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Checking the Federal “Bad Guy” List?
By Thomas B. Hudson

You’d be amazed at the stuff that crosses my desk. Here’s a recent example:

A Mt. Juliet car dealership has been shut down on suspicion that it has ties to a terrorist organization. A lawsuit was filed by the U.S. government against a group of overseas banks Dec. 15 in U.S. District Court in New York. It names Cedar Exports & Auto Sales at 7925 Eastgate Blvd. as part of a nationwide network of auto dealers who received money from an international money laundering concern with ties to drug traffickers, some of whom are supporters of Hezbollah. The United States regards Hezbollah as a terrorist group and blames it for the 1983 bombing of U.S. Marine barracks in Beirut. The suit alleges that at least $248 million was transferred from overseas accounts to the car dealerships.

There’s always a risk in taking government allegations at face value before a jury has heard any evidence or has had a chance to weigh in with a verdict, but that didn’t stop me from having a “yikes” reaction to this particular news blurb.

Why “yikes”?

My first thought was to wonder whether the dealer might be a buy-here, pay-here dealer and whether the banks, sales finance companies, and vendors (such as repossession companies) that have been dealing with this dealer bothered to check the dealership name against the Treasury Department’s “Specially Designated Nationals” list maintained by the Office of Foreign Assets Control. There wasn’t any indication in the brief report of this event that the dealership was on the OFAC list or not, but I still found myself wondering what the ramifications might be if it had appeared on the SDN list.

Under federal law, U.S. persons are prohibited from doing business with any entities or individuals whose names appear on the OFAC “bad guy” list. Dealers are generally familiar with this requirement as it applies to their vehicle sales and financing activities. They are somewhat less familiar with the fact that they need to check the list when they deal with their own employees and with their vendors – basically anyone with whom they do business.

But I’d be willing to bet my lunch money that the vendors who deal with dealerships don’t have the OFAC prohibition on their radar screens yet. And that can lead to big trouble if those dealerships happen to show up on the OFAC list. The penalties for OFAC violations are very harsh – up to 30 years in jail and fines with multiple zeroes tacked on the end.

But can’t you just fly under the radar? After all, what are the chances that a dealership’s name will appear on the OFAC list? How many U.S. car dealerships are involved in terrorist activities anyway? Isn’t ignoring the possibility that you’d get a hit from the OFAC list a legitimate business risk?

Until that email hit my inbox, I might have understood why a vendor would ask those questions. But the OFAC list is easy to check, and building that checking process into your initial and ongoing business procedures is so easy that it simply doesn’t make sense to risk ending up as the topic of an enforcement headline.

Thomas B. Hudson is a partner in the Maryland office of Hudson Cook, LLP. Tom can be reached at 410-865-5411 or by email at thudson@hudco.com.

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