Abstract
This essay relates Dr. Smith’s discussion about the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury and how it relates to the Board of Governors of the Federal Reserve System.
Discussion
This essay discusses the Office of Foreign Assets Control (OFAC), Federal Reserve System (Board of Governors), and how they relate with each other. It is based on the speech delivered by a guest speaker, Dr. Smith from the Federal Reserve Bank to my class on the topic ‘Purposes and Functions of the Federal Reserve Bank.
According to Dr. Smith, the Office of Foreign Assets Control (OFAC) is a state agency of the U.S. of Treasury department. The agency was formed for the purpose of administering and enforcing trade and economic sanctions. The administration and enforcement of economic and trade sanctions by OFAC are based on the foreign policy and national security of the United States. It mainly targets terrorists, countries with poor governance records, international drug traffickers, and individuals or states involved in the proliferation of weapons of mass destruction. The law under Presidential wartime and national emergency powers mandate OFAC to regulate transactions and freeze all suspect assets under U.S. laws.
The regulations enforced by OFAC are applied to all U.S. citizens and other institutions including financial institutions. Financial institutions, in particular, are required to do their reporting based on OFAC regulations. The financial institutions in the U.S. are also subject to certain prohibitions by OFAC. The Office of Foreign Asset Control maintains the list of specially designated nationals (SDN) which includes the names and institutions whose transactions are not allowed. The agency has the mandate granted by U.S. jurisdiction to allow exemptions to certain transactions by issuing both general and specific licenses depending on circumstances. Whenever a case happens in a financial institution that goes against regulations stipulated by OFAC, they must report in writing within ten days of occurrence.
Federal Reserve System was created in 1913 to serve as the central bank of the U.S. by an Act of Congress. The Federal Reserve System is made up of seven Board members of Governors with headquarter in Washington D.C. It has twelve Reserve Banks located in major cities in the United States of America. The law allows the President of the United States of America to appoint the Board of Governors to serve for fourteen-year terms subject to confirmation by the senate.
The Board has a number of responsibilities. First, it formulates monetary policy and makes important decisions that affect the cost and availability of money in the U.S. economy. Second, regulates and supervises member banks, international banking facilities in the U.S., bank holding companies, foreign dealings of member banks, and the Edge Act and corporations agreements. Third, it ensures the continued development of the nation’s payment system. Fourth, it sets requirements that limit the use of credit for buying or carrying securities. Fifth sets reserve requirements. Lastly, it develops and administers regulations that implement important federal legislation that governs consumer credit.
The Office of Foreign Assets Control (OFAC) relates to the Board of Federal Reserve System in a number of ways. First, the Federal Reserve System monitors its members to ensure that they follow money laundering provisions and regulations which are formulated by OFAC. Second, the Federal Reserve System plays a key inspectional role to ensure that OFAC examination regulations are followed. To this effect, the principles and procedures that govern OFAC reviews are established by the financial institution’s examination manual (Mishkin, 2006), Third, evaluation of sufficient policies, procedures, and processes for banks to abide by OFAC’s laws and regulations is done by the Board. Last but not least, they also relate through information sharing on matters pertaining to sanctions and violations such as narcotics trafficking, terrorism, weapons of mass destruction, and others (Reynolds & Stinebower, 2006).
In conclusion, the Office of Federal Asset Control (OFAC) works for hand in hand with the Federal Reserve System in regulating and enforcing laws that govern the financial sector in the United States of America.
References
Global Trade Markets. (2000). OFAC Sets Higher Penalties under Certain Sanctions Programs. Web.
Mishkin, S. Fredrick (2006). The Economics of Money, Banking and Finance Markets: New Jersey: Princeton University Press.