Narcotics Kingpins: How Much Could You Save?

This post was written by Anne Borkovic.

Who knew that gecko was mixed up with such unsavory characters? On June 3, 2010, the U.S. Treasury, Office of Foreign Assets Control (“OFAC”) announced that GEICO General Insurance Company paid $11,000 to settle allegations that, from approximately September 2006 to June 2007, it provided a car insurance policy to an individual listed on the Specially Designated Nationals (“SDN”) List as a narcotics kingpin. The alleged violations involved premium payments totaling $2,265. OFAC’s brief announcement specifies that the settlement amount reflects OFAC’s consideration that GEICO screens its customers against a version of the SDN List updated only annually, but is taking measures to improve its procedures.

The announcement also specifies that the base penalty for the alleged violations was $11,000. This combined with the penalty calculation procedures in OFAC’s penalty guidelines indirectly confirms that the case was likely not voluntarily disclosed. The imposition of a base penalty also indirectly confirms that OFAC did not pursue egregious or “willful” violation penalties in this case. However, it also indicates that OFAC considered the case significant enough to pursue a monetary penalty rather than only issue a cautionary letter or formal finding of a violation.

Many companies struggle with the need to screen customers against the continually-updated SDN List, as well as the Denied Parties, Unverified, Entity, and Debarred Lists. Companies with more standard business models – order placement, shipment, — can take advantage of screening software, including automatic updates of the lists and friendly interfaces, to screen each order for shipment. However, many companies have such a high volume of customers, international locations, and non-traditional structures, that even implementing a procedure to use the software would require significant changes to the business process.

Unfortunately, even with robust processes, there are no safe harbors available for screening transactions to ensure that the customer is not included on a list. The GEICO enforcement action demonstrates that even one slip in the screening can result in an administrative investigation and civil money penalty. It also shows that OFAC is willing to undertake enforcement actions in industries with less traditional distribution models.