What Is an OFAC Check and Who Needs One?

The Office of Foreign Assets Control (OFAC) is a financial intelligence and enforcement agency within the U.S. Department of the Treasury. OFAC administers and enforces economic and trade sanctions aimed at supporting U.S. national security and foreign policy objectives. An OFAC check, often referred to as OFAC screening, is a process used by various entities to ensure that individuals or organizations involved in a transaction are not listed on OFAC’s sanctions lists. This screening is a fundamental component of financial compliance, helping to prevent prohibited transactions.

Purpose of OFAC Checks

The primary objective is to enforce U.S. sanctions laws, which prohibit dealings with parties involved in activities such as terrorism, narcotics trafficking, and the proliferation of weapons of mass destruction. These checks contribute directly to combating illicit financial flows that could undermine U.S. national security and foreign policy interests.

Economic sanctions imposed by OFAC can involve blocking assets and restricting trade, applying to both comprehensive country-wide measures and targeted sanctions against specific individuals or groups. By screening against OFAC’s lists, businesses and financial institutions help ensure they do not inadvertently support harmful activities. This proactive approach aids in maintaining the integrity of the U.S. financial system and supports broader national security goals.

Entities Subject to OFAC Requirements

Compliance with OFAC regulations is mandatory for all U.S. persons and companies operating within or with the U.S. The term “U.S. person” encompasses U.S. citizens, permanent resident aliens, entities organized under U.S. laws, and any person located in the United States, regardless of their location globally.

Financial institutions, including banks, credit unions, and money service businesses, are explicitly required to comply with OFAC regulations. Businesses engaged in international trade, such as exporters and importers, also have a responsibility to conduct OFAC checks. Additionally, various service providers, including those in real estate, legal, accounting, and insurance sectors, must adhere to these requirements. Foreign subsidiaries owned or controlled by U.S. companies may also need to comply with specific sanctions programs.

Performing an OFAC Check

Conducting an OFAC check involves gathering specific information about the individual or entity being screened and comparing it against OFAC’s sanctions lists. For individuals, this includes collecting their full name, any known aliases, date of birth, address, nationality, and passport numbers. For entities, necessary data points include the full legal name, “doing business as” (DBA) names, addresses, and identification numbers.

The primary method for performing an OFAC check involves using the official OFAC Sanctions List Search tool, available on the U.S. Department of the Treasury’s website. This tool allows users to search against the Specially Designated Nationals and Blocked Persons (SDN) List and other consolidated non-SDN lists. The SDN List contains names of individuals and entities whose assets are blocked and with whom U.S. persons are generally prohibited from dealing. The search tool utilizes fuzzy logic to identify potential matches, even with minor discrepancies or misspellings.

Beyond the official search tool, many businesses utilize third-party screening software or services. These commercial solutions often integrate OFAC lists with other international sanctions databases, providing a more comprehensive screening approach. This comparison helps to determine if a proposed transaction involves a sanctioned party.

Handling Potential Matches

When an OFAC check yields a potential match, often referred to as a “hit” or “alert,” further investigation is required to determine if it is a true match or a false positive. This due diligence process involves verifying the identity of the party using additional identifiers, such as secondary addresses, dates of birth, or other unique details. It also includes comparing the specific details of the potential match against the entry on the sanctions list to confirm identity. The nature of the proposed transaction should also be assessed in relation to the specific prohibitions associated with the listed party.

If the due diligence confirms a true match, transactions with the identified party are generally prohibited. Any property or interests in property of a blocked person within U.S. jurisdiction must be blocked, or “frozen,” meaning it cannot be transferred, withdrawn, or otherwise dealt with. While title to the blocked property remains with the sanctioned individual, exercising ownership rights is prohibited without explicit authorization from OFAC.

Legal obligations require reporting true matches to OFAC. This typically involves submitting a “blocking report” for assets that have been frozen or a “rejected transaction report” for transactions that could not be completed due to a match. These reports inform OFAC of the identified prohibited activity and the actions taken to comply with sanctions regulations. Freezing funds and refusing to proceed with the transaction are immediate actions required when a true match is confirmed.