International Law Advisory - Department of the Treasury Issues New Guidance Regarding Suspicious Activity Reporting Involving Certain Transactions Subject to OFAC Blocking

The Bank Secrecy Act authorizes the Secretary of the Treasury to require financial institutions to report “any suspicious transaction relevant to a possible violation of law or regulation.”  Under this authority the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury has issued regulations regarding the filing of “suspicious activity reports” or “SARS.”  Generally, the rules provide a financial institution thirty days from the date of the initial detection of suspicious activity to file a report, with an additional thirty days if the financial institution is unable to identify a suspect.

The Office of Foreign Assets Control (OFAC) administers and enforces trade sanctions targeted against foreign countries, terrorists, international narcotics traffickers and those engaged in activities related to the proliferation of weapons of mass destruction.  OFAC requires a U.S. financial institution (or any other person subject to its regulations) to block “property” that comes into its possession in which the sanctioned government, entity or person has an “interest”.  In addition, a U.S. financial institution (or other person) must file reports regarding property that is so “blocked,” including any “blocked” financial accounts, payments or transfers.  These reports must be filed with OFAC within ten business days of the blocking of the property.

Under prior guidance, financial institutions that were aware of transactions involving an individual or entity designated on OFAC’s list of Specially Designated Nationals and Blocked Persons as a global terrorist, terrorist, terrorist organization, narcotics trafficker or narcotics kingpin had to file a SAR with FinCEN, as well as block and report any such transaction to OFAC.

On December 23, 2004, FinCEN revised its prior guidance to eliminate the need for duplicative reporting in cases where a financial institution identifies a verified match with individuals or entities on the OFAC SDN List.  From this point forward, FinCEN will deem its rules requiring the filing of SARs to be satisfied by the filing of a blocked property report with OFAC, in accordance with OFAC’s regulations.  OFAC will then provide the information to FinCEN for inclusion in the suspicious activity reporting database where it will be made available to law enforcement.

This interpretation does not affect a financial institution’s obligation to identify and report suspicious activity beyond the fact of the OFAC match.  To the extent that the financial institution is in possession of information not included on the blocked property report filed with OFAC, a separate suspicious activity report should be filed with FinCEN including that information.  This interpretation also does not affect a financial institution’s obligation to file a SAR even if it has filed a blocked property report with OFAC, to the extent that the facts and circumstances surrounding the OFAC match are independently suspicious and are otherwise required to be reported under existing FinCEN regulations.  In those cases, the OFAC blocked property report would not satisfy a financial institution’s SAR filing obligation.

In addition, nothing in this interpretation is intended to preclude a financial institution from filing a SAR to disclose additional information concerning the OFAC match, nor does it preclude a financial institution from filing a SAR if the financial institution has reason to believe that terrorism or drug trafficking is taking place, even though there is no OFAC match.  

Finally, this interpretation does not apply to blocked property reports filed to report transactions and accounts involving persons owned by, or who are nationals of, countries subject to OFAC-administered sanctions programs (e.g. Iran, Sudan, Cuba).  Such transactions should be reported on SARs if, and only if, the activity itself appears to be suspicious under the criteria established by the suspicious activity reporting rules.

If you have questions regarding this new guidance, or regarding the interplay between money laundering and OFAC sanctions, please feel free to contact Ed Krauland at (202) 429-8083 or Andy Irwin at (202) 429-8177.