What Is an OFAC Check?

OFAC sanctions are designed to address threats to U.S. national security, foreign policy, or economic disruption which may or may not affect the United States. These sanctions typically target:

• Individuals and Organizations: People or groups involved in illegal activities such as terrorism, drug trafficking, or cybercrime.
• Countries: Nations under embargo, such as North Korea or Iran.
• Sectors: Specific industries or businesses linked to sanctioned activities.

Those who fall into these categories are placed on the Specially Designated Nationals and Blocked Persons List and are, therefore, banned from any transactions with U.S. companies or individuals, whether in the United States or abroad. 

It’s safe to say that anybody included on these watch lists is considered bad news, making it vital that U.S. companies don’t do business with them. 

1. OFAC Compliance

Noncompliance would see companies break federal laws. If you want to stay on the right side of the law—and we’re assuming you do—it’s vital to comply with the OFAC.

2. Legal and Financial Risks

Whether intentional or not, noncompliance can lead to a mountain of legal and financial issues. Fines can easily stretch into the millions, and individuals can even go to jail. 

3. Protecting Business Reputation

In business, reputation means everything, and once a company has been tarred with the label of ‘doing business with a sanctioned person, organization, or even nation, it can be a long road back. Companies on the stock exchange can easily see millions wiped from their value, leading to massive losses for shareholders. 

4. Streamlining Hiring Processes

For organizations conducting criminal background checks, adding an OFAC check provides an additional layer of security that otherwise wouldn’t happen. However, companies don’t need to do this for everybody, so careful consideration on a candidate-to-candidate basis is required. 

Just as not every candidate needs an OFAC check, not every industry sector or company needs to screen for it. Certain types of organizations or sectors are more susceptible to OFAC issues.

1. Financial Institutions

Banks, credit unions, and investment firms need to tread carefully. Each customer and potential partner must be screened carefully to ensure compliance with OFAC. 

2. Import/Export Businesses

Anybody involved in foreign trade also needs to cover their back. The import/export sector naturally deals with a wide variety of customers from around the world. 

3. Healthcare Organizations

Perhaps not one you would think of, but hospitals and healthcare providers must show clearly that they’re not using sanctioned suppliers for any products used, especially when receiving federal funding. 

4. Employers in High-Security Sectors

Any sector that handles sensitive information or high-security matters, for example, aerospace, defense, and cybersecurity, also needs to be watertight when it comes to the OFAC checks. 

When an OFAC check reveals a red flag, companies must take urgent action to protect themselves. Here are a few examples: 

1. Transactions Involving Specially Designated Nationals (SDNs)

Individuals or organizations on the SDN list should be a blaring warning for any company. Links with terrorism, trafficking, or other criminal activities should result in the immediate cessation of transactions or engagements with the listed party.

2. Connections to Sanctioned Countries

Connections with nations under U.S. embargoes are also a big no-no. If the names North Korea, Iran, Russia, or Syria come up during an OFAC check, back away for the sake of your business. 

3. Suspicious Financial Transactions

Unusual financial activities are also sometimes red flags. These could be in the form of large wire transfers from unknown sources or irregular payment patterns and might point to potential illegal activity. 

4. Alias or Multiple Identifications

Aliases or falsified documentation are huge red flags and almost always point to some kind of illegal activity. Any identity discrepancies highlighted by the OFAC checks should be taken very seriously.