On September 17, 2019, OFAC released a settlement with UK-based British Arab Commercial Bank (BACB) in a case regarding offshore use of the dollar, demonstrating how challenging and complex it can be to assess whether offshore transactions in US dollars (USD) that involve US sanctions targets are in all respects outside of OFAC’s enforcement jurisdiction. This case indicates that OFAC expects non-US institutions like BACB to look comprehensively at their USD funding arrangements, including investigating whether other non-US banking partners are themselves transacting with the US financial system, prior to concluding that OFAC’s jurisdiction does not apply. When transacting in USD 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 USD pools and fail to confirm that the funds did not pass through the United States. This is a complex and novel case, but one worthy of careful analysis by non-US banks engaged in potentially higher risk transactions in USD that rely on a determination that the arrangements are outside of OFAC’s jurisdiction.
For more information, please see our advisory.