IP address screening has been gaining in importance in recent years following a series of enforcement actions by the Office of Foreign Assets Control (OFAC) against companies that unwittingly entered into online business transactions with individuals in sanctioned countries.
It might not have dawned on them that they needed to be screening IP addresses, or their screening technology was not of the caliber required to identify bad actors attempting to mask their true location. Which ever way we look at it, gaps here expose organizations to huge risks.
The latest OFAC enforcement action involved a financial services and payment provider, which was fined US$206,213. The maximum civil monetary penalty could have topped $4.4 billion, but this was not applied because the company self-disclosed the violations, and the alleged breaches were deemed to be non-egregious.
Key Takeaways
- IP address geolocation screening helps to identify the true origins of online transactions.
- Lapses can lead to substantial penalties.
- Robust and continual monitoring is essential for sustained compliance.
- Businesses offering online-driven solutions (financial, software, FINTECH, among others) are especially at risk of falling on the wrong side of the law.
- Leveraging AI-enabled solutions like those from Descartes can aid in accurate geolocation identification and real-time risk mitigation.
Details of the Latest Case
The payment provider in question faced penalties due to lapses in IP address geolocation screening, resulting in violations relating to the sanctioned jurisdictions of Crimea, Iran, Syria, and Cuba. The pivotal misstep lay in enabling users from these regions to redeem prepaid reward cards.
The company’s weak link centered on inadequate due diligence measures, relying solely on user-provided data, and failing to leverage software tools to perform the necessary risk assessment via IP address screening.
OFAC Penalties and Remedial Actions
While the penalties were significant, OFAC considered mitigating factors such as voluntary self-disclosure and the fact that the violations were assessed as non-egregious, which help to greatly reduce the monetary fine.
The payment provider also responded by instituting real-time screening (including IP address screening), blocking email addresses linked to sanctioned regions, and conducting third-party audits to strengthen its compliance processes.
Effective Compliance Strategies
There are a number of lessons that organizations can learn from this case and better navigate OFAC rules and regulations. Here are three of the more important ones.
- Comprehensive Due Diligence: Efficient screening relies on comprehensive, accessible data. Integrating compliance software with existing business systems offers a proactive approach. This integrated solution enables direct sanctions list searches within transaction management systems, coupled with geolocation verification to flag potential risks.
- Continuous compliance updates: Regular reviews and updates to compliance protocols are crucial. Adapting to evolving regulations and technological advancements minimizes the risk of oversights. Training, professional consultations, and following OFAC guidance (including IP address geolocation screening) are key components.
- Automated Real-time Screening: Staying ahead in the compliance game mandates ongoing and real-time screening. The dynamic nature of sanctions risk demands proactive measures to counter evolving tactics employed by restricted parties.
How Descartes can Help with IP Address Screening
OFAC’s enforcement actions underline the indispensable role of IP address geolocation screening in sanctions compliance. Organizations, especially those dealing with global transactions, must prioritize robust screening measures. Embracing technological solutions like Descartes enables proactive and efficient compliance strategies, safeguarding against inadvertent violations.
By embracing comprehensive due diligence, continually updating compliance procedures, and deploying automated screening, businesses can navigate the complex landscape of OFAC sanctions more effectively.
To manage export control risk more effectively, Descartes provides a range of international trade compliance solutions. For more information on how we can help you, see our Descartes Export Compliance section.
Or you can visit Descartes Visual Compliance™ for details on:
See also what our customers are saying about our range of denied party screening solutions on G2, a third-party business software review website.
Additionally, you can read this essential buyer’s guide to denied party screening to help you select a solution that fits your needs.