Thursday, April 30, 2009

The Truth Behind OFAC Part 1

by Justina Ly

OFAC checks might seem useless, but not complying could mean 10 to 30 years in prison. Find out why compliance is a good thing and how it can act as a first line of defense.

Bob Morrissey, an F&I manager for Scoville-Meno Honda in Oneonta, N.Y., had heard of others getting a hit, but he had never experienced one himself. That all changed on June 14, but as he said, the experience wasn’t all it was cracked up to be.

It happened on a Saturday. The name of the customer Morrissey was talking to on the phone partially matched a name on the Specially Designated Nationals (SDN) list, a compilation of individuals and groups sanctioned from conducting business in the United States.

Morrissey double checked the name with an online database, but couldn’t clear his customer. Since this was his first hit, he eagerly called the Office of Foreign Assets Control (OFAC), the federal agency that oversees and compiles the SDN list. Unfortunately, as he’d come to find out, the Washington, D.C.-based office was closed on weekends, which meant he’d have to leave a voicemail message with his name and contact information on the department’s automated answering machine.


Three days later Morrissey received a call back from an agency employee. He was asked for his customer’s name only, but no other information was requested. “Nothing about address, date of birth, Social Security number or anything,” recalled Morrissey. “He says, ‘No, it’s only a partial hit. You’re OK.’ That’s it, conversation over.”

The casualness and brevity of his encounter with the OFAC employee left Morrissey disenchanted by how the 58-year-old agency handled his situation. “If it was a typical handling of a hit, the process is so flawed that it will yield no results,” he said.

“I’m not asking to make a major case out of a partial hit, but at least there should be more of an effort to be certain it’s a false hit,” he added. “How about asking for additional info to see if there are any other similarities?”

Verifying a Hit

Morrissey’s question is valid for any auto dealer that comes across a partial or full OFAC hit. What are dealers suppose to do when their compliance solution indicates a positive hit? The answer is simple, but it may also confound dealers who get OFAC hits.

Officially, the OFAC office advises business owners who think they have a hit to contact the government agency’s 800-number to verify their customer’s personal information. An agency representative will ask for a customer’s first and last name. If there is not an exact match, then the dealer is free to conduct business with the customer.

However, if there is a match, then the representative will ask for more of the customer’s personal information, such as address, nationality, passport, tax ID or cedula number, date of birth, place of birth, former names and aliases, until the hit is verified.

The process is straightforward and low-tech, which is why dealers such as Morrissey question why the OFAC does not take a more rigorous approach to verifying customer information. Aside from asking a series of questions, the department does not employ any other method for validating an individual’s identity. To the agency’s credit, its staff is well versed on compliance issues involving financial institutions and other businesses, but only provides limited service to dealers with questions.

The agency takes thousands of calls each year from businesses nationwide, but has no record of how many of those businesses included automotive dealerships, said John Rankin, a former spokesperson for the OFAC. The agency also has no record of partial or full hits reported by auto dealers.

In addition, OFAC does not mandate that dealers use a specific compliance process to conform to its regulation. “We recognize that all businesses are different,” Rankin said. “What works for a huge operation might not work for a smaller outfit.”

Rankin said that hits recorded by a dealership’s compliance solution may be related to another list, such as the FBI’s Most Wanted List or the State Department’s Debarred Parties List. That’s because lists from various government and international organizations are often lumped into one database, and used by compliance solution providers. So, if a dealer runs a credit bureau report on a customer, it’s possible his or her name will be screened against all of these records.

“It’s important that businesses understand the list and think about what process they have to make sure it’s a false positive or if it’s actually a real name,” Rankin said.

NEXT: The Truth Behind OFAC Part 2


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