OFAC screening in vendor onboarding: check before the first payment

Screen every new vendor against OFAC's SDN and Consolidated lists after you collect its details and before you approve the first payment. Collect the legal name, other trading names, country, address and tax or registration number, plus the owners of any vendor you will pay regularly. Clear any candidate with a written reason and file the result with the vendor record. OFAC's compliance framework names due diligence on customers, supply chain and counter-parties as a basic part of a sanctions program (OFAC framework).

Why onboarding is the right gate

Once a vendor is set up in the payables system, money can leave without anyone looking again. Onboarding is the last point where one person reviews the vendor's details by hand, so it is the cheapest place to stop a sanctioned party. OFAC's 2019 framework lists improper due diligence on ownership, geographic location and counter-parties among the root causes of past violations (OFAC framework).

What to collect, and why each field matters

OFAC's own method for checking a hit is to compare the full list entry with what you know about the party: name, address, identifiers and location (OFAC FAQ 5). Without those fields on the vendor form, every name hit turns into a phone call.

Owners and the 50 percent rule

A vendor can be blocked without appearing on any list. Under OFAC's 50 percent rule, an entity owned 50 percent or more, directly or indirectly, by one or more blocked persons is itself blocked (OFAC FAQ topic 1521). Ownership adds up across blocked owners: two blocked persons owning 25 percent each block the entity (OFAC FAQ 399). Indirect ownership through a chain of companies counts too, and OFAC recommends due diligence to work out the stakes (OFAC FAQ 401).

Control alone does not block an entity, but OFAC advises caution where blocked persons hold a significant stake below 50 percent (OFAC FAQ 398). For a small one-off supplier, a name check may be all the risk calls for. For a vendor you will pay every month, ask for the ownership and screen the owners as well. Our worked examples of the 50 percent rule show how the arithmetic goes.

Where the step sits in the workflow

1. Vendor submits the form with the fields above.
2. AP screens the vendor name, other names and owners.
3. Any candidate goes to a named reviewer, who clears it or escalates it.
4. The vendor is approved only once the screening result is filed.
5. The vendor joins the file you re-screen on a schedule.

Step 5 matters because a vendor that was clear on its first day can be designated later. Our guide on how often to re-screen covers that schedule, and the monthly vendor scrub covers the whole-file run.

Clearing a candidate

A name hit is a candidate to review, not a finding. Compare the list entry with the vendor's country, address and registration number. If you can reasonably determine the match is not valid, OFAC says you may proceed (OFAC FAQ 5). Write down why; our false positive guide has a template.

If it is a true match, stop the onboarding and do not pay. Our guide to what to do after a true match covers blocking, rejecting and the 10-business-day reports.

What to file with the vendor record

• the date and time of the screening
• the list versions you screened against, by publication date
• each candidate, the reviewer's decision and the written reason
• the ownership information you relied on

OFAC requires a full and accurate record of each transaction subject to its rules, kept for at least 10 years (31 CFR 501.601). A dated screening record per vendor is the simplest way to show the check happened before money moved.

This is screening data, not legal advice. Run a free OFAC check on a new vendor before you approve the first payment.