On 7th October, Steptoe & Johnson LLP published a briefing looking at the action of OFAC against the UK-based British Arab Commercial Bank (BACB) over violations of the Sudan sanctions regulations which, it says, demonstrates how challenging and complex it can be to assess whether offshore transactions in US dollars that involve US sanctions targets are in all respects outside of OFAC’s enforcement jurisdiction. It says that this case indicates that OFAC expects non-US institutions like BACB to look comprehensively at their US dollar funding arrangements. When transacting in dollars with US-sanctioned countries (or sanctioned parties), even if those transactions themselves do not touch the US financial system, this case shows that banks may be at risk if they limit their diligence into the provenance of such offshore US dollar pools and fail to confirm that the funds did not pass through the US. This is regardless of US Treasury officials having stated on the record that OFAC’s jurisdiction does not extend to the use of the US dollar itself. After considering the case in some detail, the article concludes by saying that non-US banks, particularly smaller institutions that may believe they are operating outside OFAC’s jurisdiction when conducting offshore dollar transactions, should carefully analyse this case in assessing their level of regulatory risk.
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