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The latest sanctions update from the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury has once again placed the Marshall Islands in the spotlight.
The update includes Iran-related designations, adding three more Republic of the Marshall Islands (RMI) trust company complex organizations, which were incorporated in July 2023, February 2024, and March 2024.
This latest addition brings the total number of RMI-incorporated entities linked to terrorism, Iran, and Russia sanctions to 60.
Sri Lanka’s Role in Offshore Incorporation
Another notable trend to observe is Sri Lanka's emergence in the offshore incorporation landscape. While Sri Lanka does not offer the same level of ease and flexibility in offshore business formation as the Marshall Islands, it has begun to gain prominence.
The latest OFAC update includes a Sri Lankan entity, marking only the second time a Sri Lanka-linked organization has been added to the list. This trend signals a growing involvement of Sri Lanka in offshore business incorporation, warranting further scrutiny in future updates.
The Importance of Tracking the Country of Organization
One of the most critical takeaways from the latest OFAC update is the necessity of collecting information on a business’s country of organization. Given the significant loopholes at the U.S. state level, foreign businesses can incorporate within a U.S. state without disclosing their ultimate beneficial owners (UBOs).
Understanding a customer’s true risk profile requires an assessment of where the business is actually organized.
Is the company incorporated in a U.S. state known for offshore-friendly regulations, such as Wyoming, but actually organized in the Marshall Islands?
Is it currently listed as a restricted entity on OFAC’s sanctions list? Not necessarily, but that does not eliminate the risk of potential ties to terrorism.
How much money moves through these businesses before they attract OFAC’s attention and become formally sanctioned?
These are essential questions for financial institutions, regulators, and compliance professionals to consider.
Sanctions Compliance: A Priority for Corporate Banks and Fintechs
Sanctions compliance should always remain a top priority for corporate banks, and this applies even more so to unregulated fintechs, lendtechs, or hard-money lenders.
Even if a firm has partial or no Anti-Money Laundering (AML) obligations, it still carries a sanctions burden. However, sanctions compliance is no longer as simple as performing a basic name screening and moving forward.
As financial regulations evolve, sanctions compliance is becoming increasingly complex. Firms must go beyond basic checks and adopt a more nuanced approach to identifying risks.
Conclusion
The March 2025 OFAC sanctions update underscores the growing role of offshore jurisdictions, particularly the Marshall Islands and Sri Lanka, in financial activities that may pose national security risks.
For financial institutions, understanding the country of organization is no longer optional—it is a critical factor in risk assessment. As offshore incorporation practices continue to shift, sanctions compliance must evolve to address emerging threats and loopholes.
By fLEXI tEAM
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