CAMS Sanctions and OFAC Compliance 1 — Questions and Answers
Question 1: What is the Office of Foreign Assets Control (OFAC) and what is its primary function?
- A division of the FBI that investigates financial crimes
- A U.S. Treasury office that administers and enforces economic and trade sanctions against targeted foreign countries, entities, and individuals (Correct answer)
- A Federal Reserve body that regulates bank capital requirements
- An international organization that coordinates global sanctions programs
Correct answer: A U.S. Treasury office that administers and enforces economic and trade sanctions against targeted foreign countries, entities, and individuals
OFAC is a Treasury Department office that administers U.S. sanctions programs against foreign governments, entities, and individuals, prohibiting U.S. persons and institutions from engaging in transactions with sanctioned parties.
Question 2: What is the Specially Designated Nationals (SDN) list maintained by OFAC?
- A list of approved foreign correspondents for U.S. banks
- A list of individuals, entities, and countries with whom U.S. persons and institutions are prohibited from conducting business (Correct answer)
- A list of high-net-worth foreign customers eligible for private banking services
- A list of designated non-financial businesses subject to AML requirements
Correct answer: A list of individuals, entities, and countries with whom U.S. persons and institutions are prohibited from conducting business
The SDN list identifies individuals, companies, and countries subject to U.S. sanctions, whose assets must be blocked and with whom U.S. persons may not conduct transactions without OFAC authorization.
Question 3: What is 'blocking' in the context of OFAC sanctions compliance?
- Preventing a customer from accessing their account due to suspected fraud
- Freezing and segregating funds or assets of a sanctioned party pending further OFAC guidance (Correct answer)
- Blocking wire transfer instructions due to incomplete information
- Preventing a currency transaction from proceeding because it exceeds reporting thresholds
Correct answer: Freezing and segregating funds or assets of a sanctioned party pending further OFAC guidance
When a financial institution identifies a transaction or account involving a sanctioned party, it must 'block' (freeze) the funds, report to OFAC within 10 business days, and hold the funds in a segregated interest-bearing account.
Question 4: A U.S. bank receives a wire transfer from a foreign bank in which 51% is owned by a sanctioned entity. Under OFAC's '50 percent rule,' should this transaction be blocked?
- No, because the sanctioned entity does not directly own the wire transfer
- No, because the foreign bank itself is not on the SDN list
- Yes, because any entity 50% or more owned (directly or indirectly) by an SDN is itself treated as sanctioned, even if not explicitly listed (Correct answer)
- Yes, but only if the wire transfer amount exceeds $10,000
Correct answer: Yes, because any entity 50% or more owned (directly or indirectly) by an SDN is itself treated as sanctioned, even if not explicitly listed
OFAC's 50 Percent Rule provides that any entity owned 50% or more (directly or indirectly) by a sanctioned party is treated as sanctioned itself, even if not explicitly named on the SDN list.
Question 5: What does OFAC's 'license' process allow?
- It licenses financial institutions to conduct business in high-risk countries
- It grants specific authorization for transactions that would otherwise be prohibited under sanctions programs (Correct answer)
- It certifies AML officers to conduct sanctions screening
- It licenses technology vendors to sell sanctions screening software
Correct answer: It grants specific authorization for transactions that would otherwise be prohibited under sanctions programs
An OFAC license is a specific authorization to engage in a transaction that would otherwise be prohibited, available either as a general license (broad authorization for certain categories) or specific license (case-by-case approval).
Question 6: Which of the following is a strict liability offense under OFAC sanctions regulations?
- Failing to detect a potential sanctions match in customer screening
- Processing a transaction with a sanctioned party, even if the institution did not know the party was sanctioned (Correct answer)
- Filing a SAR for a transaction later found to have no criminal nexus
- Failing to implement a sanctions screening program
Correct answer: Processing a transaction with a sanctioned party, even if the institution did not know the party was sanctioned
OFAC sanctions violations are largely strict liability offenses — the institution can be penalized even without knowledge or intent, making robust screening programs essential because 'I didn't know' is generally not a defense.
CAMS Sanctions and OFAC Compliance 1
What is the Office of Foreign Assets Control (OFAC) and what is its primary function?