Sanctions and OFAC Compliance Flashcards

What is the difference between 'primary sanctions' and 'secondary sanctions'?

Answer: Primary sanctions prohibit U.S. persons from transacting with sanctioned parties; secondary sanctions target non-U.S. persons who facilitate transactions with sanctioned parties

Primary sanctions apply directly to U.S. persons and entities, while secondary sanctions extend U.S. penalties to non-U.S. persons who engage in significant transactions with sanctioned parties, effectively giving sanctions extraterritorial reach.

What is a 'rejected transaction' in OFAC compliance, and how does it differ from a 'blocked transaction'?

Answer: A rejected transaction is declined without holding funds (no U.S. nexus to block), typically involving a foreign party that is not subject to blocking; a blocked transaction involves U.S.-nexus funds that must be frozen and held

Rejected transactions (also called prohibited transactions) are declined without holding the funds because there is no property interest that can be blocked (e.g., a foreign bank rejects a wire), while blocked transactions involve assets that must be frozen and held pending OFAC guidance.

Which of the following programs is NOT administered by OFAC?

Answer: USA PATRIOT Act Section 314(a) information sharing

FinCEN administers the Section 314(a) information sharing program between financial institutions and law enforcement; OFAC administers sanctions programs against Cuba, Iran, Russia, and other targeted jurisdictions.

What is a key difference between AML compliance and sanctions compliance at a financial institution?

Answer: AML compliance focuses on detecting and reporting suspicious transactions; sanctions compliance requires blocking or rejecting transactions with prohibited parties in real time

AML focuses on identifying and reporting suspicious activity to law enforcement; sanctions compliance requires real-time screening and immediate action (blocking/rejecting) when prohibited parties are identified, leaving no discretion.

What is the consequence for a financial institution that processes a prohibited OFAC transaction?

Answer: Civil monetary penalties up to the greater of $250,000 per violation or twice the amount of the transaction, plus potential criminal penalties

OFAC can impose civil penalties up to the greater of $250,000 per violation or twice the transaction value, and willful violations can result in criminal penalties including imprisonment, though penalty amounts have increased significantly in recent years.

What is 'sanctions evasion' and what are common techniques used?

Answer: Deliberately circumventing sanctions through techniques like falsifying trade documents, using front companies, routing transactions through non-sanctioned intermediaries, or obscuring the identity of sanctioned parties

Sanctions evasion involves deliberate actions to circumvent sanctions programs, commonly using shell companies, falsified documentation, third-country routing, deceptive vessel behavior (for shipping sanctions), or professional intermediaries to obscure sanctioned parties.