DTCC Strengthens OFAC Compliance
DTCC implemented a new procedure to strengthen industry compliance with Office of Foreign Assets Control (OFAC) requirements last October, and now a deadline is nearing for firms that are customers of DTCC clearing subsidiaries.
OFAC is the arm of the U.S. Department of the Treasury responsible for administering federal economic sanctions programs on certain foreign entities.
By March 31, firms that are members of NSCC, DTC and/or FICC must give DTCC written confirmation that they have procedures in place to ensure none of their customers is engaged in transactions subject to OFAC economic sanctions. Customers that fail to meet this deadline may be fined $5,000 by DTCC.
“This new requirement, which has been approved by the Securities and Exchange Commission, confirms that our customers have an appropriate risk-based program in place and helps all of us avoid doing business with individuals, businesses and governments subject to sanctions,” said Mihal Nahari, DTCC managing director and chief compliance officer.
To the letter
To make this new requirement as easy as possible, DTCC has created a standard letter for firms to complete. Known as a “Confirmation of an OFAC Program Letter,” or “OFAC Letter” for short, the document states that the signatory firm screens its customers to determine whether they are subject to sanctions. A downloadable version of the letter is available on DTCC’s website (www.dtcc.com/legal/compliance), to be signed by each firm’s “authorized OFAC officer.”
Firms can submit their OFAC Letters to DTCC in either paper or electronic form. However, the letter’s wording must not deviate from that included in the sample letter. “Customers cannot make any changes to the existing text of the letter,” said Peter Le Piane, DTCC director, Office of Corporate and Regulatory Compliance (OCRC), who oversees DTCC’s compliance with OFAC regulations.
Every two years, or sooner in case of a merger or other change in corporate governance, firms must resubmit their OFAC Letter to DTCC to certify that they still have an OFAC screening system in operation.
The letter enhances DTCC’s compliance program by enabling each customer to declare in a single document that it screens all its transactions and business activities to weed out sanctioned entities or individuals. It supplements an existing procedure under which customers certify that certain transactions, usually deposits, comply with OFAC rules. For that certification, firms typically check a box on a document submitted with each transaction.
Strengthening the whole
By helping ensure all clearing corpora-tion customers are OFAC-compliant, the OFAC Letters benefit the entire DTCC user community. “Transacting with a sanctioned entity can be costly because OFAC can impose hefty fines for improper financial dealings with any entity or person subject to sanctions,” said Le Piane. In 2009, OFAC levied nearly $1 billion in fines, a number that is expected to rise this year and beyond.
What’s more, OFAC can fine multiple parties for a single transaction, which means DTCC customers carry exposure from third parties. “The new setup will more easily assure participants they can do business with each other without being hit with such a fine,” Le Piane noted.
OFAC and the industry
Financial services companies are obligated by law to screen their customers against the lists of sanctioned parties maintained by OFAC. This screening is accomplished by using computer software to scan the names of customers and compare them to the names on OFAC’s lists.
If there is a match between a customer name and the name on the OFAC list, the company must determine whether the customer and the entity on the list are one and the same, and whether the transaction the customer wants to conduct violates a sanctions rule. If these criteria are confirmed, the company must block the transaction and seize any of the sanctioned party’s assets it has in its possession.
DTCC routinely screens the securities it holds and its roster of customers for links to sanctioned parties. As for the customers of DTCC participants, Le Piane said it made sense for the participants themselves to conduct the screening because they have access to customer information that DTCC does not. @