OFAC

What does screening a customer against the Specially Designated Nationals list actually require of a firm?

1. A.Comparing every customer and transaction against the published list, regardless of size or any suspicion.Correct. The prohibition arises from the identity of the counterparty, so no threshold or suspicion trigger applies.
2. B.Checking customers whose transactions exceed the reporting threshold that triggers a currency report.Wrong. Attaching sanctions screening to a currency threshold would leave every smaller dealing with a prohibited person unexamined.
3. C.Reviewing the list whenever the firm has already decided that a customer's activity is suspicious.Wrong. Suspicion drives the judgment-based reporting obligations, whereas sanctions screening runs unconditionally.
4. D.Confirming at account opening that the customer is not a resident of a country subject to sanctions.Wrong. The list names specific persons and entities, and residence is neither the test nor a substitute for it.

Why: Screening against the SDN list is a mechanical comparison of names against a published list of persons and entities with whom United States persons may not deal. It applies to every customer and every transaction regardless of size, and it does not depend on the firm finding anything suspicious, because the prohibition arises from who the counterparty is rather than from what the transaction looks like. Where a genuine match exists, the firm must block or reject the transaction as the sanctions programme requires and report the action, rather than simply declining the business quietly. This is why sanctions screening sits alongside, and not inside, the judgment-based parts of an anti-money-laundering programme.

Under the information-request provisions of the USA PATRIOT Act, what does FinCEN do when law enforcement is investigating suspected money laundering or terrorist financing?

1. A.It publishes the names of investigation subjects so that institutions may refuse to open accounts for them.Wrong. These requests are confidential rather than published, and they do not prohibit dealing with anyone.
2. B.It transmits subject names to financial institutions, which search their records and report any match back.Correct. One centralised request reaches the whole industry, replacing institution-by-institution subpoenas.
3. C.It obtains a court order compelling each institution to freeze accounts held by the named subjects.Wrong. The mechanism is a records search, and freezing assets is a separate legal process entirely.
4. D.It instructs institutions to file a suspicious activity report on every named subject holding an account.Wrong. A match is reported through the request process itself, and the request does not manufacture suspicion.

Why: FinCEN acts as the single channel between law enforcement and the financial industry: it collects the names of subjects from an investigating agency and transmits them to financial institutions, which search their records for accounts and transactions involving those persons during the period specified. An institution that finds a match reports the match to FinCEN, which routes it back to the requesting agency, and an institution that finds nothing responds accordingly without keeping the names. Centralising the process this way lets one request reach the whole industry at once instead of requiring an agency to subpoena institutions one at a time. The request is a search of existing records and does not by itself require the institution to close an account or file any other report.

A firm's screening identifies a confirmed match between an incoming wire's beneficiary and a party on the Specially Designated Nationals list. What must the firm do with the funds?

1. A.Return the funds to the originating institution with a notation that the beneficiary could not be verified.Wrong. Handing the asset back leaves the sanctioned party free to route it through another institution.
2. B.Block the funds in a segregated interest-bearing account and report the blocking to OFAC as required.Correct. Freezing rather than returning is what actually deprives the sanctioned party of the asset.
3. C.Credit the funds to the beneficiary's account and file a suspicious activity report describing the match.Wrong. A report does not authorise the underlying transaction, and releasing the funds is itself prohibited.
4. D.Hold the funds in suspense until the beneficiary provides documentation rebutting the list match.Wrong. A confirmed match requires action now; the route to release runs through OFAC rather than through the customer.

Why: Property in which a blocked person has an interest must be blocked, meaning the firm freezes the funds in a segregated interest-bearing account rather than returning them or releasing them onward, and reports the blocking to OFAC within the period the sanctions rules prescribe. Returning the money to the sender would defeat the sanction entirely by handing the asset back to someone able to try again elsewhere. Some sanctions programmes call instead for a transaction to be rejected rather than blocked, and the applicable programme determines which, but in either case the action must be reported rather than handled quietly. Releasing the funds to the beneficiary is prohibited regardless of how the firm assesses the underlying commercial purpose.

Opening an account for Fenwick Trading LLC, a firm asks for the identity of the individuals who own or control the entity. The manager signing the forms says the owners value their privacy and declines to name them. What is the correct outcome?

1. A.The account may be opened, since the entity itself has been identified and verified as the customer.Wrong. Verifying a company establishes nothing about who stands behind it, which is the gap the rule closes.
2. B.The account may be opened with trading restricted to unsolicited transactions until the information is supplied.Wrong. No partial-onboarding route exists; the information is a precondition rather than a limit on activity.
3. C.The account may not be opened, and the refusal should itself be assessed as a red flag.Correct. The information is mandatory with no privacy exception, and a refusal is itself worth examining.
4. D.The account may be opened if the manager certifies in writing that no owner appears on any sanctions list.Wrong. A self-certification about sanctions does not supply the identification the rule requires.

Why: The customer due diligence rule requires a firm to identify and verify the beneficial owners of a legal entity customer, capturing both those who own an equity interest at or above the level the rule sets and one individual with significant responsibility for controlling or managing the entity. The requirement exists because a company can be assembled specifically to stand between a person and their money, and identifying the entity alone would let that structure defeat the whole programme. The information is not optional and there is no privacy exception, so an entity that will not supply it cannot be onboarded. A refusal of this kind is also a red flag in its own right and should be assessed for whether it warrants a suspicious activity report.