Global Sanctions Compliance Flashcards

A financial institution's transaction monitoring system flags a potential name match between a party in a wire transfer and an individual on the OFAC Specially Designated Nationals (SDN) list. What is the most critical initial step the compliance officer should take?

Answer: Investigate the alert to determine if it is a true match or a false positive.

Before taking action such as blocking or rejecting a transaction, it is crucial to first investigate the potential match to confirm its validity. Sanctions screening systems often generate 'false positives' due to similar names. The initial step is always to perform due diligence to verify if the party in the transaction is the same as the sanctioned individual by checking additional identifiers like date of birth, nationality, or address.

According to the U.S. Office of Foreign Assets Control (OFAC) "50 Percent Rule," an entity that is not explicitly named on the SDN list is still considered blocked if it is:

Answer: owned 50 percent or more, directly or indirectly, in the aggregate by one or more blocked persons.

OFAC's 50 Percent Rule states that any entity owned 50% or more, either directly or indirectly, by one or more blocked persons is itself considered blocked, regardless of whether that entity is separately listed on the SDN List. The rule focuses specifically on ownership, not just control, and the ownership stakes of multiple blocked persons are aggregated.

Which of the following is a primary red flag for sanctions evasion through deceptive shipping practices in the maritime industry?

Answer: Disabling the vessel's AIS transponder for extended periods, especially when near a sanctioned jurisdiction.

Disabling the Automatic Identification System (AIS) is a well-known deceptive practice used to hide a vessel's location and movements to evade sanctions. OFAC and other international bodies specifically list AIS manipulation and gaps in transmission as key red flags that warrant further investigation in trade finance and maritime transactions.

A U.S. financial institution receives a payment instruction between two non-U.S., non-sanctioned entities. However, the institution determines the underlying transaction is for services in a comprehensively sanctioned country (e.g., Iran), which is a prohibited activity for U.S. persons. Since no party to the transaction is on the SDN list, what is the proper course of action?

Answer: Reject the transaction and return the funds to the originator.

This scenario requires the transaction to be rejected, not blocked. Blocking is required when the transaction involves property or interests in property of a person or entity on the SDN list. Rejecting is the proper action when the underlying activity is prohibited by a sanctions program (like providing a service to Iran), but there is no blockable interest in the transaction itself. The institution must refuse to process the payment and return it.

Which of the following best describes a comprehensive sanctions program, such as those the U.S. has imposed on North Korea and Cuba?

Answer: Broad prohibitions on trade, financial transactions, and other dealings with an entire country or geographic region.

Comprehensive sanctions are broad, country-based embargoes that prohibit most commercial and financial transactions with an entire country or region. This is distinct from targeted or list-based sanctions, which apply only to specific individuals, entities, or sectors.

A global bank must build its sanctions compliance program to screen against lists from multiple authorities. Which of the following lists is issued by a supranational body, whose resolutions are generally considered binding on all its member states?

Answer: The United Nations Security Council (UNSC) Consolidated Sanctions List.

The United Nations Security Council (UNSC) is a supranational body, and under Chapter VII of the UN Charter, its resolutions, including the imposition of sanctions, are legally binding on all UN member states. The other lists are issued by national (U.S., U.K.) or regional (E.U.) authorities and are not automatically binding on all countries globally.