure due diligence in mitigating international risks that threaten the U.S. government, citizens, and businesses from conducting business ethically and successfully.
Sanctions checks and compliance regulation can be challenging to keep on top of with all the changes that come regularly. In order to help you minimize your business risk and maintain OFAC SDN compliance, Certa can:
- Integrate with SCORM: Your users can learn more about OFAC by launching e-learning content and training courses directly from our application.
- Check U.S. sanctions lists: We continually check for updates to the U.S. sanctions programs and the list of specially designated nationals to help you identify risks.
- Check other countries’ watchlists: If you do business around the world, you can stay compliant with our global monitoring.
- Monitor beneficial ownership in real time: Sometimes blocked entities change their ownership structures to try to circumvent sanctions. But it’s harder for sanctioned parties to hide with Certa’s consolidated and de-duplicated ultimate beneficial owner database.
- Optimize your payment blocking process: When a sanctioned entity or individual is identified, we can automatically block payments being sent or received and alert.
We can help you manage your vendor risk with integrated data sources and aid in flagging information for compliance-related issues. When using our automatic risk scoring system, we help you identify your risks and provide real-time updates.
Contact us to speak with one of our experts who will help you get started with better third-party risk management and maintaining compliance today.