On February 5, 2013, the Officeof Foreign Assets Control introduced the first SDN list search tools whichemploy a “fuzzy” logic search option. For those of you that don’t know, “fuzzy”logic is a search option that deals with reasoning that is approximate ratherthan fixed or exact. The OFAC SDN Fuzzy logic search tool uses “character andstring matching as well as phonetic matching. Only the name field of SDNSearch invokes fuzzy logic when the tool is run. The other fields on thetool use character matching logic.” The search tool allows users to adjust theSDN Search score. “The score field indicates the similarity between the nameentered and resulting matches on the SDN List. It is calculated using twomatching logic algorithms: one based upon phonetics, and a second based uponthe similarity of the characters in the two strings. A score of 100indicates an exact match, while lower scores indicate potential matches”.
Financialinstitutions using OFAC filtering software should conduct testing of thesoftware to determine whether such accounts for name variation, misspelling,and/or concatenated word formatting. Like the OFAC SDN Fuzzy logic search tool,many OFAC software providers use this same logic which allows users to adjustthe logic settings to a setting that is capable of detecting “potentialmatches”. As suggested by the guidance, users should make “thresholddeterminations based on internal risk assessments and compliance practices”.
Asan audit practice, we test the validity of our clients OFAC compliance softwareby selecting names from the Most Recent OFAC Actions, existing SDN list, PLClist (non-SDN), and enter the names slightly altered (e.g., first name last,last name first) or misspelled to determine if the software is capable ofproviding a “potential match”. Institutions using OFAC filtering software(especially those with greater OFAC risk) should take the same approach todetermine if the logic settings are adequate. In the event that the software isnot providing for the desired results, the institution should reach out to theservice provider to determine if an adjustment can be made. Note that it isimportant to have a setting that is capable of providing “potential matches”but not one that provides a voluminous number of “false positive” results. Thisis why it is important to test the software based on multiple settings toarrive at a setting that best meets the institutions compliance needs.
For more information on SDN FuzzyLog Search, refer to this link:
Senior Manager - BSA/AML
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