In brief:
- Under OFAC regulations, trade with sanctioned or embargoed countries is illegal, so U.S. businesses must perform OFAC checks to ensure they are compliant
- Running an OFAC check is a relatively simple task, but it's inefficient to do at scale since it requires searching for entities one-by-one
- OFAC checks can be automated by OFAC APIs and other software tools that can notify you when businesses you’re monitoring appear on the OFAC List
The U.S. Office of Foreign Assets Control (OFAC) is a critically important regulatory body that manages and enforces economic and trade sanctions aimed at accomplishing certain U.S. national security or foreign policy interests. They do this through the maintenance of the Specially Designated Nationals and Blocked Persons list (the "SDN List"), which identifies businesses you should not be associated with.
U.S. businesses are required to exercise due diligence—including checking OFAC’s Lists—to ensure they aren’t illegally doing business with a sanctioned company or individual, and the penalties for failing to do so can be extremely costly.
That’s why it’s important for businesses to know how to screen business partners, clients, and employees against OFAC’s Lists. This article will explain precisely how to do this, as well as introduce some tools that can automate this process for you if you conduct KYB checks on businesses at scale. To do that, we’ll cover:
- What is an OFAC check?
- How to run an OFAC check
- How to automate OFAC screening KYB checks
- 5 OFAC API & software tools for OFAC screening
- Conduct OFAC checks quickly and effortlessly with Middesk
We’ll first explain what an OFAC check is, and why companies need to run one.
An OFAC check is a review of the Office of Foreign Assets Control (OFAC)’s Specially Designated Nationals (SDN) and Blocked Persons list to determine if an entity or person you are considering conducting business with is on the list.
OFAC is the U.S. government agency that creates and enforces economic sanctions against people and entities that threaten U.S. national security or foreign policy. The OFAC List prevents U.S. businesses from associating with or conducting business with entities that finance terrorism or are involved in criminal activity.
What is the purpose of an OFAC check?
The purpose of an OFAC check is to determine whether a person, entity, or country a company wants to do business with is on an OFAC-managed sanctions list. This would indicate that the entity is a danger to U.S. national security or foreign policy, such as through terrorist financing.
Besides avoiding breaking U.S. law, complying with OFAC sanctions lists helps a business preserve its reputation by not dealing with entities that the U.S. government considers threats. It also helps companies ensure they don’t work with prohibited businesses.
OFAC checks are just another protective measure to ensure the businesses you work worth are who they claim to be, and should be part of a broader KYB process that relies on accurate KYB data.
Warning
Running OFAC checks is a critical regulatory compliance requirement for many U.S. businesses, particularly financial institutions and regulated global fintechs, as per legislation such as the Code of Federal Regulations, the International Emergency Economic Powers Act, and the Trading with the Enemy Act.
Running an OFAC check and reviewing sanctions lists is not a substitute for adequate due diligence in your KYB program, and simply checking the OFAC SDN List does not limit your criminal or civil liability for associating with a sanctioned business. It’s just one step in the process.
What kinds of businesses are required to conduct an OFAC check?
All U.S.-based citizens, businesses, and other organizations are subject to OFAC’s regulations by law. That means violating them can result in civil or criminal penalties. However, not every industry is likely to deal with entities that appear on the OFAC List.
Though all businesses are subject to OFAC List due diligence requirements, these are mostly aimed at Financial Institutions (FIs) who deal with financing and transactions, or provide accounts for people and businesses.
These are the main types of businesses that need to conduct OFAC checks:
- Banks and Neobanks
- Lenders and Credit Institutions
- Fintechs
- Payment Services Providers (PSPs)
- Marketplaces
What information is needed for an OFAC check?
An OFAC check can be run with at least one of these search parameters in the SDN List:
- Name
- Address: Including City, State/Province, or Country
- Type: Aircraft, Entity, Individual, Vessel
- ID # / Digital Currency Address
- List: Choose SDN or Non-SDN
- Minimum Name Score: Scale of 50-100
- Program: Sanctions Program Designation
What are the OFAC check requirements and regulations?
OFAC itself doesn’t actually have specific legal or regulatory requirements when it comes to running an OFAC sanctions check, but they do have a set of basic guidelines to help businesses understand when an OFAC check should be conducted.
However, by not running a check, an entity risks breaking the laws related to OFAC by either:
- Starting a business relationship with an entity on OFAC’s lists
- Failing to freeze the assets of an entity it already has a relationship with because it was added to an OFAC List
The civil or criminal penalties for doing either of these things are substantial. Fines can range from thousands to millions (or even billions) of dollars, and violators can face years – even decades – of jail time.
Additionally, an entity’s reputation can take a huge hit if news of it facing OFAC-related enforcement actions becomes public. Business partners and financial institutions may subject the entity to further oversight, or even end their relationships altogether. This can make it very difficult for a business to do what it needs to do to grow.
Therefore, most businesses make OFAC checks a requirement of their regulatory compliance programs in order to limit these risks.
Did you know?
According to Middesk’s Liminal Link Index Report, 77% of institutions still struggle to detect shell companies that are tied to sanctioned individuals. Download the Report here to see the top 5 traits shared by the most effective Business Entity Verification platforms out there, and see how your program stacks up against those doing it right.
Previously, OFAC checks could be run through the now-retired FINRA OFAC search tool. Currently, you can either manually run an OFAC check online through OFAC’s Sanctions List Search tool, or you can use a watchlist software that can automate the process for you.
This section will provide instructions on how to check the OFAC list using OFAC’s SDN List tool manually.
1. Access OFAC’s Sanctions List Search tool
Access the online tool via the OFAC Sanctions List Search website.
2. Set the parameters of the search
Here, you can input any of the following information, with at least one search parameter to have the list return results: Name, Address, Type (Aircraft, Entity, Individual, Vessel), ID #, Digital Currency Address, List Type, Minimum Name Score, and/or Sanctions Program.
Did you know?
If using the “Name” field, you can also use the “Minimum Name Score” slider to choose how precisely the tool will match an entity’s name, setting the slider from 50-100.
For example, if the slider is at 100, the tool will only return exact name matches. Using lower minimum scores may be useful in situations where the entity being searched for has aliases, or is known under another name in a different region.
When you’re ready to conduct the search, click the “Search” button.
3. View, sort, print, and export search results
Functions for sorting, exporting, or printing the results of an OFAC Sanctions List Search
Once results populate in the Lookup Results window, you can click the headings across the top of the window to sort results by a particular parameter.
You can also click the “Excel” button above the Lookup Results window to download the results as a Microsoft Excel spreadsheet, or click the “printer” icon at the top of the Lookup window to print the list of results out.
4. View additional information on search results
Clicking on the name of an entity in the results window will show additional details about that entity. Like with the list, you can click the “Printer” icon to print the page, or click the “Back” button to return to your search.
Expert tip
OFAC’s Sanctions List Search tool is only designed to run one search at a time. This makes it rather inefficient for enterprise-level businesses that may need to screen multiple employees, clients, or partners at once. The use of an OFAC Check API would really speed up this process if you need to conduct watchlist screening on large volumes of businesses every month.
It is possible, however, to download full versions of the Specially Designated Nationals (SDN) and Consolidated Non-SDN lists and use tools to perform multiple checks at once. But it’s even more efficient to use a tool like Middesk, which has a built-in OFAC check tool that allows for automatic scanning as part of the onboarding process – which often requires many other KYC checks at the same time.
To truly automate OFAC checks, your OFAC SDN List checking solution would need to be capable of the following things:
- Has a direct link to the SDN and Non-SDN Lists data pipeline
- Is able to identify whether a potential business you are considering onboarding appears on the OFAC List
- Is able to notify you if an entity or individual already in your customer lifecycle appears on a watchlist later
- Has fresh data that is updated frequently, so it can catch new appearances on the OFAC SDN List
- Has API capabilities that allow you to run these checks on a cadence, and at scale
OFAC screening is the process of conducting ongoing monitoring for OFAC related breaches, like sanctions lists and other watchlists. The purpose is mainly to monitor for changes to an entity’s status on an OFAC watchlist over time.
While an OFAC check is technically one single search, OFAC screening performs routine, automated OFAC searches, because it’s equally important to ensure you end your business relationship with a business who already passed your KYB checks if they later appear on the OFAC SDN List.
OFAC screening solutions require all the same information an individual OFAC check would require, so it’s imperative that data ingestion and accuracy are carried out properly.
OFAC provides downloadable formats of its SDN and Consolidated non-SDN lists, which can be fed into software tools in order to automatically check multiple entities against them at once, and some tools with API capabilities can perform OFAC checks on a larger scale using this data.
Here are some of your best options if you’re looking to automate OFAC List checks:
1. Best for comprehensive KYB verification: Middesk
Middesk is an all-in-one customer due diligence KYB solution. It checks OFAC’s SDN and Consolidated Non-SDN lists – along with many other common sanctions lists – to see if an entity has been sanctioned. It can check this for you when you’re considering onboarding a business, and you can set up Watchlist Monitors to notify you if a business you are monitoring appears on a watchlist.
Middesk can also check other risk factors such as if an entity is (or works in) a heavily-regulated industry or is currently involved in litigation. Delivering need-to-know KYC data by API, it provides a fast and cost-effective way to meet regulatory requirements.
Middesk Verify is also an ideal solution for conducting other important KYB validation processes, such as performing a PEP risk assessment, retrieving business formation documents, finding articles of incorporation, or conducting other watchlist screening. See exactly how it works in our on-demand product demo of Middesk Verify:
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2. Best simple solution for watchlist only: CSI WatchDOG Elite
CSI’s WatchDog Elite platform allows for batch screening entities against several different international sanctions lists, including those for OFAC. It also can look for other risk factors such as politically exposed persons (PEPs), beneficial owners, and adverse media coverage. It features centralized record lookup capabilities, integration with common case management systems, corporate ownership structure analysis, and support for multiple languages.
3. Best for AML (Anti-Money Laundering): FinScan
FinScan screens both individuals and entities against over 70 public sanctions lists, including OFAC’s. It supports API integration, batch screening, or individual web-based scans. It features customizable and testable matching criteria that can use fuzzy logic, and provides in-depth information about its decision-making process on why an alert was or was not considered a match.
4. Best for governance risk & legal teams: Vital4WLS
Vital4WLS is a watchlist screening platform that screens over 6000 government watchlists – including those related to OFAC – for sanctioned (or at least suspicious) people or entities. It uses AI-based machine learning to match names and give relevance scores on matches, and can be customized in as little as a day. It also supports API integration or a cloud-based SaaS platform that allows for batch data uploading.
5. Best for global (non-U.S.) watchlists: ComplyAdvantage Sanctions Screening
ComplyAdvantage sanctions screening software can screen individuals and entities against multiple risk sources. These include OFAC and other sanctions lists; immigration and customs wanted lists; and various categories of PEPs and adverse media coverage. It also has features such as multilingual support, API integration, and the ability to whitelist profiles.
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Running an OFAC check is simple—that isn’t the problem. The problem is staying on top of hundreds of businesses you onboard every month, as well as conducting regular checks on businesses that are already customers to ensure they don’t appear on the OFAC SDN List.
To be compliant, you can’t have team members checking the OFAC List manually one at a time. Human error will lead to mistakes, and your scaling will be entirely disrupted by this task.
Instead, take advantage of a tool like Middesk’s Business Verification solution to instantly pull this information — along with many other pieces of data — and determine in minutes whether this is a business you want to onboard.
If you need to check other watchlists — along with OFAC Lists — you’ll likely want to rely on a comprehensive watchlist screening software that lets you quickly and conveniently verify businesses.
Contact our sales team and book a demo to find out how Middesk can help automate your compliance efforts, running OFAC checks for you quickly and efficiently – as often as you need them.
