The Office of Foreign Assets Control (OFAC) isn't your everyday regulator, fretting over the usual safety-and-soundness topics in banking. "People don't really understand OFAC," says George Thomas, president, Electronic Payments Network (EPN), a private-sector payments network. "All they want is to stop the bad guys' money."
That's why EPN intends to screen the parties to a transaction against OFAC's list of blocked names and accounts on behalf of U.S.-based financial institutions. "It doesn't make sense for 20,000 financial institutions to go out and buy OFAC screening software when many of them will never even see a cross-border payment," says Thomas. "But they need to protect themselves in case they do."
EPN has been evaluating OFAC screening software from technology vendors including Data4S (Leuven, Belgium), Prime Associates (Clark, N.J.) and Thomson Financial (New York). "We sent each one of these [vendors] a 100,000-record file to see what kind of results we got back," says Thomas. "We don't want to miss any, and we don't want too many false positives."
Nevertheless, from a detection standpoint, it's better to have false positives than false negatives. That's why the OFAC screening system will have to accommodate easy handling of those items. "We're looking at the ability to take the false positives and put them into a database so that the next time through, they don't pop up again," says Thomas.
EPN already uses software from Data4S for its ACH (Automated Clearing House) fraud detection service, EPN WATCH, which analyzes unauthorized transactions in both consumer and corporate settings. "We're looking at the patterns we've detected," says Thomas. "If they pop up somewhere else, we'll be able to spot them."
EPN Screens, You Decide
Although EPN's planned OFAC service would take the screening chores away from the financial institution, it would not be responsible for the compliance burden. "Say you have these cross-border payments that you want to send out tomorrow," says Thomas. "Give them to us, and we'll immediately screen them and give you a report back. You decide whether they're good or not."
Indeed, the screening procedure would be a separate service from payment initiation, clearing and settlement. That's a cleaner process that also makes it possible for EPN to offer its services to financial institutions that use the Federal Reserve to conduct ACH transactions.