What Is an OFAC Check?

There are some people and companies with whom you should do business, and there are some you should avoid at all costs. An OFAC check is a specific background screening that confirms whether or not a person or organization is listed on any watchlist maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). 

It typically covers economic sanctions in place because of terrorism, drug trafficking, or money laundering. 

What Are OFAC Sanctions?

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. 

Why Are OFAC Checks Important in Background Screening?

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. 

Which Types of Businesses Need To Conduct OFAC Checks?

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. 

Examples of Red Flags During an OFAC Check

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.

Frequently Asked Questions

Why Would Someone Be on an OFAC List?

Individuals or entities might appear on the OFAC list for various reasons, including illegal activities such as terrorism, human trafficking, or drug smuggling, prohibited trade, particularly with embargoed nations, and anything related to national security concerns.

Final Thoughts

The consequences of non-compliance with OFAC regulations, government watchlists, and embargoed nations are so severe that no company would want to take the risk.

An OFAC check is a simple way to ensure that you and your business are on the right side of the law. From screening potential employees to vetting business partners, OFAC checks allow you to put those niggling worries in the back of your mind to bed. 

ScoutLogic specializes in thorough, accurate OFAC checks as part of our background screening services. So, whatever industry you’re in, don’t take the risk. Let us vet those who need vetting, letting you get on with the business of running a business.

David Garcia

David Garcia, co-founder and CEO of Scout Logic, is an industry leader in the bulk background check world. With his strategic acumen and expertise in the HR sphere, specifically in hiring, recruiting, legal compliance, background checks, and resume screening, he’s an invaluable asset and consultant.

David's counsel extends across the boards of ScoutLogic, YipitData, and Supplier.io, drawing from his impactful stints on the boards of Infutor and Avetta. With an extensive 25-year journey, he champions unparalleled B2B commercial leadership within data & analytics, significantly shaping the HR landscape.