2006 Bank Secrecy Act/Anti-Money Laundering Examination Manual Clarifies Elements of Effective OFAC Compliance Program for ACH Transactions

September 11, 2006

On July 28, 2006, the Federal Financial Institutions Examination Council (FFIEC) released the 2006 Bank Secrecy Act/Anti-Money Laundering Manual ("BSA/AML Manual"). The section addressing compliance with economic and trade sanctions programs administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC) has been revised to provide expanded guidance regarding automated clearing house (ACH) transactions. Additional guidance is found in the section of the BSA/AML Manual dedicated to ACH transactions.

A critical component of an OFAC compliance program is a procedure for screening ACH transactions to identify blocked parties. When developing that procedure, it is helpful to know which financial institution involved in a transaction is responsible for verifying that a party is not blocked. In screening domestic ACH transactions, the Originating Depository Financial Institution (ODFI) is responsible for confirming that the Originator is not a blocked party, and must make a good faith effort to ensure that the Originator is not sending blocked funds. Similarly, the Receiving Depository Financial Institution (RDFI) is responsible for verifying that the Receiver is not a blocked party. FFIEC has stated that, in the context of a domestic ACH transaction, the ODFI and RDFI may, in effect, rely on each other to ensure OFAC compliance.

However, the ODFI and RDFI may not rely on each other in the context of cross-border ACH transactions. For outbound transactions, the ODFI may not rely on the RDFI outside the United States. The ODFI is responsible for verifying that none of the parties to the transaction is blocked, and that the underlying purpose of the transaction does not violate OFAC regulations. The RDFI similarly is responsible for ensuring that transactions in-bound to the United States comply with OFAC regulations.

The OFAC section of the BSA/AML Manual describes the understanding of federal agencies regarding screening obligations. Incorporating that insight into an OFAC compliance program could result in a more effective program. Moreover, the level of care demonstrated by such an action could serve to mitigate penalties in the event of a violation.. 

Gibson, Dunn & Crutcher’s International Trade Regulation and Compliance Practice Group is
available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn attorney with whom you work or Judith A. Lee (202-887-3591, [email protected]), Amy G. Rudnick (202-955-8210, [email protected]) or Andrea Farr (202-955-8680, [email protected]) in the firm’s Washington, D.C. office.

© 2006 Gibson, Dunn & Crutcher LLP

The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.