What is OFAC Screening?
In the era of global sanctions and international risks, any deal can turn into a problem if the counterparty is not checked in time. Banks, investment funds, and even small companies today are required to consider sanction lists to avoid asset freezes and multimillion-dollar fines. This is precisely why OFAC Screening exists—a tool that allows identifying connections with individuals and organizations under U.S. sanctions. Many businesses mistakenly believe that this check only applies to large corporations, but in practice, it affects everyone engaged in international transactions or working with foreign partners.
For businesses and investors, OFAC Screening is not a formality but a mandatory protective measure. Conducting such checks helps avoid fines, asset freezes, and even criminal liability for cooperating with individuals on sanctions lists. Companies engaged in international activities, banks, and fintech platforms are required to use this tool as part of KYC/AML procedures to remain within the legal framework. Our lawyers will help carry out OFAC Screening professionally and reliably: from targeted counterparty checks to implementing a comprehensive sanctions compliance system.
What is OFAC?
OFAC (Office of Foreign Assets Control) is a division of the U.S. Department of the Treasury responsible for developing and implementing sanctions policy. The organization monitors compliance with economic and trade sanctions against countries, organizations, and individuals that pose a threat to U.S. national security or violate international norms.
OFAC performs a wide range of functions, including:
- Compilation and updating of sanction lists, including the SDN List, which includes individuals and companies subject to sanctions;
- Blocking of assets belonging to individuals and legal entities under sanctions if they are connected to the U.S. financial system;
- Control over compliance with restrictions in the field of export and import;
- Monitoring of transactions in the international financial system;
- Interaction with banks, corporations, and government structures to prevent money laundering and financing of terrorism.
Although OFAC is an American authority, its requirements extend far beyond the territory of the United States. The jurisdiction of the agency includes:
- All citizens and residents of the USA, including companies and banks;
- Any transactions passing through the American financial system (including operations in US dollars);
- Foreign companies and individuals, if they use banks or assets associated with the USA.
Therefore, even an international business without an office in the USA may face OFAC measures if its activities are in any way connected with American financial institutions.
SDN List (Specially Designated Nationals And Blocked Persons List)
The SDN List (Specially Designated Nationals And Blocked Persons List) is a list of specially designated individuals and organizations compiled by OFAC. Being included in this list means that for American companies, banks, and citizens, any financial and commercial transactions with SDN subjects are strictly prohibited. Moreover, such restrictions often extend to international companies if their activities are in any way connected to the U.S. financial system.
The SDN List includes a wide variety of categories of entities: terrorists and their supporters, drug cartels and their structures, companies from countries under U.S. sanctions, as well as individual businessmen and politicians whom the American authorities classify as so-called “oligarchs.”
Being on the SDN List has serious consequences. For individuals, this means the blocking of all assets that directly or indirectly pass through U.S. banks, as well as the inability to conduct international business in dollars. For companies, it entails a complete ban on cooperation with American partners and access to the global market through legal financial channels. Even neutral counterparties from third countries often refuse to work with those listed on the SDN List, fearing secondary sanctions and losing access to the American financial system.
Other OFAC sanctions lists
One of the key tools is the Consolidated Sanctions List – a consolidated list that combines various OFAC sanctions programs. It includes several subcategories and is used to simplify the verification of counterparties.
Of particular importance is the Sectoral Sanctions Identifications (SSI) List. It includes companies and organizations subject to sectoral restrictions: in energy, finance, or the defense industry. Unlike the SDN List, transactions with entities on the SSI are not completely prohibited but are strictly limited to certain types of operations (for example, access to financing or technologies).
In addition, OFAC maintains lists related to specific sanctions programs, such as the Foreign Sanctions Evaders (FSE) List for individuals and companies evading sanctions and the Non-SDN Palestinian Legislative Council List concerning certain political structures.
For business, it is important to understand: each list has its own characteristics, and verification should be conducted not only against the SDN List but also against other registries. Non-compliance with these rules can lead to asset blocking, restrictions on access to international transactions, and multimillion-dollar fines.
Why is OFAC screening important for your business today?
In recent years, the global geopolitical situation has sharply escalated: sanctions are being imposed against entire states, large corporations, and thousands of individuals. For companies conducting international activities, the risk of becoming involved in sanction schemes has increased manifold. Violating OFAC rules can result not only in multimillion-dollar fines but also in the complete blocking of assets.
Our legal team implements effective OFAC screening mechanisms for clients: from single checks to comprehensive compliance systems.
The process of OFAC Screening: how does it work in practice?
1. Collection of data about the counterparty
- The first step is obtaining complete information about an individual or legal entity. Usually checked:
- Full name or company name;
- Date of birth or date of registration;
- Address and country of residence/business operations;
- Identification numbers (tax, registration, passport data).
The more accurately the data is collected, the lower the likelihood of errors during verification.
2. Comparison of data with sanction lists
Further, the information about the counterparty is checked against the current OFAC sanctions databases, including the SDN List, SSI List, Consolidated Sanctions List, and other registries. Modern companies use automated systems that instantly check thousands of names against the databases and provide a list of matches.
3. Analysis of matches and combating false positives
Often, the results of the check contain so-called false positives – matches by name or company name that are not actually related to sanctioned persons. For example, if a counterparty has a common name, it may match the data in the list.
At this stage, it is important to conduct an in-depth analysis: verify dates of birth, addresses, and registration data. Mistakes can be costly: refusing to cooperate with a clean partner harms the business, while ignoring a real match carries serious sanction risks.
4. Decision-making and documentation
After the analysis, the company must make a decision: to continue cooperation if the match turned out to be false, or to suspend the transaction and report to regulatory authorities if the match was confirmed. All actions must be documented: verification results, decisions made, and documents confirming the company’s due diligence. This is important for protecting the business in case of an inspection by OFAC and local regulators.
5. Additional stages: constant monitoring
OFAC Screening is not a one-time procedure but a continuous process. Sanctions lists are updated daily, and what was safe yesterday may be prohibited tomorrow. Therefore, companies implement regular monitoring and automatic alerts for new matches.
What is Fuzzy Logic and why is it important for quality screening?
Fuzzy Logic is a data processing method that allows for considering imprecise or incomplete matches when verifying information. Unlike classical search, where the result either matches 100% or not, fuzzy logic helps find matches even if there are typos, transliteration errors, or abbreviations in the data.
In the field of compliance and sanctions screening, this tool is of key importance. For example, the surname “Ivanov” may appear as “Ivanoff” or “Иванов.” If the system searches only for exact matches, it may miss an important alert. With the application of Fuzzy Logic, the system will find such variations as well.
A simple example is the verification of the name “Mohamed.” In different documents, it may be written as “Muhammad,” “Mohammed,” or “Mohamad.” For a standard check, these are different names, but for Fuzzy Logic, they are potential matches that require additional verification.
Also, Fuzzy Logic helps in cases where there is a partial match. For example, the company “Global Trade Ltd.” may be listed in the sanctions list as “Global Trading Limited.” A regular system will not catch the connection, but the Fuzzy Logic algorithm will determine a high level of similarity.
Who is required to conduct OFAC screening?
The check against OFAC sanction lists is applied not only within the US but also in many other countries. Ignorance of the rules does not exempt from liability: a violation may result in asset freezes and multimillion-dollar fines.
Who is required to conduct OFAC screening:
- U.S. Persons. This definition includes all U.S. citizens, permanent residents (green card holders), companies registered in the United States, as well as their foreign branches. They are required to check all counterparties and clients for compliance with sanction lists, even if the transaction takes place outside of America.
- Foreign companies conducting activities in the USA or working with dollars. Even if a business is registered outside the USA, the use of American currency or the banking system automatically subjects it to OFAC rules. For example, a Chinese company making transactions in US dollars through an American correspondent bank is required to comply with sanctions.
- Financial institutions around the world. Banks, insurance companies, investment funds, and fintech platforms are required to integrate OFAC screening into their KYC/AML procedures. This applies not only to the USA but also to international financial transactions in dollars or involving American institutions.
- Companies from different industries
- Fintech: payment services and crypto exchanges are required to verify clients and transactions in real time.
- Logistics: carriers and forwarders must ensure that goods are not directed to countries or individuals on sanction lists.
- E-commerce: online stores and marketplaces are required to ensure that their goods are not delivered to prohibited jurisdictions.
- IT: software developers and SaaS providers must verify users and partners, especially if their products can be used in prohibited areas (cyber weapons, defense technologies).
How often should the inspection be conducted?
OFAC screening is not limited to a one-time check; it must be an ongoing process.
- During client onboarding (KYC/KYB): the check is conducted at the initial stage of the relationship with the client or partner to eliminate the risk of working with a person on the sanctions list;
- Before conducting a transaction: this is especially relevant for large international transfers or deals involving sensitive goods and services. Even if the client was “clean” during onboarding, a check before a specific operation helps identify new risks;
- Regular monitoring of the client base: sanctions lists are updated daily. Therefore, companies must implement automatic monitoring so that the system immediately identifies matches when changes are made to OFAC lists. This reduces the likelihood of missing updates and continuing cooperation with an already blocked individual.
What is the 50% Rule?
One of the key provisions of the OFAC sanctions regime is the so-called 50 Percent Rule. It states that if a company or organization is owned 50% or more by one or several individuals from the SDN List, then such a company is automatically considered blocked, even if it is not on the list.
It is necessary to check not only direct counterparties but also the structure of their ownership. For example, if a company is formally registered to a neutral party but is actually controlled by two individuals from the SDN List, each owning 25%, it also falls under sanctions. This rule makes the screening process more complicated and requires a deeper check of corporate structures (KYB – Know Your Business).
What fines threaten violators?
OFAC applies two types of liability: civil and criminal. Civil penalties can reach tens or even hundreds of thousands of dollars for each violation. Criminal penalties are applied in cases of intentional violations of the sanctions regime. In such cases, the amounts can exceed 1 million dollars for each violation, in addition to the risk of imprisonment for responsible individuals for up to 20 years.
The size of the fine depends on several factors:
- The nature of the violation (accidental or intentional);
- The number of transactions and their volume;
- The degree of the company’s cooperation with the regulator;
- The presence of a compliance system and measures to prevent violations.
If a company voluntarily reports a violation and cooperates with OFAC, it can significantly reduce the penalty. However, ignoring requirements and concealing information, on the contrary, increases sanctions.
Financial sanctions are only part of the consequences. Violations can lead to much more serious problems:
- Loss of banking partners: banks and payment systems will not risk cooperation with violators to avoid falling under secondary sanctions.
- Account blocking: all assets in US dollars passing through the American financial system can be frozen.
- Loss of trust from clients and investors: reputational risks often turn out to be even more destructive than fines. Companies caught circumventing sanctions lose contracts, partnership agreements, and opportunities to attract investments.
Tools and Solutions: OFAC Screening Software
API tools allow integrating the verification function into the company’s existing systems. Such solutions operate in real-time: client or transaction data is automatically checked against sanction lists during input or processing of information. Advantages:
- Instant verification without delays;
- Minimization of the human factor;
- The ability to scale for large volumes of data.
The API approach is especially in demand in fintech, e-commerce, and banks, where it is necessary to verify thousands of transactions daily.
In cases where it is necessary to check an existing database of clients or counterparties, batch screening is used — bulk uploading of information. The company uploads a list of names, addresses, and identifiers into the system, which automatically compares the data with the current OFAC sanctions lists. This method is convenient for:
- Regular monitoring of large client databases;
- Periodic updating of information in accordance with changes in sanction lists;
- Simultaneous processing of thousands of records without loading internal systems.
For small companies or targeted checks, there are online platforms providing access to a sanctions database. The user manually enters a name or company name and receives the verification result. This tool is suitable for small businesses, lawyers, and consultants who need to check a limited number of counterparties or transactions. However, with a large volume of operations, manual verification becomes impractical and increases the risk of errors.
Ensure the security of your business
Our lawyers help businesses build a comprehensive legal protection system. We conduct Due Diligence of counterparties to eliminate risks of working with unreliable partners. We develop and implement internal compliance policies that meet international standards. We provide consultations on tax planning and international structuring, helping to optimize expenses and protect assets.
We pay special attention to protection in case of claims: we assist clients at all stages, from pre-trial negotiations to representing interests in international arbitrations. For high-risk areas such as cryptocurrency business, IT, and finance, we offer individual strategies to minimize threats.
Contact us right now to discuss your situation. Our experts will help ensure reliable legal protection for your business and preserve assets even in conditions of global instability.
FAQ
What is an OFAC check?
OFAC Screening is a procedure for checking individuals and legal entities against the sanction lists of the OFAC Office. It allows identifying connections with organizations and individuals subject to sanctions. Such screening helps companies avoid fines, asset freezes, and violations of international legislation.
What does OFAC mean?
OFAC (Office of Foreign Assets Control) is a division of the U.S. Department of the Treasury responsible for implementing economic and trade sanctions. It maintains special lists (e.g., the SDN List), which include terrorists, drug cartels, companies, and individuals involved in illegal activities. OFAC monitors compliance with sanctions both within the United States and abroad if American banks and the U.S. dollar are involved.
Who is obligated to conduct an OFAC check?
OFAC screening is mandatory for all U.S. citizens and companies, including their foreign branches. It must also be conducted by foreign companies operating in U.S. dollars or through the American banking system. Banks, insurance companies, fintech platforms, logistics, and IT companies engaged in international activities are required to integrate OFAC Screening into their KYC/AML procedures to protect against sanctions risks.
