Opinion ID: 153014
Heading Depth: 3
Heading Rank: 2

Heading: The Significance of OFAC Alerts and the SDN List

Text: The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism 21 Act of 2001, better known as the USA PATRIOT Act, further codified the obligations of financial institutions in their dealings with individuals on OFAC’s SDN List. 115 Stat. 272 (Oct. 26, 2001). Under the USA PATRIOT Act, the Treasury Department must “require financial institutions to implement . . . reasonable procedures for . . . consulting lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency to determine whether a person seeking to open an account appears on any such list.” 31 U.S.C. § 5318(l)(2); see 31 C.F.R. § 103.121(b)(4) (The Customer Identification Program “must include procedures for determining whether the customer appears on any list of known or suspected terrorists or terrorist organizations issued by any Federal government agency.”). “[T]ransactions are prohibited . . . if either such transactions are by, or on behalf of, or pursuant to the direction of any designated foreign country, or any national thereof.” 31 C.F.R. § 500.201. In most cases, it is unlawful to extend credit to a person whose name is on OFAC’s 22 2 SDN List. 1 Depending on the applicable law, regulation, or executive order involved, failure to comply with these restrictions may result in civil as well as criminal penalties. Willful violations carry criminal penalties with fines ranging from $50,000 13 to 12 OFAC has procedures to unblock funds in the case of mistaken identity, 31 C.F.R. § 501.806, and to have a name removed from designated lists, 31 C.F.R. § 501.807. 13 19 U.S.C. § 3907 (maximum fine for willful violation of laws governing clean diamond trade). 23 $10,000,000 14 as well as imprisonment ranging from 5 15 , 10 16 to 14 21 U.S.C. § 1906 (maximum fine of $10,000,000 for willful violation of laws governing international narcotics trafficking); see also 31 U.S.C. § 5322 (maximum fine of $250,000 for willful violation of the USA PATRIOT Act, including 31 U.S.C. § 5318(l)(2), which requires financial institutions to consult suspected terrorist lists such as OFAC’s SDN List before transacting with individuals, with the amount increasing to $500,000 for aggravating circumstances); 50 U.S.C. § 1705(c) (maximum fine of $1,000,000 for willful violation of the International Emergency Economic Powers Act and its implementing regulations, which include regulations governing many OFAC programs, see, e.g., 31 C.F.R. § 536.701 (penalties under Narcotics Trafficking Sanctions)); 50 App. U.S.C. § 16(a) (maximum fine of $1,000,000 for willful violations of the Trading with the Enemy Act of 1917). 15 31 U.S.C. § 5322 (maximum imprisonment term of 5 years for willful violation of the USA PATRIOT Act, including 31 U.S.C. § 5318(l)(2), which requires financial institutions to consult suspected terrorist lists such as OFAC’s SDN List before transacting with individuals with term increasing to 10 years for aggravating circumstances). 16 18 U.S.C. § 2332d (maximum imprisonment term of 10 years for engaging in financial transactions with a country supporting international terrorism); 21 U.S.C. § 1906 (maximum imprisonment of 10 years for willful violation of laws governing international narcotics trafficking); 50 App. U.S.C. § 16(a) (maximum imprisonment of 10 years for willful violations of the Trading with the Enemy Act of 1917); 50 U.S.C. § 1705(c) (maximum imprisonment term of 20 years for willful violation of the International Emergency 24 30 17 years, or even life.18 Civil penalties range from $10,000 to $1,000,000, or twice the amount of each underlying transaction per violation.19 Economic Powers Act and its implementing regulations, which include regulations governing many OFAC programs, see, e.g., 31 C.F.R. § 536.701 (penalties under narcotics trafficking sanctions)). 17 21 U.S.C. § 1906 (maximum imprisonment term of 30 years for any officer, director, or agent of an entity who knowingly participates in violation of laws governing international narcotics trafficking). 18 18 U.S.C. § 2339B (maximum imprisonment term of 15 years for providing material support to a foreign terrorist organization, which term increases to life if the death of any person results). 19 19 U.S.C. § 3907 (maximum civil penalty of $10,000 for violation of laws governing clean diamond trade); 31 U.S.C. § 5321 (maximum civil penalty of $100,000 for violation of the USA PATRIOT Act, including 31 U.S.C. § 5318(l)(2), which requires financial institutions to consult suspected terrorist lists such as OFAC’s SDN List before transacting with individuals); 50 App. U.S.C. § 16(b) (maximum civil penalty of $50,000 for violations of the Trading with the Enemy Act of 1917); 18 U.S.C. § 2339B (maximum civil penalty of $50,000 or twice the amount of the transaction that is the basis for the violation for providing material support to a foreign terrorist organization); 50 U.S.C. § 1705(b) (maximum civil penalty of $250,000 for violation of the International Emergency Economic Powers Act and its 25 In a “Q&A” section included on its website, OFAC posts the following question: “What Is This OFAC Information On My Credit Report?” It then offers the following reply: Credit bureaus and agencies in particular have adopted new measures to ensure compliance with OFAC regulations. Before issuing a credit report, they use special “interdiction” software developed by the private sector to determine if a credit applicant is on the SDN list. This software matches the credit applicant’s name and other information to the individuals on the SDN list. If there is a potential match, the credit bureaus are placing a “red flag” or alert on the report. This does not necessarily mean that someone is illegally using your social security number or that you have bad credit. It is merely a reminder to the person checking your credit that he or she should verify whether you are the individual on the SDN list by comparing your information to the OFAC information. If you are not the individual on the SDN list, the person checking your credit should disregard the OFAC alert, and there is no need to contact OFAC. However, if the person checking your credit believes you are the person on the SDN list, then he or she should call the OFAC implementing regulations, which include regulations governing many OFAC programs, see, e.g., 31 C.F.R. § 536.701 (penalties under Narcotics Trafficking Sanctions)); 21 U.S.C. § 1906 (maximum civil penalty of $1,000,000 for violation of laws governing international narcotics trafficking). 26 Hotline to verify and report it. http://www.treas.gov/offices/enforcement/ofac/faq/answer.sht ml#consumer1 (visited on June 17, 2010). On that same website, OFAC also answers the question: “How Can I Get The OFAC Alert Off My Credit Report?” as follows: A consumer has the right under the Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681 et seq., to request the removal of incorrect information on his/her credit report. To accomplish this, consumers should contact the credit reporting agency or bureau that issued the credit report. For more information on consumers’ rights under the FCRA, visit the Federal Trade Commission’s w e b s i t e a t http://www.ftc.gov/os/statutes/fcrajump.shtm http://www.treas.gov/offices/enforcement/ofac/faq/answer.sht ml#consumer2 (visited on June 17, 2010).