The USA PATRIOT Act and OFAC: What Every Business Should Know

The PATRIOT Act and Sanctions Compliance

The USA PATRIOT Act, passed shortly after September 11, 2001, significantly expanded the US government's tools for combating terrorism and money laundering. Several provisions of the PATRIOT Act directly affect OFAC compliance, particularly for financial institutions. Even if you are not a bank, understanding how the PATRIOT Act connects to OFAC can help you build a stronger compliance program.

Customer Identification Program (CIP)

Section 326 of the PATRIOT Act requires financial institutions to implement a Customer Identification Program. A CIP establishes minimum standards for verifying the identity of new customers. At minimum, you must collect:

• Full legal name
• Date of birth (for individuals)
• Address
• Identification number (Social Security number for US persons, passport or other government ID for non-US persons)

CIP requirements are directly relevant to OFAC screening because the information you collect during customer identification is the same information you need to perform effective sanctions screening. A name alone can generate false positives. Adding a date of birth, address, and ID number helps you distinguish between a true match and a coincidence.

Customer Due Diligence (CDD)

Beyond basic identification, the CDD rule (which FinCEN finalized in 2016) requires covered financial institutions to understand the nature and purpose of customer relationships and to conduct ongoing monitoring. There are four core requirements:

1. Identify and verify the identity of customers
2. Identify and verify the identity of beneficial owners of legal entity customers
3. Understand the nature and purpose of the customer relationship
4. Conduct ongoing monitoring to identify and report suspicious transactions

The CDD rule applies to banks, broker-dealers, mutual funds, and futures commission merchants. Other types of businesses are not technically subject to the CDD rule, but the principles are good practice for any company that wants a strong compliance program.

Beneficial Ownership

One of the most significant requirements flowing from the PATRIOT Act framework is the identification of beneficial owners. When a legal entity (an LLC, corporation, partnership, or trust) opens an account, you must identify the individuals who own 25% or more of the entity and at least one individual who controls it.

This requirement is critical for OFAC compliance. A sanctioned individual might not open an account in their own name. Instead, they might use a company or trust to conceal their involvement. By identifying beneficial owners, you can screen the actual individuals behind the entity, not just the entity name.

The Corporate Transparency Act, which took effect in 2024, builds on this concept by requiring many US companies to report their beneficial owners directly to FinCEN.

Sections 311, 312, and 314

Sections 311 and 312 impose enhanced due diligence requirements for correspondent banking relationships with foreign financial institutions and for private banking accounts held by non-US persons. If your business maintains relationships with foreign entities, consider whether enhanced due diligence is appropriate, including more frequent OFAC screening.

Section 314 created mechanisms for information sharing between the government and financial institutions. FinCEN can distribute names of suspected terrorists and money launderers to financial institutions for searching against their records. If your organization participates in 314(a), having a good screening tool makes the process much more efficient.

Practical Takeaways

Even if your business is not a bank, the PATRIOT Act framework offers useful principles:

• Verify identity. The more you know about your customers, the better you can screen them.
• Look behind entities. Screen beneficial owners, not just entity names.
• Risk-based approach. Higher-risk customers and transactions deserve more scrutiny.
• Ongoing monitoring. One-time screening at onboarding is not enough.

OFACScreen helps you act on these principles with fast, accurate screening that integrates easily into your customer onboarding and monitoring workflows.