Economic Sanctions Enforcement Procedures for Banking Institutions, 1971-1976 [06-278]
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Federal Register / Vol. 71, No. 8 / Thursday, January 12, 2006 / Rules and Regulations
party and that are incorporated by
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I 35. Section 40.7 is amended by adding
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§ 40.7
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(a) Procedural matters * * *
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§ 40.8
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I 37. Appendix D to Part 40 is amended
by revising the first paragraph to read as
follows:
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*
Appendix D to Part 40—Submission
Cover Sheet and Instructions
A properly completed submission
cover sheet must accompany all rule
submissions submitted electronically by
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a designated contract market, registered
derivatives transaction execution
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Commission, at submissions@cftc.gov in
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the Commission. Each submission
should include the following:
*
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Issued in Washington, DC, this 5th day of
January, 2006, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 06–242 Filed 1–11–06; 8:45 am]
BILLING CODE 6351–01–P
1971
after February 17, 2006 and that are
subject to the 1997 regulations.’’ is
corrected to read ‘‘on or after February
17, 2006, and that are subject to the
1997 regulations (defined in paragraph
(b)(1) of this section).’’.
Cynthia Grigsby,
Acting Chief, Publications and Regulations
Branch, Legal Processing Division, Associate
Chief Counsel, (Procedure and
Administration).
[FR Doc. 06–250 Filed 1–11–06; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Office of Foreign Assets Control
DEPARTMENT OF THE TREASURY
31 CFR Part 501
Internal Revenue Service
Economic Sanctions Enforcement
Procedures for Banking Institutions
26 CFR Part 1
RIN 1545–AU98
Obligations of States and Political
Subdivisions; Correction
Internal Revenue Service (IRS),
Treasury.
ACTION: Correction to final regulations.
AGENCY:
SUMMARY: This document corrects final
regulations (TD 9234) that was
published in the Federal Register on
Monday, December 19, 2005 (70 FR
75028). The final regulations relates to
the definition of private activity bond
applicable to tax-exempt bonds issued
by State and local governments.
DATES: This correction is effective
February 17, 2006.
FOR FURTHER INFORMATION CONTACT:
Johanna Som de Cerff, (202) 622–3980
(not a toll-free call).
SUPPLEMENTARY INFORMATION:
Background
The final regulations (TD 9234) that is
the subject of this correction is under
section 141 of the Internal Revenue
Code.
Need for Correction
As published, TD 9234 contains error
that may prove to be misleading and is
in need of clarification.
Correction of Publication
Accordingly, the publication of the
final regulations (TD 9234), that was the
subject of FR Doc. 05–23944, is
corrected as follows:
I
§ 1.141–15
Office of Foreign Assets
Control, Treasury.
ACTION: Interim final rule with request
for comments.
AGENCY:
[TD 9234]
[Corrected]
On page 75035, column 2, § 1.141–
15(j), lines 7 and 8, the language, ‘‘on or
SUMMARY: The Office of Foreign Assets
Control (‘‘OFAC’’) of the U.S.
Department of the Treasury is issuing
this interim final rule, ‘‘Economic
Sanctions Enforcement Procedures for
Banking Institutions,’’ along with a
request for comments. This interim final
rule supercedes OFAC’s proposed rule
of January 29, 2003,1 to the extent that
the proposed rule applies to ‘‘banking
institutions,’’ as defined below. These
administrative procedures are published
as an appendix to the Reporting,
Procedures and Penalties Regulations,
31 CFR Part 501.
DATES: The interim final rule is effective
for enforcement cases involving banking
institutions commencing on or after
February 13, 2006. Written comments
may be submitted on or before March
13, 2006.
ADDRESSES: You may submit comments
by any of the following methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Agency Web site: https://
www.treas.gov/offices/enforcement/
ofac/comment.html.
• Fax: Assistant Director of Records,
(202) 622–1657.
• Mail: Assistant Director of Records,
ATTN: Request for Comments
(Enforcement Procedures), Office of
Foreign Assets Control, Department of
the Treasury, 1500 Pennsylvania
Avenue, NW., Washington, DC 20220.
I
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FR 4422–4429 (2003).
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Federal Register / Vol. 71, No. 8 / Thursday, January 12, 2006 / Rules and Regulations
Instructions: All submissions received
must include the agency name and the
FR Doc. number that appears at the end
of this document. Comments received
will be posted without change to
https://www.treas.gov/ofac, including
any personal information provided.
FOR FURTHER INFORMATION CONTACT:
Assistant Director of Records, (202)
622–2500 (not a toll-free call).
SUPPLEMENTARY INFORMATION:
Electronic Availability
This document and additional
information concerning OFAC are
available from OFAC’s Web site
(https://www.treas.gov/ofac) or via
facsimile through a 24-hour fax-ondemand service, tel.: 202/622–0077.
Procedural Requirements
Because this interim final rule
imposes no obligations on any person,
but instead simply explains OFAC’s
enforcement practices based on existing
substantive and procedural rules, prior
notice and public procedure are not
required pursuant to 5 U.S.C. 553(b)(A).
Because no notice of proposed
rulemaking is required, the provisions
of the Regulatory Flexibility Act (5
U.S.C. chapter 6) do not apply. Finally,
this interim final rule is not a significant
regulatory action for purposes of
Executive Order 12866.
Although a prior notice of proposed
rulemaking is not required, OFAC is
soliciting comments on this interim
final rule in order to consider how it
might make improvements in its
enforcement procedures in the future.
Comments must be submitted in
writing. The addresses and deadline for
submitting comments appear near the
beginning of this notice. OFAC will not
accept comments accompanied by a
request that all or part of the submission
be treated confidentially because of its
business proprietary nature or for any
other reason. All comments received by
the deadline will be a matter of public
record and will be made available on
OFAC’s Web site: https://www.treas.gov/
offices/enforcement/ofac/.
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Background
On January 29, 2003, OFAC
published, as a proposed rule, Economic
Sanctions Enforcement Guidelines.
Though this proposed rule has not been
finalized, OFAC has used the
Guidelines as a general framework for
its enforcement actions. OFAC has
decided that the enforcement
procedures with respect to banking
institutions should be modified and is
publishing enforcement procedures for
these entities as an interim final rule.
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OFAC is also requesting comments on
this interim final rule.
In conjunction with issuing this
interim final rule, OFAC is withdrawing
the January 29, 2003 proposed rule to
the extent it applies to banking
institutions, as defined herein. For
purposes of this interim rule, ‘‘banking
institutions’’ means depository
institutions regulated or supervised by
one of the regulators that belongs to the
Federal Financial Institutions
Examination Council (‘‘FFIEC’’), i.e., the
Board of Governors of the Federal
Reserve System, the Federal Deposit
Insurance Corporation, the National
Credit Union Administration, the Office
of the Comptroller of the Currency, and
the Office of Thrift Supervision. Please
note that a depository institution may be
a ‘‘banking institution,’’ as that term is
defined in OFAC regulations, see, e.g.,
31 CFR 500.314, 515.314, but not a
‘‘banking institution’’ for purposes of
these enforcement procedures. Because
this interim final rule only applies to
enforcement procedures for banking
institutions, as defined herein, OFAC
plans to issue guidance on its
enforcement procedures for other types
of institutions and other sectors in the
future.
OFAC is publishing enforcement
procedures for banking institutions
because of their unique role in the
implementation of OFAC sanctions
programs and the nature of the
transactions in which such institutions
engage. The new enforcement
procedures take into account that each
banking institution’s situation is
different and that its compliance
program should be tailored to its unique
circumstances. This includes an
analysis of its size, business volume,
customer base, and product lines.
In order to implement this new
approach, OFAC has been working and
will continue to work in partnership
with the federal banking regulators.
OFAC worked with FFIEC members to
develop standards to evaluate
compliance programs at banking
institutions. In June 2005, the FFIEC
released its Bank Secrecy Act AntiMoney Laundering Examination
Manual. Portions of this manual relate
to compliance with various OFAC
sanctions programs. In addition,
working with FFIEC members, OFAC
has developed risk matrices, which may
be used by depository institutions as
‘‘best practices.’’ 2 The matrices provide
a guide for evaluating a banking
2 These matrices can be found in Annex A to the
interim final rule and can be accessed online at
https://www.treas.gov/offices/enforcement/ofac/faq/
matrix.pdf.
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institution’s risk of encountering
accounts or transactions subject to
OFAC regulations and for determining
the quality of an institution’s
compliance program. As indicated in
the FFIEC examination manual, the
banking regulators evaluate a banking
institution’s overall OFAC compliance
program using a similar methodology.
Also, in administering its enforcement
authority with respect to various
sanctions statutes, Executive orders, and
regulations, OFAC will provide the
federal banking regulators with
information related to apparent
violations or compliance concerns as it
becomes aware of them. In turn, OFAC
will receive information from the
banking regulators, including, for those
institutions with apparent violations,
evaluations of the sufficiency of each
such institution’s implementation of
policies, procedures, and systems for
ensuring OFAC compliance.
Prior to taking enforcement actions,
OFAC generally will review apparent
violations by a particular institution
over a period of time, rather than
evaluating each apparent violation
independently. However, in regard to
what appears to be a particularly
egregious violation, OFAC may evaluate
the situation as it presents itself and
take prompt enforcement action.
Under the revised procedures, OFAC
will periodically evaluate a banking
institution’s apparent OFAC-related
violations in the context of the
institution’s overall OFAC compliance
program and specific OFAC compliance
record. OFAC will not conduct such a
review if there are no apparent
violations. The information reviewed
will include but not necessarily be
limited to: the evaluation of the banking
institution’s OFAC compliance program
by its primary federal banking regulator;
the institution’s history of OFAC
compliance; the circumstances
surrounding any apparent violation,
including what appear to be patterns or
weaknesses in an institution’s
compliance program and whether they
indicate negligence or a fundamental
flaw in the compliance effort or system
and whether they were voluntarily
disclosed; enforcement information
provided by the institution to OFAC; the
number of transactions or accounts that
the institution handled improperly
during the period under review and its
responses to any administrative
subpoenas that OFAC sent with regard
to those transactions or accounts; the
number of transactions successfully
blocked or rejected by the banking
institution during the period; the
actions taken by the banking institution
to correct any violations and to ensure
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that similar violations do not happen
again; and other relevant information
available to OFAC at the time of the
evaluation.
After a review of apparent violations,
OFAC will contact the banking
institution, either by phone, in-person,
or in writing, regarding OFAC’s
preliminary assessment of the
appropriate action with respect to the
institution. OFAC’s staff will discuss the
results of its review with the institution,
including any patterns or weaknesses in
an institution’s compliance program.
With respect to particular transactions,
the discussion will cover the actions
taken by the banking institution to
ensure that similar transactions do not
take place in the future and the
adequacy of responses to any
administrative subpoenas OFAC has
sent with regard to the transactions.
OFAC will indicate the intended
administrative action to be taken for
each transaction or set of related
transactions that appear to constitute
violations of OFAC-administered
sanctions programs.
Once OFAC has reached a decision, it
will notify the institution in writing as
to its proposed action with regard to
each apparent violation during the
period under review. OFAC will
provide a copy of this letter to the
institution’s primary federal banking
regulator. In the event that OFAC has
notified the institution of its intent to
pursue a civil penalty with regard to any
or all of the apparent violations, existing
civil penalty procedures under OFAC
regulations will be followed. These
include the opportunity for informal
settlement prior to formal initiation of
penalty action through the issuance of a
prepenalty notice.
In subsequent periodic reviews
relating to the institution’s apparent
violations, all prior actions and
decisions taken by OFAC, including
cases in which the decision is to take no
action, will be considered in deciding
what action to take.
In addition to detailing these new
procedures, the interim final rule
clarifies that, for a banking institution,
a voluntary disclosure, a factor that
OFAC considers in its enforcement
decisions, does not include a disclosure
when another party is required to file a
report concerning the same transaction.
This is the case whether or not the other
party actually files a report. However,
OFAC considers reporting of violations
important for its compliance and
enforcement programs and will consider
such reports by a banking institution a
mitigating factor in its enforcement
decisions even if they do not meet the
definition of ‘‘voluntary disclosure’’
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contained in these enforcement
procedures. While reports that are not
voluntary disclosures will generally not
be accorded the same importance as
voluntary disclosures, OFAC will give
such cooperation due consideration.
Though this interim final rule
becomes effective in 30 days, OFAC is
soliciting comments for a 60-day period
with a view to improving its
enforcement procedures.
In particular, commenters are invited
to address how much significance,
separately or collectively, OFAC should
attribute in its enforcement decisions to
such factors as a banking regulator’s
assessments of a banking institution’s
compliance program, a banking
institution’s historical OFAC
compliance record, and a comparison of
that record to similarly situated banking
institutions.
Also, this interim final rule does not
apply to entities regulated by the
Securities and Exchange Commission
(‘‘SEC’’) and the Commodity Futures
Trading Commission (‘‘CFTC’’), such as
broker-dealers, mutual funds,
investment advisers, hedge fund
advisers, futures commission
merchants, commodity trading advisers,
and commodity pool operators, even if
such legal entities are affiliated with a
banking institution. OFAC plans to
issue separate enforcement procedures
for SEC- and CFTC-regulated entities in
recognition that the regulatory regimes
administered by the SEC and the CFTC
are significantly different from the
regime administered by federal banking
regulators. Commenters are asked to
address whether there is current
information about the compliance
programs of SEC- and CFTC-regulated
entities that OFAC could use in a
similar manner to the way compliance
information will be used for making
enforcement decisions for banks.
Commenters are also requested to
provide any suggestions concerning
how the enforcement procedures
described in this interim final rule
should be modified for entities
regulated by the SEC or CFTC.
OFAC also plans to issue enforcement
procedures for certain financial sector
entities regulated by state government
agencies but not by federal financial
regulators. This sector includes entities
that are similar to federally-regulated
banking institutions, such as certain
credit unions and banks not insured by
an agency of the U.S. Government, and
it includes some money service
businesses. Commenters are asked for
suggestions concerning how the
enforcement procedures in the interim
final rule should be modified for the
purpose of providing separate
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enforcement procedures for these
entities.
The interim final rule does not apply
to other financial sector entities, such as
insurance companies (including
property and casualty, life, and
reinsurance lines of business), pension
funds, finance companies, mortgage
bankers, and government-sponsored
enterprises. Commenters are asked for
their suggestions on how enforcement
procedures should be modified to apply
to these other financial sector entities
and whether and how enforcement
procedures for financial sector firms
should vary depending on the
regulatory regime, if any, to which
various financial sector firms are
subject.
Commenters are also requested to
provide suggestions concerning
appropriate enforcement procedures for
non-financial sectors, such as importexport businesses, the computer and
software industries, and e-commerce.
These procedures apply to banking
institutions that may be part of a larger
corporate structure, with a parent
holding company. Commenters are
asked how OFAC should consider for
enforcement purposes complex
corporate structures, which may include
entities regulated by the Board of
Governors of the Federal Reserve
System, the Office of the Comptroller of
the Currency, the Office of Thrift
Supervision, the SEC, and the CFTC.
Other affiliates, such as insurance
companies, may be regulated by state
regulators; some affiliates may be
subject to the jurisdiction of foreign
regulators; and some entities may not
have a functional regulator. Such
complicated structures pose challenges
for assessing compliance programs and
making determinations about
enforcement actions when there are
violations. Commenters are invited to
address the proper enforcement
approach for complicated holding
company structures.
List of Subjects in 31 CFR Part 501
Administrative practice and
procedure, Banks, banking, Reporting
and recordkeeping requirements.
I For the reasons set forth in the
preamble, 31 CFR part 501 is amended
as follows:
PART 501—REPORTING,
PROCEDURES AND PENALTIES
REGULATIONS
1. The authority citation for Part 501
continues to read as follows:
I
Authority: 18 U.S.C. 2332d; 21 U.S.C.
1901–1908; 22 U.S.C. 287c; 22 U.S.C.
2370(a); 31 U.S.C. 321(b); 50 U.S.C. 1701–
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1706; 50 U.S.C. App. 1–44; Pub. L. 101–410,
104 Stat. 890 (28 U.S.C. 2461 note); E.O.
9193, 7 FR 5205, 3 CFR, 1938–1943 Comp.,
p. 1174; E.O. 9989, 13 FR 4891, 3 CFR, 1943–
1948 Comp., p. 748; E.O. 12854, 58 FR 36587,
3 CFR, 1993 Comp., p. 614.
2. Part 501 is amended by adding the
following appendix A, with annexes, to
read as follows:
I
Appendix A to Part 501—Economic
Sanctions Enforcement Procedures for
Banking Institutions
Note: This appendix provides a general
procedural framework for the enforcement of
all economic sanctions programs
administered by the Office of Foreign Assets
Control (‘‘OFAC’’) only as they relate to
banking institutions, as defined herein.
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I. Definitions
A. Banking regulator means the Board of
Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the
National Credit Union Administration, the
Office of the Comptroller of the Currency, or
the Office of Thrift Supervision.
B. Banking institution, for purposes of this
appendix to Part 501, means a depository
institution supervised or regulated by a
banking regulator.
C. OFAC means the Department of the
Treasury’s Office of Foreign Assets Control.
D. Voluntary disclosure means notification
to OFAC of an apparent sanctions violation
by the banking institution that has committed
it. However, such notification to OFAC is not
deemed a voluntary disclosure if OFAC has
previously received information concerning
the conduct from another source, including,
but not limited to, a regulatory or law
enforcement agency or another person’s
blocking or funds transfer rejection report.
Notification by a banking institution is also
not a voluntary disclosure if another person’s
blocking or funds transfer rejection report is
required to be filed, whether or not this
required filing is made. Responding to an
administrative subpoena or other inquiry
from OFAC is not a voluntary disclosure. The
submission of a license request is not a
voluntary disclosure unless it is
accompanied by a separate disclosure.
II. Enforcement of Economic Sanctions in
General
A. OFAC Civil Investigation and
Enforcement Action. OFAC is responsible for
civil investigation and enforcement with
respect to economic sanctions violations
committed by banking institutions. In these
efforts, OFAC may coordinate with banking
regulators. OFAC investigations may lead to
one or more of the following: an
administrative subpoena, an order to cease
and desist, a blocking order, an evaluative
letter summarizing concerns, or a civil
penalty proceeding. In addition to or instead
of such actions, if the banking institution
involved is currently acting pursuant to an
OFAC license, that license may be suspended
or revoked.
B. OFAC’s Evaluation of Violative
Conduct. The level of enforcement action
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undertaken by OFAC involving a banking
institution depends on the nature of the
apparent violation, the enforcement
objectives, and the foreign policy goals of the
particular sanctions program involved. In
evaluating whether to initiate a civil penalty
action, OFAC determines whether there is
reason to believe that a violation of the
relevant regulations, statutes, or Executive
orders has occurred. In making
determinations about the disposition of
apparent violations by banking institutions,
including evaluative letters and civil
penalties, OFAC will consider information
provided by the banking institution and its
banking regulator concerning the institution’s
compliance program and the adequacy of that
program based on its OFAC risk profile.
Further information about the evaluation of
compliance programs commensurate with the
risk profile of a banking institution and a
description of a sound OFAC compliance
program are provided in Annexes A and B.
C. Criminal Investigations and
Prosecutions. If the evidence suggests that a
banking institution has committed a willful
violation of a substantive prohibition or
requirement, OFAC may refer those cases to
other federal law enforcement agencies for
criminal investigation. Cases that an
investigative agency has referred to the
Department of Justice for criminal
prosecution also may be subject to OFAC
civil penalty action.
III. Periodic Institutional Review
A. Except for those significant violations
for which prompt action, such as a civil
penalty proceeding or referral to other federal
law enforcement agencies, is appropriate,
OFAC will review institutions with
violations or suspected violations on a
periodic basis. OFAC will review each such
institution’s apparent violations over a
period of time deemed appropriate in light of
the number and severity of apparent
violations and the institution’s OFAC
compliance history.
B. Upon completing this review, OFAC
will preliminarily determine the type of
enforcement action it will pursue for each
apparent violation or related apparent
violations. OFAC will then seek comment
from the banking institution and ask it to
provide additional information with regard to
the apparent violation or violations. OFAC
also will ask the institution to explain what
actions led to the apparent violation or
violations and what actions, if any, it has
taken to overcome the deficiencies in its
systems that led to the apparent improper
handling of the transactions or accounts.
Depending on the number and complexity of
the apparent violations, OFAC may grant up
to 30 days for a banking institution to
respond and may grant further extensions at
its sole discretion where it determines this is
appropriate. Upon receipt of the institution’s
response, OFAC will decide whether to
pursue the intended administrative action or
whether some other action would serve the
same purpose.
C. OFAC will subsequently send the
banking institution a letter detailing its
findings and further actions, if any,
concerning the apparent violations. OFAC
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will provide the banking institution’s
primary banking regulator with a copy of this
letter.
IV. Factors Affecting Administrative Action
In making its decision as to administrative
action, if any, OFAC will consider a number
of factors, including, but not limited to, the
following:
A. The institution’s history of sanctions
violations.
B. The size of the institution and the
number of OFAC-related transactions
handled correctly compared to the number
and nature of transactions handled
incorrectly.
C. The quality and effectiveness of the
banking institution’s overall OFAC
compliance program, as determined by the
institution’s primary banking regulator and
by its history of compliance with OFAC
regulations.
D. Whether the apparent violation or
violations in question are the result of
systemic failures at the banking institution or
are atypical in nature.
E. The voluntary disclosure to OFAC of the
apparent violation or violations by the
banking institution.
F. Providing OFAC a report of, or useful
enforcement information concerning, the
apparent violation or violations. Providing a
report, but not a voluntary disclosure, of the
apparent violation or violations will
generally be accorded less weight as a
mitigating factor than would provision of a
voluntary disclosure.
G. The deliberate effort to hide or conceal
from OFAC or to mislead OFAC concerning
an apparent violation or violations or its
OFAC compliance program.
H. An analysis of current or potential
sanctions harm as a result of a violation or
series of related violations. This analysis will
focus both on the specifics of the apparent
violation or violations and the institution’s
compliance effort.
I. Technical, computer, or human error.
J. Applicability of a statute of limitations
and any waivers thereof.
K. Actions taken by the banking institution
to correct the problems that led to the
apparent violation or violations.
L. The level of OFAC action that will best
lead to enhanced compliance by the banking
institution.
M. The level of OFAC action that will best
serve to encourage enhanced compliance by
others.
N. Evidence that a transaction or
transactions could have been licensed by
OFAC under an existing licensing policy.
O. Whether other U.S. government
agencies have taken enforcement action.
P. Qualification of the banking institution
as a small business or organization for the
purposes of the Small Business Regulatory
Enforcement Fairness Act, as determined by
reference to the applicable regulations of the
Small Business Administration.
V. License Suspension and Revocation
In addition to or in lieu of other
administrative actions, OFAC authorization
to engage in a transaction or transactions
pursuant to a general or specific license may
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be suspended or revoked with respect to a
banking institution for reasons including, but
not limited to, the following:
A. The banking institution has made or
caused to be made in any license application,
or in any report required pursuant to a
license, any statement that was, at the time
and in light of the circumstances under
which it was made, false or misleading with
respect to any material fact, or it has omitted
to state in any application or report any
material fact that was required;
B. The banking institution has failed to file
timely reports or comply with the
recordkeeping requirements of a general or
specific license;
C. The banking institution has violated any
provision of the statutes enforced by OFAC
or the rules or regulations issued under any
such provision or relevant Executive orders
and such violation or violations are
significant and merited civil penalty or other
enforcement action;
D. The banking institution is reasonably
believed to have counseled, commanded,
induced, procured, or knowingly aided or
abetted the violation of any provision of any
legal authority referred to in paragraph C;
E. Based on the information available to it,
OFAC considers the banking institution’s
compliance program inadequate; or
1975
F. The banking institution has committed
any other act or omission that demonstrates
unfitness to conduct the transactions
authorized by the general or specific license.
VI. Civil Penalties
The procedures for addressing the actions
of banking institutions that OFAC decides
merit civil penalty treatment are provided in
the regulations governing the particular
sanctions program involved, or, in the case
of sanctions regulations issued pursuant to
the Trading with the Enemy Act, in this Part.
The factors listed in Section IV will be
considerations in the civil penalty process.
ANNEX A.—OFAC RISK MATRICES
[The following matrices can be used by banking institutions to evaluate their compliance programs. Matrix A is from the FFIEC Bank Secrecy Act
Anti-Money Laundering Examination Manual published in 2005, Appendix M (‘‘Quantity of Risk Matrix—OFAC Procedures’’)]
Low
Moderate
High
Matrix A
Stable, well-known customer base in a localized environment.
Few high-risk customers; these may include
nonresident aliens, foreign customers (including accounts with U.S. powers of attorney)
and foreign commercial customers.
No overseas branches and no correspondent
accounts with foreign banks.
No electronic banking (e-banking) services offered, or products available are purely informational or non-transactional.
Limited number of funds transfers for customers and non-customers, limited third-party
transactions, and no international funds
transfers.
No other types of international transactions,
such as trade finance, cross-border ACH,
and management of sovereign debt.
No history of OFAC actions. No evidence of apparent violation or circumstances that might
lead to a violation.
Customer base changing due to branching,
merger or acquisition in the domestic market.
A moderate number of high-risk customers ....
A large, fluctuating client base in an international environment.
Overseas branches or correspondent accounts with foreign banks.
The bank offers limited e-banking products
and services.
Overseas branches or multiple correspondent
accounts with foreign banks.
The bank offers a wide array of e-banking
products and services (i.e., account transfers, e-bill payment, or accounts opened via
the Internet).
A high number of customer and non-customer
funds transfers, including international funds
transfers.
A moderate number of funds transfers, mostly
for customers. Possibly, a few international
funds transfers from personal or business
accounts.
Limited other types of international transactions.
A small number of recent actions (i.e., actions
within the last five years) by OFAC, including notice letters, or civil money penalties,
with evidence that the bank addressed the
issues and is not at risk of similar violations
in the future.
A large number of high-risk customers.
A high number of other types of international
transactions.
Multiple recent actions by OFAC, where the
bank has not addressed the issues, thus
leading to an increased risk of the bank undertaking similar violations in the future.
Matrix B. This matrix consists of additional factors that may be considered by banking institutions in assessing compliance programs
in addition to Appendix M of the FFIEC Bank Secrecy Act Anti-Money Laundering Examination Manual.
rwilkins on PROD1PC63 with RULES
Management has fully assessed the bank’s
level of risk based on its customer base and
product lines. This understanding of risk and
strong commitment to OFAC compliance is
satisfactorily communicated throughout the
organization.
The board of directors, or board committee, has
approved an OFAC compliance program that
includes policies, procedures, controls, and
information systems that are adequate, and
consistent with the bank’s OFAC risk profile.
Staffing levels appear adequate to properly
execute the OFAC to properly execute the
OFAC compliance program.
Authority and accountability for OFAC compliance are clearly defined and enforced, including the designations of a qualified OFAC
officer.
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15:48 Jan 11, 2006
Jkt 205001
Management exhibits a reasonable understanding of the key aspects of OFAC compliance and its commitment is generally
clear and satisfactorily communicated
throughout the organization, but it may lack
a program appropriately tailored to risk.
The board has approved an OFAC compliance program that includes most of the appropriate policies, procedures, controls, and
information systems necessary to ensure
compliance, but some weaknesses are
noted.
Staffing levels appear generally adequate, but
some deficiencies are noted.
Management does not understand, or has
chosen to ignore, key aspects of OFAC
compliance risk. The importance of compliance is not emphasized or communicated
throughout the organization.
Authority and accountability are defined, but
some refinements are needed. A qualified
OFAC officer has been designated.
Authority and accountability for compliance
have not been clearly established. No
OFAC compliance officer, or an unqualified
one, has been appointed. The role of the
OFAC officer is unclear.
PO 00000
Frm 00061
Fmt 4700
Sfmt 4700
The board has not approved an OFAC compliance program, or policies, procedures,
controls, and information systems are significantly deficient.
Management has failed to provide appropriate
staffing levels to handle workload.
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1976
Federal Register / Vol. 71, No. 8 / Thursday, January 12, 2006 / Rules and Regulations
ANNEX A.—OFAC RISK MATRICES—Continued
[The following matrices can be used by banking institutions to evaluate their compliance programs. Matrix A is from the FFIEC Bank Secrecy Act
Anti-Money Laundering Examination Manual published in 2005, Appendix M (‘‘Quantity of Risk Matrix—OFAC Procedures’’)]
Moderate
High
Training is appropriate and effective based on
the bank’s risk profile, covers applicable personnel, and provides necessary up-to-date
information and resources to ensure compliance.
The institution employs strong quality control
methods.
rwilkins on PROD1PC63 with RULES
Low
Training is conducted and management provides adequate resources given the risk
profile of the organization; however, some
ares are not covered within the training program.
The institution employs limited quality control
methods.
Training is sporadic and does not cover important regulatory and risk areas.
Annex B—Sound Banking Institution OFAC
Compliance Programs
A. Identification of High Risk Business
Areas. A fundamental element of a sound
OFAC compliance program rests on a
banking institution’s assessment of its
specific product lines and identification of
the high-risk areas for OFAC transactions. As
OFAC sanctions reach into virtually all types
of commercial and banking transactions, no
single area will likely pass review without
consideration of some type of OFAC
compliance measure. Relevant areas to
consider in a risk assessment include, but are
not limited to, the following: retail
operations, loans and other extensions of
credit (open and closed-ended; on and offbalance sheet, including letters of credit),
funds transfers, trust, private and
correspondent banking, international, foreign
offices, over-the-counter derivatives, internet
banking, safe deposit, payable through
accounts, money service businesses, and
merchant credit card processing.
B. Internal Controls. An effective OFAC
compliance program should include internal
controls for identifying suspect accounts and
transactions and reporting to OFAC. Internal
controls should include the following
elements:
1. Flagging and Review of Suspect
Transactions and Accounts. A banking
institution’s policies and procedures should
address how it will flag and review
transactions and accounts for possible OFAC
violations, whether conducted manually,
through interdiction software, or a
combination of both methods. For screening
purposes, a banking institution should
clearly define procedures for comparing
names provided on the OFAC list with the
names in its files or on the transaction and
for flagging transactions or accounts
involving sanctioned countries. In high-risk
and high-volume areas in particular, a
banking institution’s interdiction filter
should be able to flag close name derivations
for review. New accounts should be
compared with the OFAC lists prior to
allowing transactions. Established accounts,
once scanned, should be compared regularly
against OFAC updates.
2. Updating the Compliance Program. A
banking institution’s compliance program
should also include procedures for
maintaining current lists of blocked
countries, entities, and individuals and for
disseminating such information throughout
the institution’s domestic operations and its
offshore offices, branches and, for purposes
VerDate Aug<31>2005
15:48 Jan 11, 2006
Jkt 205001
of the sanctions programs under the Trading
with the Enemy Act, foreign subsidiaries.
3. Reporting. A compliance program
should also include procedures for handling
transactions that are validly blocked or
rejected under the various sanctions
programs. These procedures should cover the
reporting of blocked and rejected items to
OFAC as provided in § 501.603 of this Part
and the annual report of blocked property
required by § 501.604 of this Part.
4. Management of blocked accounts. An
audit trail should be maintained in order to
reconcile all blocked funds. A banking
institution is responsible for tracking the
amount of blocked funds, the ownership of
those funds, interest paid on those funds, and
the release of blocked funds pursuant to
license.
5. Maintaining License Information. Sound
compliance procedures dictate that a banking
institution maintain copies of customers’
OFAC specific licenses on file. This will
allow a banking institution to verify whether
a customer is initiating a legal transaction. If
it is unclear whether a particular transaction
is authorized by a license, a banking
institution should confirm this with OFAC.
Maintaining copies of licenses will also be
useful if another banking institution in the
payment chain requests verification of a
license’s validity. In the case of a transaction
performed under general license (or, in some
cases, a specific license), it is sound
compliance for a banking institution to
obtain a statement from the licensee that the
transaction is in accordance with the terms
of the license, assuming the banking
institution does not know or have reason to
know that the statement is false.
C. Testing. Except for a banking institution
with a very low OFAC risk profile, a banking
institution should have a periodic test of its
OFAC program performed by its internal
audit department or by outside auditors,
consultants, or other qualified independent
parties. The frequency of the independent
test should be consistent with the
institution’s OFAC risk profile; however, an
in-depth audit of each department in the
banking institution might reasonably be
conducted at least once a year. The person(s)
responsible for testing should conduct an
objective, comprehensive evaluation of
OFAC policies and procedures. The audit
scope should be comprehensive and
sufficient to assess OFAC compliance risks
across the spectrum of all the institution’s
activities. If violations are discovered, they
should be promptly reported to both OFAC
PO 00000
Frm 00062
Fmt 4700
Sfmt 4700
The institution does not employ quality control
quality control methods.
and the banking institution’s banking
regulator.
D. Responsible Individuals. It is sound
compliance procedure for an institution to
designate a qualified individual or
individuals to be responsible for the day-today compliance of its OFAC program,
including at least one individual responsible
for the oversight of blocked funds. This
individual or these individuals should be
fully knowledgeable about OFAC statutes,
regulations, and relevant Executive orders.
E. Training. A banking institution should
provide adequate training for all appropriate
employees. The scope and frequency of the
training should be consistent with the OFAC
risk profile and the particular employee’s
responsibilities.
Dated: December 22, 2005.
Robert W. Werner,
Director, Office of Foreign Assets Control.
Approved: December 23, 2005.
Stuart A. Levey,
Under Secretary of the Treasury, Office of
Terrorism and Financial Intelligence.
[FR Doc. 06–278 Filed 1–11–06; 8:45 am]
BILLING CODE 4810–35–P
POSTAL SERVICE
39 CFR Part 111
Sack Preparation Changes for
Periodicals Mail
Postal Service.
Final rule.
AGENCY:
ACTION:
SUMMARY: This final rule adopts new
mailing standards for Periodicals mail
prepared in sacks. The standards
include two new types of sacks—a 3digit carrier routes sack and a merged 3digit sack—and a new minimum of 24
pieces for most other sacks.
DATES: Effective Date: May 11, 2006.
FOR FURTHER INFORMATION CONTACT: Joel
Walker, 202–268–7266.
SUPPLEMENTARY INFORMATION:
Background
The Postal Service published a
proposal in the Federal Register on
August 15, 2005 (70 FR 47754), to
E:\FR\FM\12JAR1.SGM
12JAR1
]]>Agencies
[Federal Register Volume 71, Number 8 (Thursday, January 12, 2006)]
[Rules and Regulations]
[Pages 1971-1976]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-278]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Office of Foreign Assets Control
31 CFR Part 501
Economic Sanctions Enforcement Procedures for Banking
Institutions
AGENCY: Office of Foreign Assets Control, Treasury.
ACTION: Interim final rule with request for comments.
-----------------------------------------------------------------------
SUMMARY: The Office of Foreign Assets Control (``OFAC'') of the U.S.
Department of the Treasury is issuing this interim final rule,
``Economic Sanctions Enforcement Procedures for Banking Institutions,''
along with a request for comments. This interim final rule supercedes
OFAC's proposed rule of January 29, 2003,\1\ to the extent that the
proposed rule applies to ``banking institutions,'' as defined below.
These administrative procedures are published as an appendix to the
Reporting, Procedures and Penalties Regulations, 31 CFR Part 501.
---------------------------------------------------------------------------
\1\ 68 FR 4422-4429 (2003).
DATES: The interim final rule is effective for enforcement cases
involving banking institutions commencing on or after February 13,
---------------------------------------------------------------------------
2006. Written comments may be submitted on or before March 13, 2006.
ADDRESSES: You may submit comments by any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Agency Web site: https://www.treas.gov/offices/enforcement/
ofac/comment.html.
Fax: Assistant Director of Records, (202) 622-1657.
Mail: Assistant Director of Records, ATTN: Request for
Comments (Enforcement Procedures), Office of Foreign Assets Control,
Department of the Treasury, 1500 Pennsylvania Avenue, NW., Washington,
DC 20220.
[[Page 1972]]
Instructions: All submissions received must include the agency name
and the FR Doc. number that appears at the end of this document.
Comments received will be posted without change to https://
www.treas.gov/ofac, including any personal information provided.
FOR FURTHER INFORMATION CONTACT: Assistant Director of Records, (202)
622-2500 (not a toll-free call).
SUPPLEMENTARY INFORMATION:
Electronic Availability
This document and additional information concerning OFAC are
available from OFAC's Web site (https://www.treas.gov/ofac) or via
facsimile through a 24-hour fax-on-demand service, tel.: 202/622-0077.
Procedural Requirements
Because this interim final rule imposes no obligations on any
person, but instead simply explains OFAC's enforcement practices based
on existing substantive and procedural rules, prior notice and public
procedure are not required pursuant to 5 U.S.C. 553(b)(A). Because no
notice of proposed rulemaking is required, the provisions of the
Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. Finally,
this interim final rule is not a significant regulatory action for
purposes of Executive Order 12866.
Although a prior notice of proposed rulemaking is not required,
OFAC is soliciting comments on this interim final rule in order to
consider how it might make improvements in its enforcement procedures
in the future. Comments must be submitted in writing. The addresses and
deadline for submitting comments appear near the beginning of this
notice. OFAC will not accept comments accompanied by a request that all
or part of the submission be treated confidentially because of its
business proprietary nature or for any other reason. All comments
received by the deadline will be a matter of public record and will be
made available on OFAC's Web site: https://www.treas.gov/offices/
enforcement/ofac/.
Background
On January 29, 2003, OFAC published, as a proposed rule, Economic
Sanctions Enforcement Guidelines. Though this proposed rule has not
been finalized, OFAC has used the Guidelines as a general framework for
its enforcement actions. OFAC has decided that the enforcement
procedures with respect to banking institutions should be modified and
is publishing enforcement procedures for these entities as an interim
final rule. OFAC is also requesting comments on this interim final
rule.
In conjunction with issuing this interim final rule, OFAC is
withdrawing the January 29, 2003 proposed rule to the extent it applies
to banking institutions, as defined herein. For purposes of this
interim rule, ``banking institutions'' means depository institutions
regulated or supervised by one of the regulators that belongs to the
Federal Financial Institutions Examination Council (``FFIEC''), i.e.,
the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the National Credit Union
Administration, the Office of the Comptroller of the Currency, and the
Office of Thrift Supervision. Please note that a depository institution
may be a ``banking institution,'' as that term is defined in OFAC
regulations, see, e.g., 31 CFR 500.314, 515.314, but not a ``banking
institution'' for purposes of these enforcement procedures. Because
this interim final rule only applies to enforcement procedures for
banking institutions, as defined herein, OFAC plans to issue guidance
on its enforcement procedures for other types of institutions and other
sectors in the future.
OFAC is publishing enforcement procedures for banking institutions
because of their unique role in the implementation of OFAC sanctions
programs and the nature of the transactions in which such institutions
engage. The new enforcement procedures take into account that each
banking institution's situation is different and that its compliance
program should be tailored to its unique circumstances. This includes
an analysis of its size, business volume, customer base, and product
lines.
In order to implement this new approach, OFAC has been working and
will continue to work in partnership with the federal banking
regulators. OFAC worked with FFIEC members to develop standards to
evaluate compliance programs at banking institutions. In June 2005, the
FFIEC released its Bank Secrecy Act Anti-Money Laundering Examination
Manual. Portions of this manual relate to compliance with various OFAC
sanctions programs. In addition, working with FFIEC members, OFAC has
developed risk matrices, which may be used by depository institutions
as ``best practices.'' \2\ The matrices provide a guide for evaluating
a banking institution's risk of encountering accounts or transactions
subject to OFAC regulations and for determining the quality of an
institution's compliance program. As indicated in the FFIEC examination
manual, the banking regulators evaluate a banking institution's overall
OFAC compliance program using a similar methodology.
---------------------------------------------------------------------------
\2\ These matrices can be found in Annex A to the interim final
rule and can be accessed online at https://www.treas.gov/offices/
enforcement/ofac/faq/matrix.pdf.
---------------------------------------------------------------------------
Also, in administering its enforcement authority with respect to
various sanctions statutes, Executive orders, and regulations, OFAC
will provide the federal banking regulators with information related to
apparent violations or compliance concerns as it becomes aware of them.
In turn, OFAC will receive information from the banking regulators,
including, for those institutions with apparent violations, evaluations
of the sufficiency of each such institution's implementation of
policies, procedures, and systems for ensuring OFAC compliance.
Prior to taking enforcement actions, OFAC generally will review
apparent violations by a particular institution over a period of time,
rather than evaluating each apparent violation independently. However,
in regard to what appears to be a particularly egregious violation,
OFAC may evaluate the situation as it presents itself and take prompt
enforcement action.
Under the revised procedures, OFAC will periodically evaluate a
banking institution's apparent OFAC-related violations in the context
of the institution's overall OFAC compliance program and specific OFAC
compliance record. OFAC will not conduct such a review if there are no
apparent violations. The information reviewed will include but not
necessarily be limited to: the evaluation of the banking institution's
OFAC compliance program by its primary federal banking regulator; the
institution's history of OFAC compliance; the circumstances surrounding
any apparent violation, including what appear to be patterns or
weaknesses in an institution's compliance program and whether they
indicate negligence or a fundamental flaw in the compliance effort or
system and whether they were voluntarily disclosed; enforcement
information provided by the institution to OFAC; the number of
transactions or accounts that the institution handled improperly during
the period under review and its responses to any administrative
subpoenas that OFAC sent with regard to those transactions or accounts;
the number of transactions successfully blocked or rejected by the
banking institution during the period; the actions taken by the banking
institution to correct any violations and to ensure
[[Page 1973]]
that similar violations do not happen again; and other relevant
information available to OFAC at the time of the evaluation.
After a review of apparent violations, OFAC will contact the
banking institution, either by phone, in-person, or in writing,
regarding OFAC's preliminary assessment of the appropriate action with
respect to the institution. OFAC's staff will discuss the results of
its review with the institution, including any patterns or weaknesses
in an institution's compliance program. With respect to particular
transactions, the discussion will cover the actions taken by the
banking institution to ensure that similar transactions do not take
place in the future and the adequacy of responses to any administrative
subpoenas OFAC has sent with regard to the transactions. OFAC will
indicate the intended administrative action to be taken for each
transaction or set of related transactions that appear to constitute
violations of OFAC-administered sanctions programs.
Once OFAC has reached a decision, it will notify the institution in
writing as to its proposed action with regard to each apparent
violation during the period under review. OFAC will provide a copy of
this letter to the institution's primary federal banking regulator. In
the event that OFAC has notified the institution of its intent to
pursue a civil penalty with regard to any or all of the apparent
violations, existing civil penalty procedures under OFAC regulations
will be followed. These include the opportunity for informal settlement
prior to formal initiation of penalty action through the issuance of a
prepenalty notice.
In subsequent periodic reviews relating to the institution's
apparent violations, all prior actions and decisions taken by OFAC,
including cases in which the decision is to take no action, will be
considered in deciding what action to take.
In addition to detailing these new procedures, the interim final
rule clarifies that, for a banking institution, a voluntary disclosure,
a factor that OFAC considers in its enforcement decisions, does not
include a disclosure when another party is required to file a report
concerning the same transaction. This is the case whether or not the
other party actually files a report. However, OFAC considers reporting
of violations important for its compliance and enforcement programs and
will consider such reports by a banking institution a mitigating factor
in its enforcement decisions even if they do not meet the definition of
``voluntary disclosure'' contained in these enforcement procedures.
While reports that are not voluntary disclosures will generally not be
accorded the same importance as voluntary disclosures, OFAC will give
such cooperation due consideration.
Though this interim final rule becomes effective in 30 days, OFAC
is soliciting comments for a 60-day period with a view to improving its
enforcement procedures.
In particular, commenters are invited to address how much
significance, separately or collectively, OFAC should attribute in its
enforcement decisions to such factors as a banking regulator's
assessments of a banking institution's compliance program, a banking
institution's historical OFAC compliance record, and a comparison of
that record to similarly situated banking institutions.
Also, this interim final rule does not apply to entities regulated
by the Securities and Exchange Commission (``SEC'') and the Commodity
Futures Trading Commission (``CFTC''), such as broker-dealers, mutual
funds, investment advisers, hedge fund advisers, futures commission
merchants, commodity trading advisers, and commodity pool operators,
even if such legal entities are affiliated with a banking institution.
OFAC plans to issue separate enforcement procedures for SEC- and CFTC-
regulated entities in recognition that the regulatory regimes
administered by the SEC and the CFTC are significantly different from
the regime administered by federal banking regulators. Commenters are
asked to address whether there is current information about the
compliance programs of SEC- and CFTC-regulated entities that OFAC could
use in a similar manner to the way compliance information will be used
for making enforcement decisions for banks. Commenters are also
requested to provide any suggestions concerning how the enforcement
procedures described in this interim final rule should be modified for
entities regulated by the SEC or CFTC.
OFAC also plans to issue enforcement procedures for certain
financial sector entities regulated by state government agencies but
not by federal financial regulators. This sector includes entities that
are similar to federally-regulated banking institutions, such as
certain credit unions and banks not insured by an agency of the U.S.
Government, and it includes some money service businesses. Commenters
are asked for suggestions concerning how the enforcement procedures in
the interim final rule should be modified for the purpose of providing
separate enforcement procedures for these entities.
The interim final rule does not apply to other financial sector
entities, such as insurance companies (including property and casualty,
life, and reinsurance lines of business), pension funds, finance
companies, mortgage bankers, and government-sponsored enterprises.
Commenters are asked for their suggestions on how enforcement
procedures should be modified to apply to these other financial sector
entities and whether and how enforcement procedures for financial
sector firms should vary depending on the regulatory regime, if any, to
which various financial sector firms are subject.
Commenters are also requested to provide suggestions concerning
appropriate enforcement procedures for non-financial sectors, such as
import-export businesses, the computer and software industries, and e-
commerce.
These procedures apply to banking institutions that may be part of
a larger corporate structure, with a parent holding company. Commenters
are asked how OFAC should consider for enforcement purposes complex
corporate structures, which may include entities regulated by the Board
of Governors of the Federal Reserve System, the Office of the
Comptroller of the Currency, the Office of Thrift Supervision, the SEC,
and the CFTC. Other affiliates, such as insurance companies, may be
regulated by state regulators; some affiliates may be subject to the
jurisdiction of foreign regulators; and some entities may not have a
functional regulator. Such complicated structures pose challenges for
assessing compliance programs and making determinations about
enforcement actions when there are violations. Commenters are invited
to address the proper enforcement approach for complicated holding
company structures.
List of Subjects in 31 CFR Part 501
Administrative practice and procedure, Banks, banking, Reporting
and recordkeeping requirements.
0
For the reasons set forth in the preamble, 31 CFR part 501 is amended
as follows:
PART 501--REPORTING, PROCEDURES AND PENALTIES REGULATIONS
0
1. The authority citation for Part 501 continues to read as follows:
Authority: 18 U.S.C. 2332d; 21 U.S.C. 1901-1908; 22 U.S.C. 287c;
22 U.S.C. 2370(a); 31 U.S.C. 321(b); 50 U.S.C. 1701-
[[Page 1974]]
1706; 50 U.S.C. App. 1-44; Pub. L. 101-410, 104 Stat. 890 (28 U.S.C.
2461 note); E.O. 9193, 7 FR 5205, 3 CFR, 1938-1943 Comp., p. 1174;
E.O. 9989, 13 FR 4891, 3 CFR, 1943-1948 Comp., p. 748; E.O. 12854,
58 FR 36587, 3 CFR, 1993 Comp., p. 614.
0
2. Part 501 is amended by adding the following appendix A, with
annexes, to read as follows:
Appendix A to Part 501--Economic Sanctions Enforcement Procedures for
Banking Institutions
Note: This appendix provides a general procedural framework for
the enforcement of all economic sanctions programs administered by
the Office of Foreign Assets Control (``OFAC'') only as they relate
to banking institutions, as defined herein.
I. Definitions
A. Banking regulator means the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, the
National Credit Union Administration, the Office of the Comptroller
of the Currency, or the Office of Thrift Supervision.
B. Banking institution, for purposes of this appendix to Part
501, means a depository institution supervised or regulated by a
banking regulator.
C. OFAC means the Department of the Treasury's Office of Foreign
Assets Control.
D. Voluntary disclosure means notification to OFAC of an
apparent sanctions violation by the banking institution that has
committed it. However, such notification to OFAC is not deemed a
voluntary disclosure if OFAC has previously received information
concerning the conduct from another source, including, but not
limited to, a regulatory or law enforcement agency or another
person's blocking or funds transfer rejection report.
Notification by a banking institution is also not a voluntary
disclosure if another person's blocking or funds transfer rejection
report is required to be filed, whether or not this required filing
is made. Responding to an administrative subpoena or other inquiry
from OFAC is not a voluntary disclosure. The submission of a license
request is not a voluntary disclosure unless it is accompanied by a
separate disclosure.
II. Enforcement of Economic Sanctions in General
A. OFAC Civil Investigation and Enforcement Action. OFAC is
responsible for civil investigation and enforcement with respect to
economic sanctions violations committed by banking institutions. In
these efforts, OFAC may coordinate with banking regulators. OFAC
investigations may lead to one or more of the following: an
administrative subpoena, an order to cease and desist, a blocking
order, an evaluative letter summarizing concerns, or a civil penalty
proceeding. In addition to or instead of such actions, if the
banking institution involved is currently acting pursuant to an OFAC
license, that license may be suspended or revoked.
B. OFAC's Evaluation of Violative Conduct. The level of
enforcement action undertaken by OFAC involving a banking
institution depends on the nature of the apparent violation, the
enforcement objectives, and the foreign policy goals of the
particular sanctions program involved. In evaluating whether to
initiate a civil penalty action, OFAC determines whether there is
reason to believe that a violation of the relevant regulations,
statutes, or Executive orders has occurred. In making determinations
about the disposition of apparent violations by banking
institutions, including evaluative letters and civil penalties, OFAC
will consider information provided by the banking institution and
its banking regulator concerning the institution's compliance
program and the adequacy of that program based on its OFAC risk
profile. Further information about the evaluation of compliance
programs commensurate with the risk profile of a banking institution
and a description of a sound OFAC compliance program are provided in
Annexes A and B.
C. Criminal Investigations and Prosecutions. If the evidence
suggests that a banking institution has committed a willful
violation of a substantive prohibition or requirement, OFAC may
refer those cases to other federal law enforcement agencies for
criminal investigation. Cases that an investigative agency has
referred to the Department of Justice for criminal prosecution also
may be subject to OFAC civil penalty action.
III. Periodic Institutional Review
A. Except for those significant violations for which prompt
action, such as a civil penalty proceeding or referral to other
federal law enforcement agencies, is appropriate, OFAC will review
institutions with violations or suspected violations on a periodic
basis. OFAC will review each such institution's apparent violations
over a period of time deemed appropriate in light of the number and
severity of apparent violations and the institution's OFAC
compliance history.
B. Upon completing this review, OFAC will preliminarily
determine the type of enforcement action it will pursue for each
apparent violation or related apparent violations. OFAC will then
seek comment from the banking institution and ask it to provide
additional information with regard to the apparent violation or
violations. OFAC also will ask the institution to explain what
actions led to the apparent violation or violations and what
actions, if any, it has taken to overcome the deficiencies in its
systems that led to the apparent improper handling of the
transactions or accounts. Depending on the number and complexity of
the apparent violations, OFAC may grant up to 30 days for a banking
institution to respond and may grant further extensions at its sole
discretion where it determines this is appropriate. Upon receipt of
the institution's response, OFAC will decide whether to pursue the
intended administrative action or whether some other action would
serve the same purpose.
C. OFAC will subsequently send the banking institution a letter
detailing its findings and further actions, if any, concerning the
apparent violations. OFAC will provide the banking institution's
primary banking regulator with a copy of this letter.
IV. Factors Affecting Administrative Action
In making its decision as to administrative action, if any, OFAC
will consider a number of factors, including, but not limited to,
the following:
A. The institution's history of sanctions violations.
B. The size of the institution and the number of OFAC-related
transactions handled correctly compared to the number and nature of
transactions handled incorrectly.
C. The quality and effectiveness of the banking institution's
overall OFAC compliance program, as determined by the institution's
primary banking regulator and by its history of compliance with OFAC
regulations.
D. Whether the apparent violation or violations in question are
the result of systemic failures at the banking institution or are
atypical in nature.
E. The voluntary disclosure to OFAC of the apparent violation or
violations by the banking institution.
F. Providing OFAC a report of, or useful enforcement information
concerning, the apparent violation or violations. Providing a
report, but not a voluntary disclosure, of the apparent violation or
violations will generally be accorded less weight as a mitigating
factor than would provision of a voluntary disclosure.
G. The deliberate effort to hide or conceal from OFAC or to
mislead OFAC concerning an apparent violation or violations or its
OFAC compliance program.
H. An analysis of current or potential sanctions harm as a
result of a violation or series of related violations. This analysis
will focus both on the specifics of the apparent violation or
violations and the institution's compliance effort.
I. Technical, computer, or human error.
J. Applicability of a statute of limitations and any waivers
thereof.
K. Actions taken by the banking institution to correct the
problems that led to the apparent violation or violations.
L. The level of OFAC action that will best lead to enhanced
compliance by the banking institution.
M. The level of OFAC action that will best serve to encourage
enhanced compliance by others.
N. Evidence that a transaction or transactions could have been
licensed by OFAC under an existing licensing policy.
O. Whether other U.S. government agencies have taken enforcement
action.
P. Qualification of the banking institution as a small business
or organization for the purposes of the Small Business Regulatory
Enforcement Fairness Act, as determined by reference to the
applicable regulations of the Small Business Administration.
V. License Suspension and Revocation
In addition to or in lieu of other administrative actions, OFAC
authorization to engage in a transaction or transactions pursuant to
a general or specific license may
[[Page 1975]]
be suspended or revoked with respect to a banking institution for
reasons including, but not limited to, the following:
A. The banking institution has made or caused to be made in any
license application, or in any report required pursuant to a
license, any statement that was, at the time and in light of the
circumstances under which it was made, false or misleading with
respect to any material fact, or it has omitted to state in any
application or report any material fact that was required;
B. The banking institution has failed to file timely reports or
comply with the recordkeeping requirements of a general or specific
license;
C. The banking institution has violated any provision of the
statutes enforced by OFAC or the rules or regulations issued under
any such provision or relevant Executive orders and such violation
or violations are significant and merited civil penalty or other
enforcement action;
D. The banking institution is reasonably believed to have
counseled, commanded, induced, procured, or knowingly aided or
abetted the violation of any provision of any legal authority
referred to in paragraph C;
E. Based on the information available to it, OFAC considers the
banking institution's compliance program inadequate; or
F. The banking institution has committed any other act or
omission that demonstrates unfitness to conduct the transactions
authorized by the general or specific license.
VI. Civil Penalties
The procedures for addressing the actions of banking
institutions that OFAC decides merit civil penalty treatment are
provided in the regulations governing the particular sanctions
program involved, or, in the case of sanctions regulations issued
pursuant to the Trading with the Enemy Act, in this Part. The
factors listed in Section IV will be considerations in the civil
penalty process.
Annex A.--OFAC Risk Matrices
[The following matrices can be used by banking institutions to evaluate
their compliance programs. Matrix A is from the FFIEC Bank Secrecy Act
Anti-Money Laundering Examination Manual published in 2005, Appendix M
(``Quantity of Risk Matrix--OFAC Procedures'')]
------------------------------------------------------------------------
Low Moderate High
------------------------------------------------------------------------
Matrix A
------------------------------------------------------------------------
Stable, well-known customer Customer base A large, fluctuating
base in a localized changing due to client base in an
environment. branching, merger international
or acquisition in environment.
the domestic market.
Few high-risk customers; A moderate number of A large number of
these may include high-risk customers. high-risk
nonresident aliens, foreign customers.
customers (including
accounts with U.S. powers
of attorney) and foreign
commercial customers.
No overseas branches and no Overseas branches or Overseas branches or
correspondent accounts with correspondent multiple
foreign banks. accounts with correspondent
foreign banks. accounts with
foreign banks.
No electronic banking (e- The bank offers The bank offers a
banking) services offered, limited e-banking wide array of e-
or products available are products and banking products
purely informational or non- services. and services (i.e.,
transactional. account transfers,
e-bill payment, or
accounts opened via
the Internet).
Limited number of funds A moderate number of A high number of
transfers for customers and funds transfers, customer and non-
non-customers, limited mostly for customer funds
third-party transactions, customers. transfers,
and no international funds Possibly, a few including
transfers. international funds international funds
transfers from transfers.
personal or
business accounts.
No other types of Limited other types A high number of
international transactions, of international other types of
such as trade finance, transactions. international
cross-border ACH, and transactions.
management of sovereign
debt.
No history of OFAC actions. A small number of Multiple recent
No evidence of apparent recent actions actions by OFAC,
violation or circumstances (i.e., actions where the bank has
that might lead to a within the last not addressed the
violation. five years) by issues, thus
OFAC, including leading to an
notice letters, or increased risk of
civil money the bank
penalties, with undertaking similar
evidence that the violations in the
bank addressed the future.
issues and is not
at risk of similar
violations in the
future.
-----------------------------
Matrix B. This matrix consists of additional factors that may be
considered by banking institutions in assessing compliance programs in
addition to Appendix M of the FFIEC Bank Secrecy Act Anti-Money
Laundering Examination Manual.
------------------------------------------------------------------------
Management has fully Management exhibits Management does not
assessed the bank's level a reasonable understand, or has
of risk based on its understanding of chosen to ignore,
customer base and product the key aspects of key aspects of OFAC
lines. This understanding OFAC compliance and compliance risk.
of risk and strong its commitment is The importance of
commitment to OFAC generally clear and compliance is not
compliance is satisfactorily emphasized or
satisfactorily communicated communicated communicated
throughout the organization. throughout the throughout the
organization, but organization.
it may lack a
program
appropriately
tailored to risk.
The board of directors, or The board has The board has not
board committee, has approved an OFAC approved an OFAC
approved an OFAC compliance compliance program compliance program,
program that includes that includes most or policies,
policies, procedures, of the appropriate procedures,
controls, and information policies, controls, and
systems that are adequate, procedures, information systems
and consistent with the controls, and are significantly
bank's OFAC risk profile. information systems deficient.
necessary to ensure
compliance, but
some weaknesses are
noted.
Staffing levels appear Staffing levels Management has
adequate to properly appear generally failed to provide
execute the OFAC to adequate, but some appropriate
properly execute the OFAC deficiencies are staffing levels to
compliance program. noted. handle workload.
Authority and accountability Authority and Authority and
for OFAC compliance are accountability are accountability for
clearly defined and defined, but some compliance have not
enforced, including the refinements are been clearly
designations of a qualified needed. A qualified established. No
OFAC officer. OFAC officer has OFAC compliance
been designated. officer, or an
unqualified one,
has been appointed.
The role of the
OFAC officer is
unclear.
[[Page 1976]]
Training is appropriate and Training is Training is sporadic
effective based on the conducted and and does not cover
bank's risk profile, covers management provides important
applicable personnel, and adequate resources regulatory and risk
provides necessary up-to- given the risk areas.
date information and profile of the
resources to ensure organization;
compliance. however, some ares
are not covered
within the training
program.
The institution employs The institution The institution does
strong quality control employs limited not employ quality
methods. quality control control quality
methods. control methods.
------------------------------------------------------------------------
Annex B--Sound Banking Institution OFAC Compliance Programs
A. Identification of High Risk Business Areas. A fundamental
element of a sound OFAC compliance program rests on a banking
institution's assessment of its specific product lines and
identification of the high-risk areas for OFAC transactions. As OFAC
sanctions reach into virtually all types of commercial and banking
transactions, no single area will likely pass review without
consideration of some type of OFAC compliance measure. Relevant
areas to consider in a risk assessment include, but are not limited
to, the following: retail operations, loans and other extensions of
credit (open and closed-ended; on and off-balance sheet, including
letters of credit), funds transfers, trust, private and
correspondent banking, international, foreign offices, over-the-
counter derivatives, internet banking, safe deposit, payable through
accounts, money service businesses, and merchant credit card
processing.
B. Internal Controls. An effective OFAC compliance program
should include internal controls for identifying suspect accounts
and transactions and reporting to OFAC. Internal controls should
include the following elements:
1. Flagging and Review of Suspect Transactions and Accounts. A
banking institution's policies and procedures should address how it
will flag and review transactions and accounts for possible OFAC
violations, whether conducted manually, through interdiction
software, or a combination of both methods. For screening purposes,
a banking institution should clearly define procedures for comparing
names provided on the OFAC list with the names in its files or on
the transaction and for flagging transactions or accounts involving
sanctioned countries. In high-risk and high-volume areas in
particular, a banking institution's interdiction filter should be
able to flag close name derivations for review. New accounts should
be compared with the OFAC lists prior to allowing transactions.
Established accounts, once scanned, should be compared regularly
against OFAC updates.
2. Updating the Compliance Program. A banking institution's
compliance program should also include procedures for maintaining
current lists of blocked countries, entities, and individuals and
for disseminating such information throughout the institution's
domestic operations and its offshore offices, branches and, for
purposes of the sanctions programs under the Trading with the Enemy
Act, foreign subsidiaries.
3. Reporting. A compliance program should also include
procedures for handling transactions that are validly blocked or
rejected under the various sanctions programs. These procedures
should cover the reporting of blocked and rejected items to OFAC as
provided in Sec. 501.603 of this Part and the annual report of
blocked property required by Sec. 501.604 of this Part.
4. Management of blocked accounts. An audit trail should be
maintained in order to reconcile all blocked funds. A banking
institution is responsible for tracking the amount of blocked funds,
the ownership of those funds, interest paid on those funds, and the
release of blocked funds pursuant to license.
5. Maintaining License Information. Sound compliance procedures
dictate that a banking institution maintain copies of customers'
OFAC specific licenses on file. This will allow a banking
institution to verify whether a customer is initiating a legal
transaction. If it is unclear whether a particular transaction is
authorized by a license, a banking institution should confirm this
with OFAC. Maintaining copies of licenses will also be useful if
another banking institution in the payment chain requests
verification of a license's validity. In the case of a transaction
performed under general license (or, in some cases, a specific
license), it is sound compliance for a banking institution to obtain
a statement from the licensee that the transaction is in accordance
with the terms of the license, assuming the banking institution does
not know or have reason to know that the statement is false.
C. Testing. Except for a banking institution with a very low
OFAC risk profile, a banking institution should have a periodic test
of its OFAC program performed by its internal audit department or by
outside auditors, consultants, or other qualified independent
parties. The frequency of the independent test should be consistent
with the institution's OFAC risk profile; however, an in-depth audit
of each department in the banking institution might reasonably be
conducted at least once a year. The person(s) responsible for
testing should conduct an objective, comprehensive evaluation of
OFAC policies and procedures. The audit scope should be
comprehensive and sufficient to assess OFAC compliance risks across
the spectrum of all the institution's activities. If violations are
discovered, they should be promptly reported to both OFAC and the
banking institution's banking regulator.
D. Responsible Individuals. It is sound compliance procedure for
an institution to designate a qualified individual or individuals to
be responsible for the day-to-day compliance of its OFAC program,
including at least one individual responsible for the oversight of
blocked funds. This individual or these individuals should be fully
knowledgeable about OFAC statutes, regulations, and relevant
Executive orders.
E. Training. A banking institution should provide adequate
training for all appropriate employees. The scope and frequency of
the training should be consistent with the OFAC risk profile and the
particular employee's responsibilities.
Dated: December 22, 2005.
Robert W. Werner,
Director, Office of Foreign Assets Control.
Approved: December 23, 2005.
Stuart A. Levey,
Under Secretary of the Treasury, Office of Terrorism and Financial
Intelligence.
[FR Doc. 06-278 Filed 1-11-06; 8:45 am]
BILLING CODE 4810-35-P
