In-House, Outside, or Both: Who Handles OFAC Matters for a Bank?

The administrative subpoena arrives on a Tuesday morning, and by noon three different advisors are telling you three different things. Your in-house sanctions analyst says the bank should respond directly and quickly, because the underlying transaction looks routine. Your outside sanctions counsel says nothing should leave the building until a privileged review is complete. Your general banking counsel, who has handled lending and deposit matters for two decades, says this is simply a records request and the relationship manager should pull the file. All three are partially right, and all three are partially wrong. The real question is not who is smartest in the room. It is who owns which decision, in what order, and when the matter must escalate.

For a regional bank, sanctions exposure rarely arrives as a dramatic headline. It arrives through a wire that touched a real estate closing, a title company remitting funds on behalf of an overseas buyer, or a commercial mortgage payment routed through an intermediary institution. Because real estate sits at the intersection of high-value transfers, layered ownership structures, and cross-border capital, it is one of the most common places where sanctions risk quietly accumulates. Understanding OFAC compliance in real estate deals is therefore not a niche concern for the largest institutions. It is a core operational competency for any bank with real estate exposure.

This article compares three roles that frequently collide during a sanctions inquiry: in-house compliance staff, outside OFAC counsel, and general banking counsel. It then offers a practical decision matrix for allocating work and a short set of escalation triggers.

Role One: In-House Compliance Staff

In-house compliance staff are the bank’s first line of detection and its institutional memory. They know the customer base, the transaction monitoring system, the alert backlog, and the historical quirks of specific relationships. When a sanctions issue surfaces, they are usually the only people who can quickly answer factual questions: Was this account previously escalated? Did we file a blocking report? Has this counterparty appeared in prior alerts?

Their strengths are speed, context, and cost efficiency. A well-run in-house team can triage an alert within hours, gather supporting documentation, and determine whether the matter is a false positive or something more serious. They also maintain the sanctions compliance program that regulators examine, including screening procedures, risk assessments, and training records.

Their limitations are equally important. In-house staff face structural pressure. They report to bank management, they may lack deep experience with OFAC enforcement patterns, and their conclusions can be influenced by business relationships they interact with daily. In-house teams are also not protected by the same privilege considerations that apply to outside counsel engaged for legal advice. When a matter could become an enforcement action, the individuals who conducted the initial review may become witnesses. That does not make in-house review wrong. It makes it a stage, not a destination.

Role Two: Outside OFAC Counsel

Outside sanctions counsel bring specialized knowledge that most regional banks cannot justify maintaining internally. They understand how OFAC structures investigations, how administrative subpoenas are typically scoped, how voluntary self-disclosures are evaluated, and how penalty calculations are influenced by the strength of a compliance program. They also bring privilege, which matters enormously once a matter shifts from routine review to potential enforcement.

Engaging outside counsel early is not an admission of guilt. It is a recognition that sanctions matters have legal consequences that differ from ordinary compliance questions. A blocked transaction may require a report to OFAC within ten business days. A rejected transaction may require a different filing. An unblocking request, a specific license application, or a request for interpretive guidance each follow distinct procedures with distinct deadlines.

Outside counsel are also useful in real estate contexts because ownership structures are often opaque. A borrower may be a domestic entity whose parent company is offshore, whose ultimate beneficial owner is unclear, or whose funds passed through jurisdictions with limited transparency. Untangling that chain requires both legal analysis and investigative discipline. Outside counsel can direct the factual work while preserving privilege over the legal analysis.

The tradeoff is cost, speed, and dependency. Outside counsel bill hourly, they need time to learn the bank’s systems, and over-reliance on them can erode internal capability. The goal is not to outsource judgment permanently. It is to bring in the right expertise at the right moment.

Role Three: General Banking Counsel

General banking counsel occupy a different lane. They handle the bank’s core legal work: loan documentation, deposit agreements, regulatory examinations, vendor contracts, employment matters, and litigation. They know the institution deeply and often serve as the bridge between business lines and the legal function.

In a sanctions matter, general banking counsel are valuable for several reasons. They can assess contractual obligations, including representations and warranties in loan agreements and indemnification provisions. They can manage relationships with counterparties, title insurers, and escrow agents. They can coordinate responses to parallel demands from regulators, auditors, or business partners. And they can help the bank decide whether a transaction should be unwound, restructured, or allowed to proceed under a license.

What general banking counsel typically should not do is lead the sanctions analysis itself. Sanctions law is a specialized body of regulations, guidance, and enforcement precedent that changes frequently. A skilled banking lawyer who has never handled an OFAC subpoena may underestimate the significance of a screening gap or misjudge the reporting obligations triggered by a blocked wire. The most effective model treats general banking counsel as the coordinator and relationship manager, while specialized sanctions counsel owns the substantive legal analysis.

A Decision Matrix for Allocating Sanctions Work

The following matrix is a starting point, not a rigid rule. It assumes a regional bank with a functioning compliance program and access to outside sanctions counsel.

Routine alert or screening hit, no funds blocked. In-house compliance owns the review. General banking counsel is informed only if a customer relationship or contract is implicated. Outside counsel is not needed unless the alert involves a complex ownership chain or a jurisdiction with heightened risk.

Transaction blocked or rejected. In-house compliance gathers facts and prepares the initial report. Outside OFAC counsel reviews the report before filing and advises on timing and content. General banking counsel manages the customer relationship and any contractual fallout.

Administrative subpoena or formal request for information. Outside OFAC counsel should be engaged immediately. In-house compliance supports document collection under counsel’s direction. General banking counsel coordinates with the bank’s litigation and regulatory teams and manages internal communications.

Potential enforcement action or penalty notice. Outside OFAC counsel leads. General banking counsel handles parallel regulatory and reputational issues. In-house compliance provides factual support and may need separate representation if individual conduct is at issue.

Real estate transaction with foreign ownership or layered entities. In-house compliance performs initial screening. Outside OFAC counsel assesses beneficial ownership, fund routing, and licensing options. General banking counsel reviews loan documents and closing mechanics. This is where OFAC compliance in real estate deals becomes a genuinely collaborative exercise rather than a single-department task.

Voluntary self-disclosure. Outside OFAC counsel drafts and submits the disclosure. In-house compliance documents remediation. General banking counsel assesses collateral consequences for the institution.

Ongoing compliance program design. In-house compliance owns the program. Outside counsel provides periodic training and program review. General banking counsel ensures the program aligns with broader regulatory expectations.

When to Escalate: Practical Triggers

Escalation should not depend on intuition. It should depend on defined triggers that are documented in advance and understood across the compliance, legal, and business functions.

Escalate to outside OFAC counsel when funds have been blocked or rejected, when a subpoena or formal information request is received, when a customer or counterparty appears on the SDN List or another sanctions list, when a transaction involves a jurisdiction subject to comprehensive sanctions, when beneficial ownership cannot be established with confidence, or when the bank is considering a voluntary self-disclosure.

Escalate to general banking counsel when a customer relationship is at risk, when loan covenants or representations may be breached, when a counterparty threatens litigation, when a regulator outside the sanctions context requests information about the same matter, or when reputational exposure could affect the bank’s franchise.

Escalate to the board or a designated committee when the matter could result in a penalty above a defined threshold, when senior personnel are personally implicated, when the matter involves multiple business lines, or when the bank’s public disclosures may be affected.

One additional trigger deserves emphasis: disagreement among advisors. If in-house compliance, outside counsel, and general banking counsel reach different conclusions about urgency or scope, that disagreement itself is a signal. It usually means the facts are incomplete or the risk assessment is contested. In either case, the matter should be escalated to a single decision-maker with authority to resolve the conflict, rather than allowed to drift while each advisor works from a different assumption.

Building a Workable Division of Labor

The most effective banks treat sanctions work as a relay, not a competition. In-house compliance runs the first leg, gathering facts and preserving evidence. Outside OFAC counsel runs the second leg, providing specialized legal analysis and managing interactions with OFAC. General banking counsel runs the third leg, protecting the institution’s broader legal and commercial interests. The handoffs matter more than the individual performances.

Three practical steps make this model work. First, define escalation triggers in writing and review them annually. Second, establish a single point of contact for sanctions matters so that information does not fragment across departments. Third, conduct periodic tabletop exercises that simulate a subpoena, a blocked wire, or a real estate closing with foreign ownership, so that each role understands what the others need.

Sanctions risk in real estate is not going away. Cross-border capital flows, layered ownership structures, and high transaction values make the sector a persistent target for enforcement attention. Banks that clarify who handles what, and when to escalate, will respond faster, document better, and reduce the likelihood that a routine alert becomes an enforcement matter.

Frequently Asked Questions

Can in-house compliance staff handle an OFAC subpoena without outside counsel?

They can receive and acknowledge it, but the substantive response should generally be coordinated by outside OFAC counsel. Subpoenas often signal that OFAC is evaluating potential enforcement, and the response may create legal obligations or admissions that in-house staff are not positioned to manage. Outside counsel also help preserve privilege over the analysis.

Does general banking counsel need to be involved in every sanctions matter?

No. Routine screening alerts that resolve as false positives typically do not require general banking counsel. Their involvement becomes important when a customer relationship, loan covenant, contract, or parallel regulatory issue is implicated. In those situations, they coordinate the commercial and contractual response while sanctions counsel handles the OFAC-specific analysis.

What is the biggest mistake banks make when allocating sanctions work?

Treating the matter as a single-department problem. When compliance, outside counsel, and general banking counsel work in isolation, facts get duplicated, deadlines get missed, and inconsistent positions emerge. A defined escalation framework and a single point of contact prevent most of these failures.

How quickly should a bank engage outside OFAC counsel after receiving a subpoena?

Immediately. Even if the initial review suggests the matter is minor, early engagement allows counsel to assess the scope of the request, preserve documents properly, and advise on deadlines. Delay can complicate the response and, in some cases, affect how OFAC views the bank’s cooperation.