CAMS Sanctions and OFAC Compliance 2 — Questions and Answers
Question 1: What is the difference between 'primary sanctions' and 'secondary sanctions'?
- Primary sanctions apply to the most dangerous sanctioned parties; secondary sanctions apply to lesser threats
- Primary sanctions prohibit U.S. persons from transacting with sanctioned parties; secondary sanctions target non-U.S. persons who facilitate transactions with sanctioned parties (Correct answer)
- Primary sanctions are enforced by OFAC; secondary sanctions are enforced by the FBI
- Primary sanctions apply to individuals; secondary sanctions apply to corporate entities
Correct 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.
Question 2: What is a 'rejected transaction' in OFAC compliance, and how does it differ from a 'blocked transaction'?
- A rejected transaction is one declined due to insufficient funds; a blocked transaction is declined due to fraud
- 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 (Correct answer)
- Rejected and blocked transactions are identical in OFAC compliance
- A rejected transaction requires SAR filing; a blocked transaction does not
Correct 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.
Question 3: Which of the following programs is NOT administered by OFAC?
- Cuba sanctions (CACR)
- Iran sanctions (ITSR)
- Russia sanctions (CAPTA/Ukraine-related)
- USA PATRIOT Act Section 314(a) information sharing (Correct answer)
Correct 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.
Question 4: What is a key difference between AML compliance and sanctions compliance at a financial institution?
- AML compliance has no monetary penalties; sanctions compliance does
- AML compliance focuses on detecting and reporting suspicious transactions; sanctions compliance requires blocking or rejecting transactions with prohibited parties in real time (Correct answer)
- AML applies only to domestic transactions; sanctions apply only to international transactions
- There is no meaningful difference — they are the same compliance function
Correct 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.
Question 5: What is the consequence for a financial institution that processes a prohibited OFAC transaction?
- A verbal warning from OFAC for first-time violations
- Only criminal penalties for senior executives but not the institution itself
- Civil monetary penalties up to the greater of $250,000 per violation or twice the amount of the transaction, plus potential criminal penalties (Correct answer)
- Automatic license revocation with no opportunity for remediation
Correct 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.
Question 6: What is 'sanctions evasion' and what are common techniques used?
- Filing incorrect sanctions reports with OFAC due to system errors
- 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 (Correct answer)
- Using compliance software that produces false negative results
- Misidentifying sanctioned individuals due to name-matching errors
Correct 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.
CAMS Sanctions and OFAC Compliance 2
What is the difference between 'primary sanctions' and 'secondary sanctions'?