What does OFAC check stand for?
OFAC check is a procedure for verifying individuals, companies, and transactions against the US sanctions lists. Although technically this term is often perceived as a simple decoding of the abbreviation, in practice it is a complex mechanism of financial monitoring. Banks and payment systems use it to prevent money laundering, terrorism financing, and violations of international sanctions regimes. If your transaction is halted or your account is blocked with the note compliance review, most likely you are undergoing this process.
What does OFAC check stand for?
The abbreviation OFAC stands for Office of Foreign Assets Control. This is a division of the US Department of the Treasury that administers and enforces economic and trade sanctions. The agency operates based on US foreign policy and national security objectives.
The term OFAC check meaning goes beyond linguistic translation. When a bank reports conducting such a check, it means verifying your data against the databases of this agency. The word check here implies not a one-time action but part of a global system of control over the movement of the dollar and other currencies. Any operation passing through the American financial system or concerning American persons falls under the jurisdiction of this body.
What is OFAC screening?
OFAC screening is an automated process of filtering the client base and payment flow. Financial institutions do not manually check each client. Instead, they use specialised software that scans data in real-time and searches for matches with blacklists. The primary target of the search is the SDN (Specially Designated Nationals) list. Being included in it results in asset blocking and a prohibition on interaction.
The system analyses numerous parameters to eliminate errors, but the algorithms are configured for maximum sensitivity.
For the qualitative execution of OFAC screening, the following data is checked:
- Full name of the individual or company name, including known pseudonyms and variations in Latin script;
- Date and place of birth, citizenship and passport details for identity verification;
- Geographical data, such as registration address, ports of goods shipment, or IP addresses from which operations are carried out;
- Connections with already sanctioned individuals, as restrictions may extend to companies owned by individuals on the SDN list.
If the system finds a match, the operation is frozen until the details are clarified. This stage requires the involvement of a compliance department employee, who must confirm whether the client is indeed a person from the list or if it was a false positive.
What is an OFAC check in practice?
An ordinary user encounters the procedure of OFAC checking at the most unexpected moments. Most often, this happens when attempting to make an international transfer via SWIFT. The correspondent bank through which the money is sent is obliged to ensure that both the recipient and the sender are compliant with US law. If a name seems suspicious, the money is blocked on the correspondent account.
The second common scenario is opening an account in a foreign bank or registering on a cryptocurrency exchange. Platforms conduct OFAC checks during the onboarding (KYC) stage. Refusal of service at this stage often occurs without explanation, so as not to violate the confidentiality rules of investigations. Even purchasing real estate or an insurance policy can trigger a check if major international insurers are involved in the transaction.
OFAC check vs Background check
There is a critical difference between a sanctions check and a standard background check. OFAC background check is an incorrect term that creates confusion. A regular background check is conducted by employers or landlords. It is aimed at searching for criminal records, checking credit history, verifying education and employment history.
The OFAC check has an entirely different nature. A person may be a perfectly law-abiding citizen, have no debts or criminal records, yet still be on the sanctions list. The reasons could include political connections, working in a specific sector of the economy in a sanctioned country, or familial ties with an SDN individual. A background check assesses a person’s reliability in the past. An OFAC check evaluates the risk of violating international sanctions in the present. The results of these checks do not overlap: a clean biography does not guarantee the absence of sanction risks.
What does OFAC compliant mean?
The concept of OFAC compliant relates to businesses and financial institutions. Being compliant (meeting the requirements) means having an implemented and functioning internal control programme. Companies are obliged to develop procedures that prevent transactions with sanctioned individuals.
For businesses, this is not just a formality. Violating regulator requirements threatens multimillion-dollar fines and criminal prosecution of top management. Compliance with OFAC requirements involves regular employee training, configuring software for filtering, and conducting independent audits. If a company declares that it is OFAC compliant, this is a signal to partners about the reliability and security of making payments through its accounts.
OFAC sanctions check vs OFAC screening
Professionals differentiate these concepts by depth and frequency. OFAC screening is, as a rule, a large-scale and continuous process. A bank’s client database is monitored daily since sanctions lists are updated regularly. A person might have been clear yesterday but come under sanctions today, and screening must detect this.
The term OFAC sanctions check is more often applied to a targeted, in-depth review of a specific transaction or counterparty before signing a contract. This is part of the Due Diligence procedure. Here, lawyers analyse not only direct name matches but also the ownership structure of the company to eliminate risks under the “50 Percent Rule”. A deep check is necessary during mergers and acquisitions, as well as when entering new markets with a high level of risk.
What to do in case of issues with verification
If you encounter a blocked account or transaction due to what is an OFAC check, it cannot be ignored. The money can remain frozen for years. Independent attempts to explain the error to the bank often do not yield results, as the first line of support does not have access to the details of compliance decisions.
You need to determine the exact reason for the match. If it is an error (False Positive), you will need to prepare a package of documents proving your identity and the absence of connections with sanctioned individuals. If the match is real or you are subject to secondary restrictions, a procedure for obtaining a specific license to unblock assets (specific license) will be required.
Do not wait for an automatic resolution of the problem. Contact specialised lawyers who focus on US sanctions law to conduct a detailed analysis and develop a strategy to protect your assets.
