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What is an OFAC Check?
An OFAC check is a screening process used by financial institutions, businesses, and government agencies to ensure that individuals or entities involved in a transaction are not listed on sanctions lists maintained by the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC).
An OFAC check is a screening process used by financial institutions, businesses, and government agencies to ensure that individuals or entities involved in a transaction are not listed on sanctions lists maintained by the US Department of the Treasury's Office of Foreign Assets Control (OFAC).
OFAC checks are a critical part of compliance efforts aimed at preventing transactions with sanctioned parties, including individuals linked to terrorism, narcotics trafficking, money laundering, and other illegal activities. Conducting an OFAC check helps businesses and financial institutions avoid regulatory penalties and maintain compliance with US sanctions laws.
How Does an OFAC Check Work?
OFAC checks are multi-step processes to keep organizations from running afoul of sanctions lists and US regulations. Doing so requires an organization to:
- Collect Customer and Transaction Data – Organizations gather details on customers, vendors, or financial transactions that need to be verified.
- Compare Data to Sanctions Lists – The information is checked against OFAC’s databases, including:
- SDN List – Individuals and entities blocked from conducting business with US companies.
- Sectoral Sanctions Identifications (SSI) List – Entities subject to sector-based restrictions.
- Foreign Sanctions Evaders (FSE) List – Parties who have violated US sanctions laws.
- Flag Potential Matches – If a name, business, or transaction appears on an OFAC list, the entity must take action to remain compliant, which may include blocking the transaction or reporting it to OFAC.
- Review and Make Decisions – Organizations conduct due diligence to determine whether a flagged match is valid or a false positive. If a valid match is found, they must halt the transaction and report it to OFAC.
Who Needs to Conduct OFAC Checks?
Many industries are required to perform OFAC checks to comply with US law. Banks and other financial institutions, for example, must screen customers and transactions to ensure no links exist to sanctioned entities or individuals. Payment processors and fintechs must also remain compliant with OFAC regulations.
As more cryptocurrency exchanges emerge, they are increasingly required to screen crypto transactions to root out sanctioned wallets or entities. Businesses engaging in international trade—including those that import, export, or operate globally—must verify that they are not dealing with restricted countries or entities.
Lenders, mortgage companies, and insurance providers must also ensure that applicants are not sanctioned entities, and in sensitive industries, some employers perform OFAC checks during background screenings as well.
Non-compliance with OFAC regulations can result in severe financial and legal consequences, including civil penalties, criminal penalties, and reputational damage. Civil penalties may range from thousands to millions of dollars per violation, while criminal penalties could result in imprisonment for willful violations. Businesses that fail to comply risk losing credibility and facing regulatory scrutiny.
Are OFAC Checks Different Than OFAC Sanctions?
Yes, OFAC checks are different than OFAC sanctions. The former applies to entities and individuals listed on OFAC watch lists, while sanctions apply to entire governments, jurisdictions, or countries. Sanctions are a tool employed by OFAC to support American national interests. An OFAC check is a way to see if a person or entity is subject to an OFAC sanction.
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