PayPal, Inc. ("PayPal"), the payments division of the e-commerce company EBay Inc, has agreed to pay a $7,658,300 civil penalty in connection with its failure to identify, interdict, and prevent transactions in apparent violation of the international economic sanctions programs administered by the U.S. Department of Treasury Office of Foreign Assets Control (“OFAC”).
According to OFAC, PayPal processed approximately 500 transactions totaling approximately $43,934 in apparent violation of a number of U.S. sanctions programs administered by the Office of Foreign Assets Control (“OFAC”), including regulations prohibiting trade with proliferators of weapons of mass destruction (“WMD”), Iran, Cuba, and Sudan, among others.
The agency noted that “[i]n particular, PayPal failed to employ adequate screening technology and procedures to identify the potential involvement of U.S. sanctions targets in transactions that PayPal processed.” Each of the transactions giving rise to PayPal’s apparent violations either contained an explicit reference to a country subject to OFAC sanctions or another term linked to the country (i.e., “Tehran,” “Khartoum,” “Cuba,” “Iran,” “Sudan,” “Iranian,” or “Cuban”), or involved a PayPal account in which an individual specially designated by OFAC as a global terrorist had an interest.
U.S. citizens and nationals wherever they are located, and any person located within the U.S., are prohibited from transacting or dealing with Specially Designated Nationals. OFAC identifies such persons on a list the agency maintains and regularly updates. In the settlement agreement, OFAC specifically noted that some of PayPal’s apparent violations involved accounts held by Interpal and Kahane Chai, two organizations that have each been designated as Specially Designated Nationals by OFAC for well over 10 years.
In addition, the settlement agreement highlights that the company processed over one hundred transactions to and from a PayPal account registered to Kursad Zafer Cire, an individual designated as a blocked person in 2009 pursuant to Executive Order 13382 of June 28, 2005, "Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters," despite the fact that the company's sanctions interdiction software had flagged the account on numerous occasions.
The enforcement action against PayPal illustrates the significant monetary and public relations risks a company can face if it fails to adequately invest in and implement international economic sanctions screening and compliance measures. Further, the ultimate amount the company was fined illustrates the importance of the company's actions in the wake of a sanctions violation discovery.
Despite finding that PayPal’s management and supervisors knew of the conduct giving rise to the apparent violations and “demonstrated reckless disregard for U.S. economic sanctions requirements in deciding to operate a payment system without implementing appropriate controls,” OFAC did not fine the company the total potential penalty amount of $17,018,443. In reducing the amount of the fine by nearly $10 million dollars, the agency took into account, among other things, the fact that the company filed a voluntary self disclosure of the violations, cooperated with OFAC’s investigation, hired new management, and strengthened the company’s screening processes and measures.