FATCA + OFAC

🔹 FATCA (Foreign Account Tax Compliance Act)

Purpose:

• U.S. law aimed at preventing tax evasion by U.S. persons holding financial accounts outside the U.S.

• Requires foreign financial institutions (FFIs) to report U.S. account holders’ financial information to the IRS via their local tax authority.

Enterprise Implementation:

1. Customer Identification:

   • During onboarding, the system identifies if a customer is a U.S. citizen, green card holder, or U.S. tax resident.

   • Uses self-declaration forms + KYC data.

2. Screening & Data Capture:

   • Store FATCA classification (U.S./Non-U.S.) in the database.

   • Collect TIN (Taxpayer Identification Number) for U.S. accounts.

3. Reporting:

   • Generate annual reports to IRS via local tax authority.

   • Flag any accounts for review if documentation is missing or inconsistent.

Key Takeaway: FATCA is mostly reporting-focused, not about sanctions.

🔹 OFAC (Office of Foreign Assets Control – U.S. Treasury)

Purpose:

• U.S. law that sanctions individuals, entities, countries to prevent money laundering, terrorism financing, and economic crimes.

• Includes:

  • SDN List (Specially Designated Nationals)

  • Sanctioned Countries (e.g., Iran, North Korea)

Enterprise Implementation:

1. Screening:

   • During onboarding or transaction, customer/beneficiary info is screened against OFAC SDN lists.

   • Uses exact/fuzzy matching algorithms.

2. Blocking & Reporting:

   • True Positive match → block account or transaction.

   • Mandatory report to OFAC within defined timelines (daily/real-time depending on system).

3. Audit & Record Keeping:

   • Every match attempt logged (list version, match score, reviewer).

   • Essential for regulatory inspection.

Key Takeaway: OFAC is blocking and reporting-focused, globally enforceable, applies to U.S.-linked transactions/accounts.

🔹 Enterprise Flow – How FATCA + OFAC Fit in Screening

Regulatory	Focus	Trigger Point	Action Taken
FATCA	Tax compliance, U.S. accounts	Onboarding / KYC	Capture TIN, classify account, report annually
OFAC	Sanctions, SDNs, blocked entities	Onboarding + Transaction	Block True Positive, escalate & report to OFAC/FIU

"In global compliance, we handle multiple regulatory frameworks. FATCA ensures U.S. account holders are reported to the IRS — mostly KYC capture and annual reporting. OFAC is a sanctions-focused framework — any match to SDN lists or sanctioned countries triggers a block and immediate reporting. Our screening platform integrates both: FATCA captures U.S. customers, OFAC flags blocked individuals/entities. This ensures compliance with both tax and financial crime regulations, while maintaining seamless onboarding for genuine customers."

📝 Amit R – End-to-End Screening + FATCA + OFAC Walkthrough

Step 1: Customer Onboarding Trigger

• Customer: Amit R applies for a personal account.

• KYC/CDD collects:

  • Name: Amit R

  • DOB: 15/07/1988

  • PAN: ABCDE1234F

  • Nationality: Indian

  • Passport: Z1234567

  • Country of Tax Residence: USA & India (dual citizenship claim)

• System generates: Correlation ID, Case ID for auditability.

Step 2: Screening Microservice Calls

a) Sanctions & PEP Check (OFAC / UN / Dow Jones / Refinitiv)

• Payload sent to Screening API: name, DOB, passport, nationality.

• Response Example:

  • Potential PEP match: Amit Rahman (UN Sanctions List)

  • Match Score: 82%

b) FATCA Screening

• System checks:

  • Is customer a U.S. tax resident? ✅ Yes

  • Does customer provide TIN? ❌ Missing

• Outcome: Need FATCA classification & documentation

Step 3: Decision Routing

Screening Result	Action	Notes
OFAC/UN Potential Hit	Analyst review	Name similarity → Partial match
FATCA Missing TIN	Request customer documentation	Required for U.S. reporting
Overall Risk Score > 75%	Flagged for Enhanced Due Diligence	Gray zone scenario

• Case moves to Level-1 Analyst.

Step 4: Analyst Review

1. Sanctions/PEP Check:

   • Name mismatch: Amit R vs Amit Rahman

   • DOB, passport, nationality → do not match

   • Conclusion → False Positive for OFAC/UN → can approve

2. FATCA Review:

   • Customer must submit TIN or W-9/W-8BEN

   • Once received and validated → FATCA compliance satisfied

3. Gray Zone Handling (EDD):

   • High-value account → optional additional check: negative media scan, independent verification

Step 5: Outcome Actions

Module	Action Taken
KYC/CDD	Approve onboarding (False Positive resolved)
FATCA	Account classified as U.S. tax resident; report to IRS prepared once TIN received
OFAC / Sanctions	No true match → onboarding continues
Audit Trail	Immutable logs: Correlation ID, timestamps, analyst decision, list version, FATCA documents

• Customer account created in core banking system.

Step 6: Transaction Screening (Post-Onboarding)

• Amit R initiates international wire transfer.

• Screening microservice triggers:

  • OFAC SDN check → Pass

  • FATCA → Already classified → pass

  • AML Transaction Monitoring → rules/ML scoring applied → pass

• Transaction approved → audit log updated for regulatory compliance.

Amit R applies for onboarding, and the system automatically screens him across OFAC/UN sanctions lists and FATCA tax residency rules. The screening service flags a potential PEP match in OFAC, and FATCA shows missing TIN. Analysts perform enhanced due diligence: the sanctions match is verified as a false positive, and FATCA documents are collected. The onboarding is approved, fully audited, and the customer is classified as U.S. tax resident for reporting. Later, his international transaction passes both OFAC and AML screening. This end-to-end flow demonstrates how enterprise banks integrate screening, FATCA, and sanctions checks while balancing regulatory compliance and customer experience."

Customer Onboarding: Amit R

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| KYC/CDD Service |

| - Collect Name, DOB, PAN, Passport|

| - Country of Tax Residence |

| - Generate Correlation ID / CaseID|

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| Screening Microservice |

| - Sends data to: |

| • OFAC / UN / Dow Jones / |

| Refinitiv (Sanctions & PEP) |

| • FATCA Compliance Check |

| - Returns potential hits / missing |

| documentation |

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| Case Management System (CMS) |

| - Receives potential hits |

| - Creates CaseID / Audit Trail |

| - Routes to Analyst |

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| Analyst Review |

| - Compare identifiers (DOB, PAN, |

| Passport, Nationality) |

| - Resolve False Positives |

| - Escalate Gray Zone to EDD |

| - Collect FATCA documents |

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| Decision Engine |

| - False Positive → Approve |

| - True Positive → Block / STR |

| - FATCA compliant → Update account |

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| Core Banking / Transaction System |

| - Account creation / Transaction |

| processing