What Is OFAC Matching & Why It Matters

The Office of Foreign Asset and Control (OFAC) is a division of the Treasury Department which enforces economic sanctions against countries and individuals who, for the most part, are known terrorists or drug traffickers. Many people think this is a relatively new government entity, perhaps inspired by the events of 9/11. Surprisingly, the OFAC’s history dates back to another conflict: it was started during the Truman administration in reaction to economic sanctions spawned by the Korean War.

Even more surprising is that a good deal of A/P managers and staff are unaware of the requirement to perform an OFAC match prior to beginning any transaction with a supplier. The OFAC maintains a list of what are known as Specially Designated Nationals and Blocked Persons (SDN’s). This list, of around 6000 names, includes companies and individuals from many countries around the world, even a few countries that might be surprising. At last count, there were 64 US entries, 92 UK entries, 15 Canadian entries and 298 Mexican entries. Additionally, the OFAC states that many of the names on the list are transitory, meaning the individual or entity is known to move from country to country – as if it wasn’t already complicated enough!

The penalties associated with violating the mandate are severe, with fines for 2012 already totaling over $600 million. For those situations deemed “willful”, penalties can include prison time.

The good news is that by establishing guidelines for clean Vendor Master File creation and doing a comprehensive clean-up of existing Vendor Master Files, companies can work to avoid any violation of the requirements. The first step an organization should take is to define the proper procedure for the creation of any new Vendor Master File. By using one standard form to facilitate this, a company can ensure that it collects all the required information every time.

After collecting the information required on the New Vendor Master File creation form, but before actually creating the vendor in the system, an OFAC match should be run. Companies can use the link http://sdnsearch.ofac.treas.gov/Default.aspx to search the current SDN list. If a match is found, follow the procedures listed on the OFAC website. If the entity is clean, this should be documented in the file.

The OFAC updates the SDN list any time a new name is added. Because the list is ever-changing, companies should also subscribe to the OFAC’s email update service at http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx . Periodic database checks should also be instituted to ensure that a vendor who was not a SDN originally, has not been added to the list since then.

While government mandates can feel cumbersome and intimidating when first encountered, most companies find that by developing a straightforward system to ensure compliance, they have better business practices overall.

To know more, join Karl Andersson, CEO of Technology Insight in a series of webinars dedicated to Best Practices in Accounts Payable. Click here to view the list of upcoming webinars.

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