Written by Shari R. Pogach, Regulatory Paralegal
A recent enforcement action by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has resulted in the issuance of new guidance concerning false hits lists. OFAC issued a Finding of Violation against BMO Harris Bank NA as the successor to Marshall and Ilsley Bank (M&I), in connection with M&I’s processing of six funds transfers totaling $67,357 in violation of the Iranian transactions and sanctions regulations.
Apparently M&I’s customer was a company that specialized in carpets and the company name included the word “Persian” in its name. The funds were to pay an outstanding balance to an entity in Iran for the purchase of Iranian-origin carpets. The company had been a customer of M&I since 2009 when importing Iranian carpets was still allowed. M&I had added the company to its “False Hit List” on May 29, 2009, after its OFAC interdiction software generated multiple alerts due to the word “Persian.” But M&I never updated its procedures after importing Iranian-origin carpets was no longer allowed after September 29, 2010.
OFAC understands the need for such lists to reduce the volume of OFAC-related matches that have been determined are false, but warns that it is important that policies and procedures are implemented and designed to review, evaluate and reassess the parties that are included on such lists. The False Hit Lists Guidance lists possible measures to be taken such as:
- Involving sanctions compliance personnel in developing guidelines for, and oversight of, the functioning of false hit lists, including periodic reviews;
- In situations where additions or changes to an SDN List entry are similar to a false hit list entry, ensuring that alerts generated by screening hits in connection with the additions/ changes to the SDN List are not automatically suppressed by the existing false hit list entry;
- Amending the false hit list, as needed, in response to updates to OFAC’s sanctions programs (including, for example, the revocation of general licenses, the implementation of new sanctions programs and/or prohibitions, or enhanced restrictions on certain categories of transactions); and
- For direct customers who have an entry on a false hit list, ensuring that any meaningful changes to the customer’s information (e.g., a change in ownership status, business activity, address, date of birth, place of business, etc.) trigger a review of the false hit list entry.
In other words, make sure if you create and use a false hit list, also make certain you have a policy and internal procedures in place to ensure that it doesn’t remain static.
You may not realize from my name that I am Irish through and through – recently took a little trip to Dublin and Galway. Ireland is full of red heads, music and Guinness! Oh, and you might recognize my traveling companion in the last photo!