Recordkeeping requirements for sanctions to extend from five to 10 years under OFAC rules
The Office of Foreign Assets Control (OFAC) has published an Interim Final Rule (IFR) that would extend existing recordkeeping requirements for certain transactions from five to 10 years.
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On September 11, 2024, OFAC set out proposed amends to its Reporting, Procedures and Penalties Regulations under 31 C.F.R Part 501 to align with recent extensions it had made to the statute of limitations of certain sanctions.
In April 2024, OFAC amended the statute of limitations timings for both the Trading with the Enemy Act (TWEA) and the International Emergency Powers Act (IEEPA), extending the limitation period for criminal and civil sanctions violations from five to 10 years. These latest recordkeeping proposals are intended to ensure that records are preserved for a period of time commensurate to the statute of limitation for sanctions violations.
When will OFAC’s recordkeeping changes come into force?
Comments on the IFR proposals are open to the public and must be made before October 12, 2024. The new requirements will then come into force on March 12, 2025 – unless public comments lead to significant modifications to the proposal.
What could the OFAC recordkeeping requirement change mean for financial services?
When the interim final rule comes into force it will require firms involved in any transaction subject to an OFAC sanctions program to retain full and accurate records of transactions for 10 years, rather than for five years as currently stands.
This means that any transaction that takes place in a sanctioned country or with (or on behalf of) a sanctioned person, must be retained for 10 years. The IFR also extends recordkeeping requirements beyond transactions alone, and requires the preservation of compliance training materials, voluntary disclosures, sanctions screening records, and all other documents received from or submitted to a government agency concerning sanctions issues.
While the recordkeeping change is, on the surface, a purely administrative alteration, it is likely that there will be a number of hurdles to implementation should the new recordkeeping requirement come into effect as planned.
Commenting on a similar proposal, in June 2024, the American Bankers Association (ABA) said that “OFAC should provide ample advance notice prior to revising the rule’s recordkeeping requirements”. Among other things, the ABA noted that this is a “significant change” and that:
“Current bank policies, procedures, and operations are all developed in reliance on the current minimum five-year standard in section 501.601. This includes both internal policies, as well as contracts with outside vendors, and agreements between banks. Any change to this rule will likely have significant effects on the banking sector and must be carefully considered to avoid confusion and conflicting supervisory expectations.”
With this in mind, if the OFAC recordkeeping rule does pass – which is likely given the changes to the statute of limitations – firms will need to consider updating their recordkeeping systems to ensure that they are equipped to transition to the new retention rules. For firms that use a third-party recordkeeping provider, it may be advisable to contact that provider ahead of time to ensure that all requirements will be met on the date of implementation.
