Understanding sanction compliance is crucial for any organization operating in the global market. It serves as a protective measure against inadvertent violations of international regulations, which could lead to severe financial penalties and reputational damage. The foundation of an effective sanction compliance program lies in senior management’s commitment, a comprehensive sanctions risk assessment, robust internal controls, periodic testing and auditing, and consistent training. By fully integrating these elements, organizations can not only ensure adherence to regulations but also foster a culture of compliance that permeates every level of the enterprise.
Financial institutions are required to comply with the sanction compliance requirements and report certain transactions to the relevant regulatory authorities.
Institutions need to report transactions, such as blocked or rejected transactions, to authorities in specified format which may be in writing or on the authority’s portal in a specific manner.
Institutions conducting international financial transactions may be required to share an Annual Report of Blocked Property to the relevant authority, such as in the United States to the Office of Foreign Asset Control (OFAC).
Reporting forms are usually provided by the regulatory authority on its website or portal.
The regulatory authorities such as OFAC, sets forth reporting and recordkeeping compliance requirements, in addition to other requirements including license application and procedures that govern specified transactions.
Understanding Sanction Compliance
Reporting of Blocked Property
One of the reporting requirements, pursuant to OFAC reporting regulations, include where the financial institutions are required to report blocked property to OFAC within the specified time from the date the property was blocked by the institution.
The reports to be submitted must contain the following information:
- description of the person or owner or account party
- description of the property, location of property,
- account number or specific identification reference
- actual or estimated value of the property
- date of blocking of the property
- name and address of the holder
- name and telephone number of a contact person who can provide compliance information
Reporting of Rejected Transactions
The financial institutions are required to report the rejected transactions. Any financial institution that rejects a funds transfer where the funds are not blocked as per the provisions of specified regulation or requirement, but where processing the transfer would nonetheless violate, or facilitate an underlying transaction that is prohibited under, other provisions of relevant regulation or requirement, must report.
For example, if a US person attempts to transfer funds to Iran, the transaction will be rejected even if neither party involved is a blocked person.
The report of rejected transactions must include specified information, such as:
- Name and address of the transferee financial institution
- Date of the transfer
- Amount of the payment transfer
- Photocopy of the payment or transfer instructions received
- Basis for the rejection of the transfer instructions
- Name and contact number (telephone number) of a contact person at the transferee financial institution from whom compliance information may be obtained.
Final Thoughts
Financial institutions are under a stringent obligation to adhere to sanction compliance requirements, which include timely reporting of specific transactions to the pertinent regulatory authorities like OFAC. This entails detailing blocked properties or rejected transactions in a designated format and within set deadlines. Such reporting not only assists in upholding regulatory standards but also ensures transparency in international financial activities. To this end, institutions must be meticulous in providing all essential information, from the nature of the blocked asset to the reasons for transaction rejection, ensuring they remain compliant and contribute to a transparent and accountable financial ecosystem.
