US terrorist watchlist flags 'ordinary people' in error

An increasing number of US businesses are screening their customers against a US Treasury watchlist of suspected terrorists and drug traffickers, resulting in citizens with names similar to those on the list being denied services, according to a new report.

The report, released Tuesday by the Lawyers' Committee for Civil Rights of the San Francisco Bay Area (LCCR), says that the list of "specifically designated nationals" (SDNs) kept by the Office of Foreign Assets Control (OFAC) in the US Treasury Department has resulted in "stigma as well as delayed or denied consumer transactions" for "ordinary people even where there is no discernible relationship to national security."

In recent years, a growing number of Americans have endured stigma and lost opportunities in ordinary consumer settings because their names are mistakenly flagged as being on a terrorist list. This list of suspected terrorists, narcotics traffickers, and other "specially designated nationals" is maintained by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC), and now includes over 6,000 names. Financial institutions, credit bureaus, charities, car dealerships, health insurers, landlords, and employers are now checking names against the list before they open an account, close a sale, rent an apartment, or offer a job.

Few people in the United States are actually on the list. But because many names on the OFAC list are common Muslim or Latino names - such as "Mohammed Ali" or "Carlos Sanchez" - people in this country with similar names are increasingly getting snagged. Even a shared first or middle name, including some of the most common names in the world, can lead to consumer transactions being denied or delayed. Moreover, at a time when Muslims, Arabs, and immigrants in the United States are already subject to prejudice and suspicion, it is hardly surprising that individuals from these vulnerable communities encounter problems from OFAC list misidentification.

The report notes that among those names on the OFAC list that could generate "false positives" are common names such as Abdul, Diaz, Lopez, Lucas, Gibson, and Patricia.

The LCCR report documents several cases of people who were denied services. Tom and Nancy Kubbany of California were refused by a mortgage broker because Mr. Kubbany's middle name is Hassan, an alias used by one of the sons of Saddam Hussein. A Phoenix, Ariz., couple was initially prevented from purchasing a home because the man's first and last names, both common Hispanic ones, were similar to a name on the OFAC list. Another California couple was flagged when buying exercise equipment because the man's first name is Hussein. This required investigation "because of Saddam Hussein," according to a representative from the bank that provides financing to the exercise store's customers.

The OFAC list predates September 11, 2001, but was expanded by President Bush soon after the attacks to include "specifically designated global terrorists," to freeze the assets of those who commit or support terrorist acts. The presidential order also expanded responsibility for engaging in transactions with those on the list to all US citizens, residents, and businesses.

In addition, the order made no exception for minimal transactions, so even a sale worth pennies could be penalized under the law. Furthermore, regulations issued by the Treasury Department in 2003 made clear that while "willful" violations of the law could result in criminal penalties, even transactions without any "willful" intent to violate the law could trigger civil penalties. Therefore, by its terms, the Executive Order extended liability to hair stylists, flower peddlers, hot dog vendors, or any Jane Doe who unwittingly sold a product or provided a service to a designated person.

Although portions of the presidential order were struck down in court, steep penalties for doing business with those on the list remain. The LCCR report says that organizations can face fines of $500,000 for willful transactions with terrorists, $1 million for violating sanctions against Cuba, and $10 million for violating the Foreign Narcotics Kingpin Designation Act. The report notes that "even non-'willful' violations can result in civil penalties, motivating businesses to take measures to prevent even inadvertent violations."

The Washington Post reports that the Treasury recognizes how the lists' regulations may makes things diffcult for businesses.

Molly Millerwise, a Treasury Department spokeswomen, acknowledged that there are "challenges" in complying with the rules but said that the department has extensive guidance on compliance, both on the OFAC Web site and in workshops with industry representatives. She also said most businesses can root out "false positives" on their own. If not, OFAC suggests contacting the firm that provided the screening software or calling an OFAC hotline.

"So the company is not only sure that they are complying with the law," she said, "but they're also being good corporate citizens to make sure they're doing their part to protect the U.S. financial system from abuse by terrorists or [weapons] proliferators or drug traffickers."

On its "Frequently Asked Questions" page, OFAC provides the following instructions about what to do when you encounter an SDN match.

If you have checked a name manually or by using software and find a match, you should do a little more research. Is it an exact name match, or very close? Is your customer located in the same general area as the SDN? If not, it may be a "false hit." If there are many similarities, contact OFAC's "hotline" at 1-800-540-6322 for verification. If your "hit" concerns an in-process wire transfer, you may prefer to e-mail your question to OFAC. Unless a transaction involves an exact match, it is recommended that you contact OFAC Compliance before actually blocking assets.

The Post also reports that though use of OFAC list has become commonplace, some argue it is of little use.

"The law is ridiculous," said Tom Hudson, a lawyer in Hanover, Md., who advises car dealers to use the list to avoid penalties. "It prohibits anyone from doing business with anyone who's on the list. It does not have a minimum dollar amount. ... The local deli, if it sells a sandwich to someone whose name appears on the list, has violated the law." ...

James Maclin, a vice president at Mid-America Apartment Communities in Memphis, which owns 39,000 apartment units in the Southeast, said the screening has become "industry standard" in the apartment rental business. It began about three years ago, he said, spurred by banks that wanted companies they worked with to comply with the law.

David Cole, a Georgetown University law professor, has studied the list and at one point found only one U.S. citizen on it. "It sounds like overly cautious companies have started checking the list in situations where there's no obligation they do so and virtually no chance that anyone they deal with would actually be on the list," he said. "For all practical purposes, landlords do not need to check the list."

The LCCR report recommends a reassessment of the OFAC list, including a rollback of its application to businesses where national security is not a concern and a study of its effect on civil rights.

The breadth of OFAC-administered laws, which are directed not at particular industries or transactions but that apply across the economy, lead to OFAC screening where there is little risk to national security but ample threat to civil rights. The lack of government safeguards for civil rights exposes ordinary Americans to delayed or denied transactions, and discrimination, without any means of redress. As more companies adopt watchlist screening, the government must intervene to regulate and restrain a practice that threatens to become an even greater menace.