335. Firms operating in the securities industry as custodians and securities intermediaries often face the question of how to accurately identify the beneficial owner of assets within an account or transaction. What can these firms do to protect themselves from the risk of directly or indirectly providing services to—or dealing in property in which there is an ownership or other interest of—parties subject to sanctions?
OFAC encourages firms operating in the securities industry, including securities intermediaries and custodians, to implement measures that mitigate the risk of providing services to, or dealing in property in which there is an ownership or other interest of, parties subject to U.S. sanctions. Such measures should be tailored to and commensurate with the sanctions risk posed by a firm’s business activities. Best practices include:
• Making customers aware of the firm’s U.S. sanctions compliance obligations and having customers agree in writing not to use their account(s) with the firm in a manner that could cause a violation of OFAC sanctions. Sanctions may be implicated when the United States is the jurisdiction of issuance or custody of an underlying security or when a U.S. person acts as a custodian or other service provider.
• Conducting due diligence, including through the use of questionnaires and certifications, to identify customers who do business in or with countries or persons subject to U.S. sanctions. Such customers may warrant enhanced due diligence because of an increased risk that they will use their accounts to hold assets or conduct transactions for third parties subject to sanctions.
• Imposing restrictions and heightened due diligence requirements on the use of certain products or services by customers who are judged to present a high risk from an OFAC sanctions perspective. Restrictions might include limitations on the use of omnibus accounts, where a lack of transparency can be exploited in order to circumvent OFAC regulations.
• Making efforts to understand the nature and purpose of non-proprietary accounts, including requiring information regarding third parties whose assets may be held in the accounts. Red flags may arise relating to geographic areas or the nesting of third-party assets.
• Monitoring accounts to detect unusual or suspicious activity – for example, unexplained significant changes in the value, volume, and types of assets within an account. These types of changes may indicate that a customer is facilitating new business for third parties that has not been vetted for possible sanctions implications.
Date Released
January 23, 2014
Notes:
This FAQ was issued on the same day that Clearstream was fined $151,902,000 for "causing" the export of custodial services from the U.S. to Iran by serving as an intermediary between a U.S. securities custodian and a bank that held securities beneficially owned by the Government of Iran. For more detail see Civil Enforcement Information - Clearstream Banking, S.A. (2014). See also the finding of violation issued to TD Bank, N.A. (2017) for the actions of a subsidiary routing securities transactions through the U.S.
It is uncommon for OFAC to recommend specific diligence steps, but it is evidence that sanctions related certifications for all persons for whom any institution maintains an omnibus account is a sine qua non of any acceptable compliance program.
See generally documents tagged as relating to the securities industry and/or financial intermediaries.