The Department of the Treasury’s Office of Foreign Assets Control (OFAC) recently issued an interim rule extending the recordkeeping requirements to align with the updated 10-year statute of limitations. This change will take effect on March 12, 2025, giving organizations time to revise or implement OFAC compliance processes to meet the new requirements.
For businesses navigating the complexities of global trade, the updated statute of limitations and longer record retention requirements emphasize the essential role of accurate documentation in compliance efforts. However, these changes also increase regulatory responsibilities and amplify the risk of significant fines for non-compliance.
Adhering to these regulations is mission-critical for organizations, as failing to revise and align recordkeeping processes could result in monetary penalties—and in some situations these may accrue every 30 days for the entire 10-year period.
In this article, we’ll breakdown the new recordkeeping rules, outline key elements that may impact your business, and provide actionable insights to help your organization adapt to these evolving obligations while maintaining high OFAC compliance standards.
Key Takeaways
- OFAC compliance requirements now mandate maintaining transaction records for 10 years, aligning with the updated statute of limitations for sanctions violations.
- The monetary penalty for non-compliance has been adjusted to include recurring fines for some transactions, which can accrue every 30 days over the 10-year period.
- Revising or implementing robust recordkeeping and data management practices is essential to facilitate OFAC compliance and mitigate the risk of penalties.
- Utilizing advanced OFAC screening software, with strong reporting and audit history capabilities, is critical for preventing non-compliant transactions and ensuring detailed documentation is readily accessible when needed.
Overview of the New OFAC Recordkeeping Requirements
In April 2024, President Biden signed the 21st Century Peace through Strength Act into law, introducing significant updates to compliance regulations. Among these changes is the extension of the statute of limitations for civil or criminal violations of OFAC sanctions under the Trading with the Enemy Act (TWEA) or International Emergency Economic Powers Act (IEEPA).
This legislation increases the statute of limitations from 5 to 10 years, prompting OFAC to release an interim final rule updating its recordkeeping requirements to match the new timeframe.
The new ruling requires that every organization keep a full, accurate record of every transaction subject to OFAC sanctions for ten years. The Cuban Assets Control Regulations (CACR) was also updated by this rule to require service providers, such as travel, transportation, and remittance companies operating under certain general licenses, to keep customer compliance certifications for at least 10 years after each transaction. Notably, the new 10-year statute of limitations applies to any violation that occurred after April 24, 2019—not when the act was signed into law. However, the interim final rule does not change OFAC’s enforcement guidelines regarding sanctions history. This means that when evaluating a potential sanctions violation, OFAC will still only consider transactions from the five years before the violation occurred. The new recordkeeping regulations will go into effect on March 12, 2025.
What the New OFAC Compliance Guidelines Mean for Businesses
The updated OFAC recordkeeping requirements signal significant changes for businesses operating in global trade. All organizations, both foreign and domestic, subject to OFAC regulations will need to adjust their trade compliance processes to meet the longer timeframe, ensuring records are maintained for the full 10 years.
According to the OFAC announcement, “the burden of the recordkeeping requirement imposed by this rule is minimal because the records required to be maintained are likely maintained under standard business practice.” While this may hold true for some, many organizations will face operational and financial challenges in adapting compliance systems initially designed for a 5-year retention period.
It’s worth noting that the 10-year timeframe begins “from the date of [the] transaction,” which means the actual duration for maintaining records may occasionally exceed 10 years. For blocked property, the retention period starts only after the property is unblocked. As a result, in some cases, the recordkeeping requirement for blocked property could effectively become indefinite.
Below are ways the new OFAC recordkeeping requirements affect businesses:
- Greater Necessity for Accurate Record Keeping: Extension of the recordkeeping period requires updating current data management processes or establishing new practices altogether. Your organization must be prepared to store relevant transactions for the new 10-year period.
- Higher Penalty Risks for Noncompliance: With more time to investigate violations, businesses face greater risks of enforcement actions if records are incomplete or improperly maintained. The penalty for late filing has been increased and will be applicable throughout the 10-year duration. The economic sanctions enforcement guidelines are now:
- $3,550 for late filings within the first 30 days
- $7,104 if filed more than 30 days late
- If related to blocked assets, the penalty may include an additional $1,422 for every 30 days that it’s overdue, with up to a 10-year statute of limitations
- Expanded Scope of Recorded Data: Data that must be recorded is now a “full and accurate record of each transaction,” which is not affected by transactions pursuant to licenses or otherwise. While this was already considered a best practice, it is now essential to update processes—from executing transactions to storing records—to ensure a substantial amount of information is accurately captured. This includes transaction records, customer certifications, and compliance-related communications.
- Enhanced Technology Requirements: Businesses may need to invest in or upgrade compliance software to efficiently manage and store records, automate tracking, and ensure audit readiness for the extended timeframe.
- Broader Risk Exposure to Violations: Extending the statute of limitations effectively doubles the liability of a risky transaction. A single non-compliant transaction now carries the potential for a decade-long violation. This makes it more important than ever to thoroughly screen business relationships for denied parties, implement meticulous OFAC compliance processes, establish comprehensive data management practices, and conduct regular audits.
- Increased Likelihood of Regulatory Scrutiny: Similarly, since the statute of limitations for a given transaction is now a decade, the likelihood of that transaction being scrutinized is much greater than when facing a five-year time period. Robust OFAC compliance and data management practices are vital to lasting success for your organization.
- Stronger Need for Legal and Compliance Oversight: Legal and compliance teams must work closely to interpret the requirements and ensure seamless integration into business operations, preventing lapses that could lead to penalties.
How Businesses Can Prepare to Comply with OFAC’S New Regulations
The updated OFAC recordkeeping requirements mandate extended compliance measures, which can pose challenges for businesses. These new changes apply to all transactions subject to OFAC sanctions and extend the period during which penalties can accrue for late filing of required reports. The business implications bring into focus the need for a proactive approach to minimize the risk of violations.
Let’s explore some practical steps you can take to adapt processes and ensure compliance:
- Understand the New OFAC Requirements
Action: Familiarize yourself with the specific changes outlined in OFAC’s Interim Final Rule, especially the 10-year record retention period for transactions and certifications related to general licenses.
Solution: Consult with trade compliance attorneys or advisors to understand how the changes specifically affect your operations.
- Conduct a Gap Analysis of OFAC Compliance Practices
Action: Assess current recordkeeping and compliance practices to identify areas that need updating. Determine whether your existing data retention systems can accommodate the extended timeframe and any new data fields required.
Solution: Use a gap analysis tool to compare current practices against the new OFAC requirements. Some leading OFAC compliance solutions providers offer resources with pre-built gap analysis templates and customizable checklists that can simplify the process. A few questions to consider:
- Are all required reports filed accurately and on time?
- Is sensitive transaction data captured in sufficient detail?
- Can the system store records for a decade?
- Update Recordkeeping Policies
Action: Address identified gaps by adopting new processes or tools. Clearly define roles and responsibilities for maintaining accurate and complete records over the 10-year period. Ensure that policies account for indefinite retention requirements for specific transactions, such as blocked property.
Solution: Partner with legal experts and trade compliance software solutions providers that combine technology with expert advisory to strengthen your overall OFAC compliance framework. The policy should provide guidance on how to set up a records retention schedule, including how to dispose/destroy records that have passed the deadline.
- Adopt Advanced Trade Compliance Software
Action: Implement or upgrade trade compliance software that can securely store data for extended periods, track retention schedules, and screen for risky transactions. Verify that the system you have supports scalability to handle the increased volume of records.
Solution: Select trade compliance software that centralizes compliance documentation, automates recordkeeping, supports thorough OFAC SDN search, and ensures that transaction histories are archived securely for the required 10-year period.
- Ensure Accurate and Comprehensive Data Management
Action: Establish a centralized digital repository for compliance data to facilitate efficient storage and retrieval.
Solution: Utilize OFAC compliance solutions that facilitate seamless integration with existing ERP, CRM, and other business systems to maintain a complete and compliant data trail. The solution should support the extended 10-year retention requirement while ensuring data accessibility during audits.
- Conduct Pre-Transaction Due Diligence
Action: Strengthen due diligence practices to screen customers, suppliers, and partners before engaging in transactions. Additionally, review third-party relationships to ensure their compliance practices align with your updated policies.
Solution: Deploy automated denied party screening software solutions that provide comprehensive OFAC screening against updated sanctions lists, along with real-time risk assessment and transaction monitoring tools.
- Automate OFAC Compliance Workflows and Simplify Reporting Processes
Action: Replace manual processes with automated workflows to ensure consistent compliance with OFAC regulations. Prioritize accurate and timely filing of all required reports.
Solution: Choose tools that streamline reporting and integrate trade compliance checkpoints, such as dynamic denied party screening and documentation tracking, into your business processes. Your OFAC compliance software should be able to track report submission deadlines and set alerts for incomplete or late reports.
- Regularly Audit and Stress-Test OFAC Compliance Programs
Action: Schedule frequent audits of your compliance processes to evaluate adherence to OFAC sanctions and regulations including the updated recordkeeping policies. Document audit findings for internal improvement and potential use during regulatory reviews.
Solution: Leverage OFAC compliance solutions with audit trail features that document compliance efforts. Tools designed to track and validate due diligence activities can ensure audit trails are in place, organized, and accessible.
- Strengthen Data Security
Action: Implement robust data security measures to safeguard records against breaches over the extended retention period..
Solution: Ensure that the trade compliance software provider you choose has robust protocols in place to securely store all compliance-related data, preventing unauthorized access or loss.
- Enhance Employee Training on Maintaining Records
Action: Provide ongoing education to employees on identifying red flags in transactions and adhering to OFAC compliance protocols, focusing on the new recordkeeping requirements. Train staff on how to capture, store, and retrieve required information effectively.
Solution: Work with a solutions provider that offers built-in training modules and extensive free resources to keep your team informed and aligned with best practices.
Strengthen Your OFAC Compliance Program with Descartes Solutions
The update to OFAC The updated OFAC recordkeeping requirements are a critical development in a series of changes aimed at strengthening sanctions enforcement. With penalties now potentially spanning a decade, the stakes for non-compliance are higher than ever.
Descartes OFAC compliance solutions are designed to help businesses navigate regulatory complexities. From automated denied party screening and transaction monitoring to secure record management and sophisticated reporting and analytics, our solutions offer the tools needed to streamline trade compliance processes, ensure accuracy, and reduce the risk of violations.
Don’t wait to adapt. Protect your business and stay ahead of regulatory changes by leveraging our comprehensive trade and export compliance solutions.
Contact us today to discover how we can help strengthen your OFAC compliance strategy. You can also request a demo to see our award-winning technology in action.
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