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OFAC compliance mandatory; penalties for noncompliance staggering

November 23, 2010
More dealers became aware of a decades-old federal list of enemies of the country following a story in the Dec. 1 edition of Automotive News. Compliance with the list is mandatory, and the penalties for noncompliance are staggering. The OFAC list, administered by the U.S. Treasury Department's Office of Foreign Assets Control, is posted at, on on the department's Web site. The mission of OFAC is to administer and enforce U.S. economic sanctions programs to accomplish foreign policy and national security goals. These are primarily directed against countries and groups of individuals, such as terrorists and narcotics traffickers. The sanctions can be either comprehensive or selective. The Treasury Department has been paying closer attention to the OFAC list since Sept. 11, 2001. The OFAC restrictions are separate from the requirements in the USA PATRIOT Act. The USA PATRIOT Act became law on Oct. 26, 2001, whereas the OFAC restrictions have existed for many years. OFAC administers its sanctions programs; the Treasury Department's Financial Crimes Enforcement Network ("FinCEN") is primarily responsible for administering the relevant sections of the USA PATRIOT Act. All businesses, not just dealers or even financial institutions, are expected to check the OFAC list, so in the strictest sense, even chewing gum salesmen must check it. Credit bureaus will check the information for a fee, and the Treasury Department warns that some dealers may fall prey to vendors selling pricey software to search the list. The list, currently 127 pages and containing thousands of names of individuals and entities, is updated by OFAC periodically-sometimes weekly, sometimes after six months. Only a few of the persons on the list are known by OFAC to presently be in the United States. Many of the names are very similar. A dealership can confirm the accuracy of a name on the list by calling the OFAC hotline, 800-540-6322. The three provisions in the USA PATRIOT Act that Treasury Department attorneys have identified as applying to dealers (cash reporting, information sharing and anti-money laundering) do not alter or change the existing OFAC restrictions. Therefore, FinCEN's temporary exemption of automobile dealers from the anti-money laundering program requirement does not affect the OFAC-implemented sanc tions. The OFAC restrictions are extremely broad, and there is no minimum dollar threshold. Therefore, the restrictions prohibit dealers from entering into a contract with a prohibited person for an oil change just as they prohibit dealers from entering into a contract with a prohibited person for the purchase of a high-end vehicle. OFAC maintains a List of Specially Designated Nationals and Blocked Persons ("SDN List") on its Web site. The penalties for noncompliance can be severe. Depending on the program, criminal penalties can include fines from $50,000 to $10 million, and imprisonment from 10 to 30 years for willful violations. Civil penalties can range from $11,000 to $1 million for each violation. OFAC does not require U.S. businesses to develop and implement an OFAC compliance program, although a compliance program may be considered a mitigating factor by OFAC in a civil penalty proceeding. However, OFAC does not provide guidance to retailers on what constitutes an adequate compliance program. One component of compliance programs that companies in some industries employ is the use of name-recognition software that matches the names of prospective customers with the names of prohibited persons identified on OFAC's SDN List. The OFAC Web site states that U.S. persons are expected to exercise "due diligence" in determining whether prohibited persons are involved in a proposed transaction. The appropriate degree of diligence will depend on the facts and circumstances, and it is recognized that retail operations in the United States are not where the primary focus of terrorist financing rest. Nevertheless, the legal obligations apply to all U.S. persons and cannot be dismissed simply because the risk is low. Legal experts say the list must be taken seriously. If the fines aren't enough to bury a dealership, the bad publicity for selling vehicles to terrorists could be. Mike Charapp, a Washington lawyer who represents dealers, said, "Any government penalties applicable to an unintentional deal with a terrorist pale in comparison to the adverse publicity and personal grief that would result from selling a truck to a terrorist that is ultimately used as a truck bomb." Look for more information on OFAC's Web site, including Frequently Asked Questions, at