BSA/AML Examiner School - Case Study Oct 2023

XV. Office of Foreign Assets Control (OFAC) Policy and Procedures

Overview AJ&R Bank has established the following controls to comply with the Office of Foreign Assets Control (OFAC), which administers a series of laws that impose economic sanctions against targeted hostile foreign countries and groups to further U.S. foreign policy and national security objectives. . OFAC Compliance Program, includes the following elements: Identification of High Risk Business Areas The Bank periodically conducts a risk assessment of its product lines to help identify high risk areas for OFAC transactions. Implementation and Support of Internal Controls Methods The Bank maintains proper internal controls that are further addressed in the OFAC procedures and processes which help identify suspect accounts and transactions to block and report such instances to OFAC. The objective for these internal controls is as follows: OFAC: Flagging and Review of Suspect Transactions and Accounts The Bank has implemented procedures that allow Bank personnel to compare names provided on the OFAC list with the names in Bank data base files to help flag accounts and block transactions involving sanctioned individuals and countries. This monitoring enables Bank personnel to flag close name derivations for review and possible action, especially in high risk and high volume areas. In addition, it is the policy of the Bank to compare the names of all individuals, business entities and their principals requesting to open a new account, product or service (deposit or lending based) with OFAC lists prior to allowance of any transactions on such accounts. Established accounts, once scanned, are periodically compared against OFAC updates. If the OFAC system finds a hit between the name and address tines on the CIF and an entry in the OFAC file or an entry in the matching word listing, the employee will be prompt, the screen alerts the employee to the hit and the reason. All established accounts, once the initial scan, are periodically compared against OFAC updates. Each customer name or miscellaneous information such as an alternative name and addresses in the CIF Master File will be screened with the updated OFAC Listing. Two reports with the results will be reviewed by the BSA Department. Any positive matches will then be verified with the Office of Foreign Assets Control for clarification and confirmation of the match. If there is a positive match, the BSA/OFAC Compliance Officer will follow the instructions given by the Office of Foreign Assets Control. Structure of Accountability • The BSA Officer is responsible for the overall bank compliance with OFAC regulations. They will report to the Board of Directors and Senior Management concerning compliance reviews of the reports, impact of new regulations or changes to existing regulations and general compliance issues and concerns. • For the day-to-day compliance of the OFAC Compliance Program, including the annual reporting of blocked or rejected transactions to OFAC, litigation reports and the oversight of blocked funds. • Coordinating the training of bank personnel on bank compliance policies and procedures.

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