U.S. sanctions net snares the innocent, burdens business
By Anna Yukhananov and Warren Strobel, Reuters, June 21, 2014
WASHINGTON (Reuters)--On a Friday afternoon in March, Jose Luis Zamora pulled into a Lexus dealership in Dallas to test-drive a new car with his wife. Ready to pay, Zamora instead waited more than two hours before being informed his name had popped up on a government watchlist that blocks those linked to money launderers, groups alleged to have committed terrorist acts and other enemies of the United States from doing business in the country.
A routine credit check matched him to Jose Hernan Zamora, a Colombian who is no relation to the Texas resident and was added to the Treasury Department’s sanctions list around 1997 for his ties to narcotics traffickers.
Zamora, of Dallas, had never been to Colombia. It took him two days of digging, phone calls to the Federal Bureau of Investigation and Department of Homeland Security, and letters to his elected representatives to learn he was far from the only one who has been accidentally snared.
“I’m a citizen of the United States. I was raised in this country,” said Zamora, who is 58 and immigrated from Cuba nearly half a century ago. “And I’m treated like a terrorist.”
Yet there was nothing he could do to permanently clear his name, leaving him at risk of being tagged again.
Zamora’s case is one of hundreds that have come up since businesses started regularly scanning the Office of Foreign Assets Control’s (OFAC) list of blocked people and companies. The businesses are seeking to avoid fines that can reach $10 million per criminal violation.
OFAC sanctions drug traffickers, terrorists, Iranian banks and others under more than 30 different programs, freezing their assets and prohibiting U.S. firms from doing business with them. It relies on the private sector to ensure the sanctions work in practice.
The crackdown by U.S. authorities on money laundering in recent years has already ensured compliance by banks, but the growing importance of sanctions to U.S. foreign policy and the greater familiarity with sanctions has now roped in mortgage providers, apartment rental companies and even casinos as regulators broaden the definition of “financial institutions” that could be liable to penalties.
Seven years after a legal group highlighted the issue of false matches, the issue is likely to only get worse as more businesses feel compelled to screen customers, according to interviews with nearly two dozen lenders, lawyers and consumer activists familiar with the system.
Lawyers call people like Zamora “collateral victims” of the sanctions war: those with common names, often of Middle Eastern or Hispanic origin, who may not even realize their car or home loan was rejected or their apartment application denied because someone mistook them for a foreign militant.
The Specially Designated Nationals List contains the names of nearly 6,000 people and organizations. Companies can face fines even if they do business by accident with anyone on it.
Large banks spend millions of dollars and hundreds of hours a year devising complex automated systems to scan the list and avoid false positives.
Bank employees then have to determine whether a potential customer named, say, Daniel Garcia--one of the most common names on the list--is the same person as a blacklisted Garcia with an address in Mexico. That is challenging, given minimal identification details provided by OFAC.
In a sign of the burden the system places on the financial industry, one bank had 12,000 hits each day that got caught in the OFAC filter, according to a former OFAC official who now works with financial institutions.
The San Francisco-based Lawyers’ Committee for Civil Rights drew widespread attention to the problem of false matches in its 2007 report, “The OFAC List: How a Treasury Department Terrorist Watchlist Ensnares Everyday Consumers.”
Particularly problematic are names that were put on the list before the Patriot Act in the wake of the Sept. 11, 2001 terror attack, before cross-checking became regular practice, and those that were added en masse just after the attacks, initially without birthdays attached to them.
“Fortunately it hasn’t gotten to the point where if you’re going to a Giant or Safeway (grocery store), they’re going to be screening you,” said Doug Jacobson, a Washington-based sanctions attorney. “But who knows where will it end?”
Meanwhile, Zamora caught an unlikely break when he discovered he had gone to the same elementary and high school as the auto salesman who pulled his credit report.
“He knew about me,” Zamora said, “so I walked out of there with a car that night.”