March 2009 - Feature
The Truth Behind OFAC
OFAC checks might seem useless, but not complying could mean 10 to 30 years in prison. Find out why compliance is a good thing and how it can act as a first line of defense.
By Justina Ly
Matt Milliken has spent seven years in the powersports
industry, and eight in auto. And in that time, the current business director
for a Honda dealership in Grapevine, Texas,
has never had a hit.
In
the auto industry, a dealership’s requirements set forth by the Office of
Foreign Assets Control (OFAC), a federal agency, are clear. Run a customer’s
name through the Specially Designated Nationals (SDN) List, a compilation of
individuals and groups prohibited from conducting business in the United States,
and move on with the F&I process. However, in the powersports industry,
where dealers operate parts, accessories and clothing departments, compliance
isn’t so clear.
For
Milliken, whose store is situated in a well-to-do section of the greater
Dallas-Fort Worth area, it’s better to be safe than sorry. That’s why he runs
an OFAC check on every deal totaling more than $10,000, regardless of whether
he’s dealing with a cash or finance customer. Still, even he isn’t sure if
that’s the right way to go.
“I
don’t know if it’s an accepted practice in the industry,” he said.
Milliken
verifies each customer by entering his or her first and last names into an
online search tool controlled by the Financial Industry Regulatory Authority,
the largest non-governmental regulator for all securities firms operating in
the United States.
The search tool cross-checks a customer’s name against the SDN List.
The
significance of this list is pretty simple. “If your customer is on the list,
you cannot sell, lease or otherwise deliver the vehicle,” said Jim Ganther,
president of Mosaic Compliance Services. “How the vehicle is paid for — cash,
credit or lease — is irrelevant.”
Who
Needs an OFAC Check?
The
OFAC regulation applies to all dealer business transactions for all sales,
regardless of the price of the item, according to Terry O’Loughlin, director of
compliance for Reynolds and Reynolds. And although he says the OFAC requirement
can even be applied to items selling for as little as a few cents, O’Loughlin
said it’s important to understand the purpose of the rule.
“Vehicles, certain parts, and other materials may be
employed for terrorist actions. Consequently, such purchases would be of
concern to the federal government … But dealers should understand where the
emphasis should be placed,” O’Loughlin said.
Since
the OFAC regulation does not specify a dollar amount needed before a check is
conducted, the responsibility falls on the dealership’s management team to set
limits.
Cindy
Wallace, a finance manager for a Honda dealership in Seattle, said her dealership’s minimum dollar
amount for an OFAC check is $3,000. Typical motorcycle deals at her store range
between $20,000 and $25,000.
“I only worry about it when I’m doing a deal
for a bike or scooter,” she said. “When people buy parts, I don’t think it’s
necessary.”