Treasury Department enemy blacklist trips up people seeking credit cards and loans
This photo illustration shows Ramon Eduardo Arellano-Félix, who is on a blacklist of U.S. enemies kept by the Treasury Department’s Office of Foreign Assets Control. He was killed in 2002 but remains on the list along with his imprisoned brothers who ran a Tijuana drug cartel. (Megan Wood/inewsource)

Treasury Department enemy blacklist trips up people seeking credit cards and loans

All Alvaro Rodarte wanted to do was help a friend by co-signing a loan for a used Subaru.

Credit-check companies sell consumer information for almost every major financial transaction. When the companies get it wrong, it can damage the people’s reputations and cause them to be denied everything from credit cards to home loans.

The 27-year-old construction worker from the San Fernando Valley didn’t anticipate any problems. He had gotten car loans before. But the salesman at the Los Angeles car dealership quickly broke off the deal after running a credit check on Rodarte.

Rodarte said the salesman told him his credit was frozen, that he was on some sort of “government watchlist.”

“They told me that when you typed in my information, that I was OFAC red listed. … At that time, I had no idea what OFAC was,” Rodarte said.

Most Americans probably don’t know about this list, a registry kept by the U.S. Treasury Department’s Office of Foreign Assets Control. The OFAC list includes drug cartel kingpins, members of international terrorism organizations and others who financial institutions are banned from conducting business with because they are considered enemies of the United States.

Thousands of people with names identical or similar to those on this list have been wrongly flagged as threats to national security, and it often happens when a credit check is run on them. It can keep them from getting a car or home loan or from obtaining a credit card. In some cases, people aren’t even told the reason for credit denials is their names showed up with an OFAC alert, making it difficult to challenge the information so it can be corrected.

These kinds of “false positives” happened to more than 8,100 people in a six-month period, according to court records in a recent federal class-action case in California.

When Rodarte got rejected in August for the car loan, he turned to the internet to find out what he could about OFAC. He uncovered bits and pieces about who is on the list and read stories about its role in the war on terrorism in post-9/11 America. He said he started to get this “giant pit in my stomach.”

Rodarte said when he tried to go to sleep that night, “I kept having a feeling that some government agency was going to kick down my front door, drag me out of bed and put a bag over my head and make me disappear.”

The government never came calling, and the construction worker eventually learned he was never on the OFAC list. His name was just a partial match to one of the thousands of names on it.

History of OFAC and its role in war on terror

The Treasury Department has been waging financial strikes on America’s enemies since the War of 1812 between the United States and Great Britain. That job became the responsibility of the department’s newly created Office of Foreign Assets Control in 1950, when China entered the Korean War. At the time, President Harry Truman ordered financial sanctions against China and North Korea.

The OFAC list includes not only countries and individuals involved in drug trafficking and international terrorism. It also identifies businesses and property, such as ships and aircraft, connected to governments under sanctions by the U.S., including Syria and Iran. Together, this OFAC blacklist labels all of them “specially designated nationals,” and financial institutions are enlisted by the government in its effort to monetarily cripple these enemies of the U.S.

During the mid-1990s, when President Bill Clinton was going after Middle Eastern terrorist groups, many names and organizations were added to the list but not that of Osama bin Laden, who would go on to orchestrate the terror attacks on Sept. 11, 2001. Eventually, Clinton ordered bin Laden’s name be added, but the 9/11 Commission report said it was largely ineffective, in part because he did not have financial assets the U.S. could control.

Less than two weeks after the 9/11 attacks, President George W. Bush signed an executive order ramping up the “war on terrorism” by promising to go after the financial assets of terrorists and their organizations.

“We will starve the terrorists of funding, turn them against each other, rout them out of their safe hiding places and bring them to justice,” Bush said.

If you’ve been wrongly flagged with an OFAC alert, inewsource wants to hear from you. Contact reporter Alain Stephens at alainstephens@inewsource.org.

This put the Office of Foreign Assets Control in overdrive, but not in a good way. “The post-9/11 period at OFAC was ‘chaos.’” according to the 9/11 Commission report. It said the White House was pushing for major names to be added to the list every four weeks and “derivative” names to be added throughout the month. Treasury officials acknowledged in the report that the “evidentiary foundations for those early designations were quite weak.”

One group targeted under Bush was the Holy Land Foundation for Relief and Development, which was on OFAC’s blacklist. Less than three months after the 9/11 attacks, the group’s San Diego office was raided by the FBI.

Eventually that raid and others led to the arrest and conviction of five foundation members in a Dallas federal court for using the charity to funnel $12.4 million to the Palestinian terrorist group Hamas. Among those convicted was Mohammad El-Mazain, who had led the foundation’s San Diego office.

Also on the list is Anwar al-Awlaki, who was an imam at a mosque on the border of San Diego and La Mesa when two of the 9/11 hijackers worshipped there. He was killed in Yemen in a U.S. drone attack in 2011, but U.S. authorities say he continues to be revered by some and has inspired dozens of terrorist attacks since his death.

His name remains on the list, even though OFAC says it adds and removes names regularly, and archives on its website changes to the list back to 1994.

It’s up to financial institutions operating in the United States to make sure they don’t do business with anyone on OFAC’s blacklist. If authorities catch them involved in transactions with sanctioned countries, individuals or organizations, they face fines and prison time.

That has led businesses, including banks, mortgage companies and car dealerships, to pay third-party screeners such as TransUnion, Equifax and Experian to check customers’ identities against the OFAC list before they will enter into financial transactions with the people.

“They have implemented software programs, filtering programs basically, to run against the OFAC list,” said David Long, a criminal justice professor at Brandman University in San Diego and a former special agent for the Racketeering Division of the Labor Department’s Office of Inspector General.

The integrity of the software is integral to the accuracy of such checks, Long said.

“The situation though, has been with some programs, of producing false positives for people that are not on the list,” he said.

David Long, a criminal justice professor at Brandman University in San Diego and former federal agent with the U.S. Labor Department, is shown on Oct. 23, 2018. (Megan Wood/inewsource)

OFAC list and false positives

Erich Ferrari, a Washington, D.C., attorney who represents clients before OFAC, said he sees fewer false positive cases today than he did less than a decade ago. But for those caught up in this, it’s usually a surprise, he said. They had no idea their names were being run against a list of terrorists and drug kingpins considered enemies of the U.S.

Americans need to be made “aware of the scrutiny they’re under in the name of national security, and the consequences that arise when that scrutiny goes awry,” Ferrari said.

Sergio Ramirez, a 43-year-old painter from the Bay Area, experienced the consequences when he was denied an auto loan. He sued, contending software used by TransUnion wrongly identified him as a member of two drug cartels on the OFAC list. One was the Arellano Félix Organization, which for years controlled the drug trade in Tijuana before being dismantled by federal authorities in San Diego.

Ramirez was the lead plaintiff in the federal class-action suit filed against TransUnion in San Francisco. A jury last year reached a $60 million verdict against the credit-reporting company. Each of the 8,185 class members was awarded $7,337 in punitive and statutory damages. The company is appealing the verdict.

Ramirez’s lawyers argued that TransUnion should have used other information such as birth dates and Social Security numbers to verify if he and others were truly on the OFAC list. They also said that when people hit with OFAC matches requested reports from TransUnion, the company violated the Fair Credit Reporting Act by omitting those results — keeping victims in the dark about how to challenge and correct the information so it wouldn’t further damage their reputation and ability to obtain credit.

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The judge in the case said Ramirez’s lawyers provided ample evidence for the jury to reach its verdict. The lawyers contended TransUnion knew from a previous lawsuit about problems with its background-checking software yet continued to sell its OFAC checking services, the judge said. She said the company also could not “identify a single instance in which its OFAC Alert product identified someone actually on the OFAC list.”

TransUnion attorney Stephen Newman had contended that anyone wrongly flagged was suffering a minor “inconvenience” akin to walking through courthouse security.

“It would be very nice if we lived in a world where we do not have to take our shoes off and go through metal detectors,” Newman said. “But we do. This is our world today, unfortunately.”

In a statement about the Ramirez case to inewsource, TransUnion said that “while the potential name match to the OFAC list maintained by the U.S. government was regrettable, the consumer did not incur any financial harm.” The company said it also abided by all of the credit-reporting rules and regulations, including those set by the Treasury Department.

In another class-action lawsuit filed in 2012 in San Francisco, TransUnion was accused of wrongly attaching OFAC alerts on the credit files of more than 18,000 Californians, and confused TransUnion customer service operators began receiving calls from people wanting to dispute the alerts. TransUnion determined a “coding error” caused the alerts and fixed it.

The federal case was settled this year when the company agreed to offer free credit monitoring for three years to those affected. TransUnion also said it would pay up to $1.48 million in legal fees for the plaintiffs.

OFAC issues aren’t limited to TransUnion.

In October, Sung Gon Kang, a 28-year-old bank manager from Los Angeles, sued Credit Bureau Connection in federal court after he said he was misidentified as being on the OFAC list when he went to a Huntington Beach car dealership to buy a used car with his father. The suit also faults the credit-reporting company for not telling Kang he was on the list.

Kang’s suit said the company’s software for checking names on the OFAC list matched his name to “Song Nam Kang,” a state security minister for the North Korean government.

Sung Kang was “horrified and embarrassed,” according to his lawsuit, and asked the dealership to run his name again. The second check returned the same as the first, along with an additional alert — this time positively identifying him as “Kang Song 1,” a North Korean boat.

“The criteria is so loose that it leads to these really absurd results of potential hits,” said Kang’s lawyer, John Soumilas, who also represented the plaintiffs in the TransUnion lawsuits.

“It’s sad and laughable. No matching criteria should possibly result in a person being identified as a boat associated with terrorism or narco trafficking,” Soumilas said.

OFAC does say the list includes vessels that could be used by people or organizations considered threats to the U.S.

One aspect of these OFAC lawsuits and the false positive alerts is that the people flagged have non-Western European names.

“It’s not something that affects your average Joe,” said Mohsen Zarkesh, an OFAC sanctions attorney in Washington, D.C.

“It’s gonna affect the Omar, the Muhammad, the Cesars of the world,” Zarkesh said.

In court documents in Ramirez’s case against TransUnion, the company’s attorneys cited a lack of instruction from the government as a problem. “They have provided no guidance,” TransUnion argued. “They have never set a standard for how results are to be reported. They have never set a standard for how information is to be delivered to members of the public.”

TransUnion’s attorneys added that a number of federal agencies encourage OFAC screenings to continue, but there is no clear direction on how it should work. “They have had lots to say. They have had lots of contradictory things to say. Some want to see fewer hits. Some want to see more hits,” the attorneys said.

The Treasury Department declined requests by inewsource for interviews with department or OFAC officials to explain the list and how it works.

In an email, it sent a link to its “Sanctions Search List Tool,” which explains that OFAC “employs fuzzy logic on its name search field to look for potential matches” on the list. “This logic uses character and string matching as well as phonetic matching,” according to the website, which added that “other fields on the tool use character matching logic.”

The department’s email also pointed out new measures credit bureaus and agencies are using to comply with OFAC regulations, including verifying potential matches when a “red flag” or alert shows up on a credit report.

For people who want to know if their name or names similar to theirs are on the OFAC list, the office has a search tool they can use.

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About Alain Stephens:

Alain Stephens
Alain Stephens is an investigative reporter at inewsource. To contact him with tips, suggestions or corrections, please email alainstephens [at] inewsource [dot] org.