Banks want ‘OFAC’ cell created in DFS to deal with sanctions related advisories

Banks have requested the Department of Financial Services (DFS) to create an ‘Office of Foreign Assets Control (OFAC)’ cell in the Department to deal with individual advisories received by them from US OFAC.

The advisories from OFAC, US Embassy, New Delhi, to Indian Banks usually relate to sanctions imposed by the US against other countries, especially Russia and Iran. Banks have been receiving advisories directly from the OFAC, said a senior public sector banker, adding that sometimes seeking clarifications on them entails payment of huge fees to consultants.

The view among Indian Banks is that if an OFAC cell is created in DFS, the banking system as a whole can take uniform approach under its guidance to minimise the risks relating to non-compliance with the sanctions.

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Failure to comply with the terms of the sanctions could lead to a bank facing risks such as reputational damage, regulatory sanctions, litigation and penalties.

As per OFAC’s website, the Price Cap Coalition (comprising G-7 countries, the European Union, and Australia) had issued an advisory in October 2023 for the “maritime oil industry and related sectors” with reference to crude oil and petroleum products of Russian Federation origin, cautioning that actors involved in shadow trade often conceal their ownership structures and the origin of their cargo.

“Such deceptive (shadow trade) practices may cause industry stakeholders to unknowingly engage in transactions that are inconsistent with industry stakeholders’ compliance policies, affect industry stakeholders’ reputations, and trigger de-risking behavior from counterparties.

“This de-risking can result in loss of access to reputable service providers, financing, customers, and ports,” OFAC said. Besides, the US, the European Union, which has 27 countries as its members, and the United Nations (which has 193 countries as its members) can impose sanctions on countries.

So, an OFAC Cell could help Banks navigate the sanctions programs, ensuring that they err on the side of caution when it ciomes to compliance.

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