OFAC Compliance – The Never-Ending Story
The Office of Foreign Assets Control (OFAC) has certainly been busy this year. As we covered in May, OFAC issued an interim final rule (IFR) to require filers to use the electronic OFAC Reporting System (ORS) for submission of initial and annual reports of blocked property, and reports of rejected transactions beginning on August 8, 2024. The IFR also required electronic submissions of reports of unblocked or transferred blocked property either via e-mail or the ORS when authorized by a valid order from a U.S. government agency or U.S. court. I won’t repeat all of the details, but you can read all about it here: OFAC to Require Use of Electronic Reporting System | America's Credit Unions.
OFAC finalized this rule in October, effective November 8, 2024, clarifying that the unblocked or transferred blocked property reports are not required for:
• Authorized debits to blocked accounts for normal service charges;
• Authorized transfers of funds or credits by a financial institution between blocked accounts in its branches or offices;
• Unblocking or transfer of blocked property that is explicitly authorized by a specific or general license, unless the specific or general license includes a condition requiring the submission of a separate unblocking report; or
• Blocked property that is unblocked pursuant to OFAC’s removal of a person from the Specially Designated Nationals and Blocked Persons List (SDN List).
OFAC is also increasing its record retention period from 5 to 10 years, beginning on March 12, 2025.
In April, President Biden signed into law an emergency supplemental appropriations bill for foreign aid which included amendments to the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). These amendments extended the statute of limitations for violations of most U.S. sanctions programs from 5 to 10 years. As a result, OFAC will extend its record retention period from 5 years to 10 years to reflect these changes.
Currently, all OFAC records must be retained for 5 years. Credit unions must retain any records of rejected transactions (e.g., prohibited wires from a sanctioned country) for 5 years from the date of the transaction; and “blocked” account records must be maintained for 5 years after the date that the account is unblocked. That “5 years” will increase to “10 years” next March. And, as always, credit unions must maintain a complete and accurate record of a blocked account for as long as the institution is holding the blocked property (i.e., frozen funds).
The revised regulatory text will read as follows:
31 CFR 501.601: Records and recordkeeping requirements.
"Except as otherwise provided, every person engaging in any transaction subject to the provisions of this chapter shall keep a full and accurate record of each such transaction engaged in, regardless of whether such transaction is effected pursuant to license or otherwise, and such record shall be available for examination for at least 10 years after the date of such transaction. Except as otherwise provided, every person holding property blocked pursuant to the provisions of this chapter or funds transfers retained pursuant to § 596.504(b) of this chapter shall keep a full and accurate record of such property, and such record shall be available for examination for the period of time that such property is blocked and for at least 10 years after the date such property is unblocked."
These changes were also issued as an interim final rule, so OFAC could amend the IFR and/or extend the effective date in a final rule issued next year. However, credit unions should prepare to hold on to any OFAC records for 10 years sooner rather than later. That means reviewing and revising your credit union’s OFAC policies, procedures, processes, and agreements with 3rd party service providers, as appropriate, to ensure that OFAC records will be retained for the appropriate new timeframe next spring.
Lastly, note that OFAC is currently seeking input on its sanctions guidance, resource accessibility, and overall website user experience. Click here to access the OFAC Website User Survey, which closes on December 30, 2024.
Questions? Please reach out to the Compliance Team at compliance@americascreditunions.org.