Auto Dealers Helping Feds Fight Terrorists by Alan B. Nichols After Sept. 11, 2001, President Bush made it a top priority to not only identify terrorists hostile to the United States, but also freeze their financial assets. Banks and other financial institutions play key roles in helping the government pinpoint and cut off terrorist financing. If these institutions can be considered the high commanders in the U.S. financial war on terror, other industry sectors dealing with large sums of cash are the foot soldiers. These include car dealerships that, like all U.S. businesses, are being called on to help in the governmentís war on terrorism by denying terrorists access to the U.S. financial system. Just weeks after 9/11, Bush signed the Executive Order on Terrorist Financing. Invoking the authority of various U.S. laws, including the International Emergency Economic Powers Act (IEEPA)óas well as a series of U.N. Security Council resolutions imposing multilateral sanctions against terrorists, financial institutions with alleged ties to terrorism, and states that support terroristsóBush proclaimed that the national emergency provoked by 9/11 warranted extraordinary measures to curb the flow of money into terrorist coffers. The order (EO 13224) gives the secretary of the Treasury Department, and, in some cases, the secretary of state, the authority to block the property of and prohibit transactions with people who commit, threaten to commit or support terrorism. Once designated, these entities are listed on the Treasury Departmentís specially designated nationals (SDN) list, which is managed by the Office of Foreign Assets Control (OFAC). Under the executive order, the United States has designated 383 individuals and entities as terrorists or terrorist financiers. In addition, with international cooperation, nearly $142 million in terrorist-related assets has been frozen worldwide. Complying With National Security U.S. businesses, including car dealerships, must engage in their own due diligence to ensure that they are in compliance with national security laws. The simplest way to do this is to check customer names against the SDN list, which is posted on OFACís Web site. The SDN list was around long before Sept. 11, 2001, and before Executive Order 13224 was issued. The list is composed of entities designated by multiple executive orders and is not confined to terrorists. For instance, other entities could have been designated over the years for being part of the Saddam Hussein regime, disrupting the peace process in the Balkans, thwarting democratic processes in Zimbabwe, or being suspected narcotics kingpins, according to a Treasury spokesperson. However, all designated entities, regardless of the executive order under which they are named, have their property blocked, and U.S. businesses that provide various financial services are prohibited by law from doing business with them. Beyond the obligation to perform customer due diligence, car dealerships have long been required under the Bank Secrecy Act to report cash transactions to the Treasury Department of more than $10,000. Information contained in these reports, known as 8300 forms, goes into a huge federal database and can be used in conjunction with criminal investigations and/or prosecutions involving alleged money-laundering and other related crimes. The 8300 reporting requirements, which are administered jointly by the Financial Crimes Enforcement Network (FinCEN) and the Internal Revenue Service, create an administrative task that adds a negligible amount to the overhead costs of a dealership, according to one local dealer. Although some dealers assign their staffs due diligence and 8300 reporting responsibilities, other Washington-area dealers outsource these tasks to automotive retail management support firms, such as Dayton, Ohio-based Reynolds and Reynolds, or to private credit reporting services. Meanwhile, FinCEN is currently developing rules under the Patriot Act of 2001 that would require different sectors of the financial services community, including businesses engaged in vehicle sales, to develop anti-money-laundering compliance and customer identification programs. Industry Executives Respond "Based on our customersí requests for technology support, we knew the USA Patriot Act had turned up the heat on automotive dealers to focus on FinCEN/IRS 8300 reporting and OFAC verification requirements. Reports are that government auditors are keeping the heat on," said David Stampley, senior corporate counsel and director of privacy at Reynolds and Reynolds, which delivers information technology, software solutions and professional services that support the automotive industry. "Like every other business, automotive dealerships must comply with the OFAC requirement to check the SDN list. Currently, a dealerís anti-money-laundering efforts do not have to include a formal customer identification program [CIP]," Stampley explained. "In contrast, an institution such as a federally regulated bank or securities broker-dealer must designate a CIP coordinator, develop policies and procedures, deliver ongoing employee anti-money-laundering training, and conduct independent audits of CIP efforts." "Like most small businesses, auto dealerships are continuing with their day-to-day operations just as they were prior to 9/11," observed Ed Patru, communications director for the American International Automobile Dealers Association, a trade association representing 10,000 dealers who sell and service imported automobiles. "Certainly dealers are aware that weíre in an age of increased risk, and for the most part, people in general are more aware of whatís going on in their stores and in their lots. And dealers in general are probably more vigilant than in the past about complying with reporting requirements and doing the obligatory background checks," Patru said. "But in terms of the Patriot Act, at this point we arenít hearing from our members that they are being inundated in new paperwork or new burdensome federal requirements." Fran Tesorero, a financial services industry professional, said there are start-up costs related to currency transaction and cash reporting requirements, "but once a program is up and running, the costs are minimal." However, he added, the costs also depend on the size of the company. Regardless, he said, "Knowing your customer rules [is] the right thing to do." Washington Dealers Weigh In Don Beyer, president of Don Beyer Volvo in Northern Virginia, said there hasnít been any increased paperwork burden on dealers arising from government orders since 9/11, but he said the biggest onus on car dealers these days is on securing their paperworkóreports and contractsóagainst theft. Beyer has five dealerships in the metro area comprising $175 million in annual sales. He said the biggest administrative burden stems from the privacy provisions of various national and state laws. Some dealers now submit 8300 reports on all of their customers, regardless of the size of the cash transactionójust to be on the safe side, according to Beyer, who noted that his dealership only reports transactions of more than $10,000. Brian Meacham, sales manager at BMW of Fairfax, Va., said, "Both our dealership and BMW of North America have tough standards regarding our accounts. If we think anything is amiss, we will stop the transaction immediately. We are very careful about how we receive payments." Many people are buying vehicles in the United States and reselling them elsewhere on the gray market, according to Meacham. "If we have any suspicions of this, we wonít sell a vehicle," he said. "If a customer squirms in his seat during a transaction, we wonít hesitate to end it right there." To ensure customer integrity, Meacham said his dealership checks names against state motor vehicle records only. "If itís a cash deal, we run credit checks, but we have had no difficulty related to possible terrorist activity. Our primary problem is the reselling on the gray market." Chris Alvarez, general manager of Alexandria Volkswagen, said, "Itís been a long practice of ours to make a valiant effort to properly identify our customers. If we have had problems with customers, it has not been with terrorist-related activity but with drug trafficking. Since 9/11, the stakes are higher regarding customer due diligence." Alvarez noted, however, that most of the background procedures are fairly routine. "We have paper shredders and improved security of our files. Our customer check against the DNS list is a straightforward procedure that amounts to a minimal administrative cost." Alvarez, whose dealership is just two miles from the Pentagon, said due diligence with respect to ensuring customer integrity "is part of our duty as Americans. We have been through a lot in the past few yea rs." "Any time our new car sales department receives any cash or a cashierís check, we report it so no one can come back to us and say we slipped up," explained Steve Lutsky, senior diplomatic sales representative with Euro Motorcars. "This policy has been in place for about a year." According to Lutsky, about 40 percent of Euro Motorcars sales involve either cash or a line of credit where a lien is not involved. He said the dealershipís only problem post-9/11 has been with false identification, citing two cases involving Nigerians who presented fake identifications. "It smelled bad," he recalled. "There were misspellings on the application. We set up our own little sting operation. We met them at a restaurant and found they were trying to export the vehicles for money. We told the police." Martens Volvo in Washington, D.C., employs Reynolds and Reynolds, which, for a modest add-on fee, handles customer due diligence and 8300 reporting duties. Although Reynolds may flag a potential match of a customerís name with the SDN list, it is up to the dealer to verify or refute that match, according to a Martens spokesperson. Moore Cadillac uses First American Credco of San Diego, a private firm that sells credit reports to the automotive industry. The reports are derived from the national credit bureaus and screen customers against the OFAC list using matching algorithms. If there is a possible match, the dealer has to conduct due diligence to verify or refute the match. Alan B. Nichols is a contributing writer for The Washington Diplomat. Credit Agencies Determining If Applicant on SDN List Credit bureaus and agencies in particular have adopted new measures to ensure compliance with regulations issued by the Office of Foreign Assets Control (OFAC). Before issuing a credit report, they use special "interdiction" software developed by the private sector to determine if a credit applicant is on the Treasury Departmentís specially designated nationals (SDN) list. This software matches the credit applicantís name and other information to individuals on the SDN list. If there is a potential match, the credit bureaus place an alert on the report. This does not necessarily mean that someone is illegally using your Social Security number or that you have bad credit. It is merely a reminder to the person checking your credit that they should verify whether you are the individual on the SDN list by comparing your information to the OFAC information. If you are not the individual on the SDN list, the person checking your credit should disregard the OFAC alert, and there is no need to contact OFAC. However, if the person checking your credit believes you are the person on the SDN list, then he or she should contact OFAC or FinCEN to verify and report it. Office of Foreign Assets Control Compliance Hotline: (202) 622-2490 www.treasury.gov/offices/eotffc/ofac Financial Crimes Enforcement Network Financial Institutions Hotline: (866) 556-3974 www.fincen.gov óAlan B. Nichols