One of the results of the tragic events of 9/11, was the enhanced efforts in the USA to fight terrorism. All types of laws and regulations were passed and promulgated in the wake of those very dark days. Among the new regulations was the requirement that financial services companies screen those with whom they do business to make certain that no customer is a part of a terrorist enterprise. This screening requirement is known as an “OFAC screening.”
OFAC stands for the Office of Foreign Assets Control. It is housed within the Department of the U.S. Treasury. All U.S. persons, including financial institutions, are subject to the OFAC regulations. Loan and finance companies are specifically included within the definition of “financial institution” in the Bank Secrecy Act and therefore subject to the OFAC screening requirement.
Recently, I have had the occasion to remind consumer finance companies of their obligation to conduct OFAC screening of their consumer borrowers. Fortunately, this process can be performed (for a fee) by consumer reporting agencies (“CRAs”). It is my understanding that the OFAC screening can be added to a credit report and delivered in connection with each report that the creditor orders. It is a feature, though, that has to be implemented between the CRA and the customer.
The fines for failure to screen can be substantial, ranging from $11,000 to $1.0 million per violation. Serial violators are also subject to criminal penalties including fines and imprisonment.
Practice pointer: Make certain that you are conducting OFAC screening of your customers, either directly through the Office of Foreign Assets Control, or with the assistance of your CRA.