Avoiding the Men in Black – An OFAC Case Study

As she crossed the company parking lot early one morning, the director of shared services saw them. Men in black. Two of them. As she neared the building entrance, they approached and addressed her by name. She was afraid this day would come, and it finally had.

They flashed their federal credentials, and she welcomed them up to her office. They were there to talk about a payment she had authorized. As it turned out, the payee was on a sanctions list of the Office of Foreign Assets Control (OFAC) of the U.S. Treasury Department, and the SSC director and her company were in trouble.

This really happened. The U.S. government publishes lists of individuals, organizations and countries with whom it is illegal to do business, including narcotics traffickers, diamond smugglers, rogue regimes, terrorist organizations, etc. The government aggregates and publishes sanction lists, and Treasury Department’s Office of Foreign Assets Control (OFAC) monitors compliance. If you run afoul of a list, it’s going to cost you. Banks, in their compliance, effectively screen payments for the government. If you slip, they’ll find and report it themselves, exposing you. What are you doing about it? Are you screening your supplier list?

In this story, the SSC director, despite making the payment, had tried to protect the company and had done something (fortunately) to protect herself. She knew about the list and understood her responsibility. She initially refused to authorize payment. She warned her superiors that the payment to that particular entity was not allowed. They insisted she pay it, however. So she insisted on getting a signed letter from her CFO in which he took responsibility for authorizing the payment. On the day the men in black arrived, she called her CFO to let him know the reckoning had come.

Civil penalties for sanctions violations can be substantial. In 2019 they reached a new high of 1.29 billion dollars. From 2011 to 2020, civil penalties averaged $473 million annually, though there were highs and lows. 

It is simple to avoid the men in black: Don’t pay an entity found on OFAC’s SDN aggregate list of blocked persons and parties, or anyone in sanctioned countries. Check your vendors against the list to ensure they’re not on it. (And be prepared to explain the law to your management and stand your ground!) When conducting sanction list reviews, it is important to employ the right kind of algorithms and frequency.