Specially Designated Nationals and Blocked Persons
The U.S. Treasury Department’s Office of Assets Control (OFAC) administers and enforces economic sanctions against foreign countries.
As part of the effort to prevent the misuse of its financial system for money laundering and terrorist financing, the OFAC also publishes a List of “Specially Designated Nationals and Blocked Persons”. U.S. nationals are banned from transactions with individuals or entities on the SDN List. To maintain the sanctity of the sanctions and prevent international crime and terror activities, the U.S. government further monitors the export of select items that are considered a threat to its national security. If an individual is found to provide support to any terror activity, narcotics trafficking, weapons of mass destruction, or unauthorised military use; to any individual or outfit on the SDN List, he is penalized under the U.S. Patriot Act. Such breaches are treated as a crime.
What constitutes the SDN List?
As part of its enforcement efforts, the OFAC publishes a list of individuals, groups and entities belonging to, or acting on behalf of, the targeted sanctioned countries. OFAC also lists terror outfits, terrorists and narcotics traffickers. The List further includes those whom the U.S. government deems to be a threat to the national and economic security or its foreign policy: individuals, entities, governments, or organisations.
Collectively, such individuals and outfits are termed “Specially Designated Nationals and Blocked Persons” (SDN List). Any assets in the U.S. belonging to a person or entity on the SDN List are frozen. Most importantly, from the point of regulatory compliance, transactions with any individual on the SDN List are prohibited. This is aimed at preventing the exploitation of the U.S. financial system or financial institutions, for a commercial transaction with any OFAC-sanctioned persons or countries.
SDN screening is recommended for businesses and financial institutions before establishing a relationship or carrying out overseas transactions with an individual or entity.
Some factors to consider:
Does the individual, with whom your bank is establishing a new customer relationship, belong to a sanctioned country? Does the transaction or another dealing; involve any individual, organisation or entity on any list of SDN and Blocked Persons? Does the transaction involve a restricted item for export requiring a special licence from OFAC?
Sanctions and prohibitions may vary between jurisdictions. So compliance for SDN can be best maintained with automated screening technology and procedures. Although SDN and other lists are available publicly online, manual checks can be cumbersome as the names of entities must be keyed into the Sanctions List Search Tool of the government database individually. However, SaaS services are a convenient tool for both individual or bulk checks against databases.