OFAC Screening

OFAC screening is checking borrowers, business owners, guarantors and other parties against the sanctions lists kept by the Office of Foreign Assets Control (OFAC), part of the US Treasury. OFAC enforces US sanctions against certain countries, regimes, terrorists and criminals.

The best-known list is the Specially Designated Nationals and Blocked Persons List, or SDN List. US persons are generally barred from dealing with anyone on it. OFAC's "50 Percent Rule" extends that ban to any company owned 50% or more, in total, by one or more blocked persons, even if the company is not named on a list.

Unlike most lending rules, OFAC applies to everyone. All US persons must comply: US citizens and permanent residents wherever they are, everyone in the United States, and all US companies. That covers banks, credit unions, community development financial institutions (CDFIs), private lenders and merchant cash advance funders alike. Liability is strict, so a lender can be penalized even if it did not know.

When a lender finds a true match, it must block or reject the transaction as the rules require and report it to OFAC within 10 business days. Since March 2025, OFAC requires related records to be kept for 10 years, up from five.

OFAC rules are separate from the Bank Secrecy Act, though lenders usually run both together.

Why it matters for lenders

Sending loan money to a sanctioned person, or taking payments from one, can bring civil penalties and, in willful cases, criminal charges.

Screening is not a one-time task. The lists change often, so a borrower who was clear at closing can be added later. Good practice is to screen at onboarding and again whenever the lists update, for as long as the loan is open.

The hard part is false positives. Common names produce many partial matches. Each must be reviewed and the decision documented.

How it works in practice

A small business lender screens every applicant, every owner of 25% or more and every guarantor when an application arrives, as part of its Know Your Customer (KYC) and Know Your Business (KYB) checks. One owner's name returns a possible SDN match. An analyst compares details: the listed person has a different birth year and a foreign address. She clears it as a false positive and records her reasoning, the list date and her name on the loan.

Each night, the system rescreens active loans against updated lists. Any new hit pauses disbursements on that loan until compliance reviews it.

When screening is a manual web search, it often happens only at origination, and the result lives in a screenshot. Ongoing watchlist screening tied to the loan record closes that gap.