OFAC Sanctions & SDN List: Immediate Freezing and Mandatory Reporting
During routine Customer Identification Program (CIP) screening against the Office of Foreign Assets Control (OFAC) database, a broker-dealer's compliance system generates an exact positive match for an individual listed on the Specially Designated Nationals (SDN) list attempting to wire $250,000 into a new account. What is the mandatory regulatory action required by federal law?
An OFAC SDN match requires immediately blocking (freezing) the assets and reporting to OFAC within 10 business days. Never return funds to an SDN target.
Complete Analysis & Legal Rationale
The Office of Foreign Assets Control (OFAC), an agency of the U.S. Department of the Treasury, enforces economic and trade sanctions. When a firm discovers that a client or prospective client is on the Specially Designated Nationals (SDN) list or represents a sanctioned regime, federal law requires the broker-dealer to immediately block (freeze) the funds and assets. The firm must not execute transactions, nor may it return or reject the funds back to the sender (which would allow terrorists/criminals to recover their money). The block must be formally reported to OFAC within 10 business days.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Returning funds to a designated terrorist or sanctioned criminal defeats sanctions and violates federal law.
Federal law mandates freezing the assets and filing a formal blocked property report with OFAC within 10 business days.
Trading on behalf of an SDN party is a severe criminal violation of federal sanctions statutes.
OFAC is a federal Treasury agency; reporting is directed to OFAC within 10 business days, not municipal police.
Official Standard: Requires immediate freezing of SDN property and submission of blocked property reports within 10 business days.