This is a tale about one of the world’s largest internet payment companies and their expensive lesson learned on the importance of having the right people and systems in place to avoid violations
On March 25, 2015, the US Department of Treasury’s Office of Foreign Assets Control (OFAC) announced that PayPal Inc. (“PayPal”) agreed to pay $7.7 million to settle 486 violations of U.S. economic sanctions. OFAC stated the company failed to properly screen transactions with OFAC sanctioned companies and persons up until 2013. The company neither confirmed nor denied the allegations. However, PayPal did voluntarily hand over the company’s transaction data to OFAC.
OFAC’s settlement agreement lists the alleged violations, which include 136 transactions (totaling $7,091.77) to or from a PayPal account registered to Kursad Zafer Cire, a Turkish national designated by the U.S. State Department on January 12, 2009 for violating the Weapons of Mass Destruction Proliferators and Their Supporters Sanctions Regulations. Big no no as U.S. companies are not allowed to do business with people on the list, who are considered enemies of the United States.
Below is a summary of the focus of the settlement of transactions processed by PayPal, according to OFAC:
- Between 2010 and 2013, PayPal processed 98 transactions totaling $19,344.89 in violation of the Cuban Assets Control Regulations. The total base penalty for this set of violations was $9,672.45.
- Between 2009 and 2013, PayPal processed 125 transactions totaling $8,257.66 in apparent violation of the Iranian Transactions and Sanctions Regulations. The total base penalty for this set of violations was $4,129.
- Between 2009 and 2013, PayPal processed 94 transactions totaling $5,925.27 in violation of the Global Terrorism Sanctions Regulations. The total base penalty for this set of violations was $2,984.88.
- Between 2009 and 2013, PayPal processed 136 transactions totaling about $7000 to or from a PayPal account registered to Kursad Zafer Cire, a Turkish national who violated the Weapons of Mass Destruction Proliferators Sanctions Regulations
- Between 2010 and 2013, PayPal processed 33 transactions totaling $3,314.43 in violation of the Sudanese Sanctions Regulations. The total base penalty for this set of violations was $1,657.
PayPal told OFAC it didn’t block Cire because its automated interdiction filter was not “working properly.” OFAC found that PayPal’s conduct resulted in harm to U.S. sanctions program objectives, provided economic benefit to Cire and undermined the integrity of the Weapons of Mass Destruction Regulations by operating an account and processing transactions for approximately three-and-a-half years. OFAC said the apparent violations of the sanctions “constitute an egregious case” and that PayPal personnel failed to follow up six alerts triggered by transactions with Cire. A reviewer finally flagged the seventh transaction and asked for more customer background, including a copy of Cire’s passport and date of birth. That resulted in PayPal blocking his account.
As a mitigating factor in the case OFAC acknowledged that PayPal implemented effective controls by self-reporting the offenses and cooperating with the government. There is definitely something to be said for a company’s commitment to compliance when they take measures to remedy the situation by hiring new management in its compliance division, enhancing its OFAC screening processes, and turning over all the evidence OFAC requested.
A day late and dollar short? Or dare I twist that old adage into poor processes and $7M gone. Let’s add to this lesson the plethora of articles written on this subject (mine included) and the smudge on PayPal. Years from now trade compliance professionals will use this case to remind their executives of the importance of staying compliant. How much more influential when making a point then having a real case to present of 486 violations (totaling under $44,000.00) = $7.7M fine?
“The implications for ONESOURCE are obvious. If a company doesn’t think they need a Restricted Party Screening solution we might want to ask them to remember PayPal” (Source: Andrew Moxon) as we introduce the ONESOURCE Restricted Party Screening (RPS) module.