On April 19, President Barack Obama issued an executive order to block access to financial assets and suspend entry into the U.S. of those who have materially assisted, sponsored or provided financial support to threaten political stability in Libya.
On the same day, the Office of Foreign Assets Controls (OFAC) added several names of Libyan citizens to a list of Specially Designated National and Blocked Persons (SDNs), which includes more than 6,000 businesses and people connected with U.S. sanctions.
What does this have to do with global payroll?
U.S. employers risk heavy fines by doing business with those on the SDNs list, many of whom are deemed terrorists, narcotics traffickers or linked with threats to national security.
OFAC, an office in the Treasury Department, mainly monitors the movement of money, such as payments to employees and payroll vendors. Under the International Emergency Economic Powers Act, employers that pay an individual or organization on the list may face a penalty of up to $250,000 or twice the amount of the illegal payment, whichever is greater. Each criminal violation of the law may lead to a fine of up to $1 million and up to 20 years in prison.
U.S. employers aren’t the only ones required to cross-reference the OFAC list before hiring employees. Foreign subsidiaries owned or controlled by U.S. companies also must comply and check employee names, partners and third-party vendors against the OFAC list to prove they are not in business with a terrorist organization or person.
Practice and Compliance
Sometimes, a false-positive match may occur while cross-referencing names. Employers should request cities and dates of birth from new hires to help avoid situations when a payment to someone not on the list is mistakenly identified by the department as an illegal payment.
If an employer is investigated for a payment, the employer would need to show that a “reasonable attempt” was made to block payments to SDNs or companies on the OFAC list.
If a positive match occurs, OFAC recommends immediately reporting the match and following the due diligence steps outlined online.
Some recommendations to stay compliant given by OFAC include identifying high-risk transitions within a company, instituting internal controls over payments, conducting transaction testing of the internal controls, training staff and designating employees to be responsible for OFAC-related issues, such as tracking updates to the list.
While there is not a fixed schedule of updates, the list is updated regularly and can be accessed on the Treasury Department website. Employers should frequently compare employee lists with the OFAC list to avoid penalties.
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Follow Molly Ward on Twitter at @mollyalisonward.
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