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US terrorist watchlist flags 'ordinary people' in error

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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."

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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.