I wrote briefly about “fuzzy logic” in a prior post (please see: https://thesanctionsgeek.com/3-key-steps-in-ofac-compliance-screen-screen-and-screen/). What I did not mention is that a couple of America’s biggest companies have recently gotten caught for failures to pick up aliases that their respective software programs should have caught.
The Office of Foreign Assets Control (OFAC) itself has recently upgraded the “fuzzy logic” in its own search tool in January 2021. Please see: https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20210125.
Those two companies that got in trouble recently for inadequate “fuzzy logic” capabilities are Apple and Amazon. This blog will review both cases to illustrate the importance of proper “fuzzy logic” capabilities in a chosen software service provider.
I. Apple’s Failure with Fuzzy Logic
In November 2019, Apple, Inc. agreed to pay $466,912 to settle its OFAC case for apparent violations of the Foreign Narcotics Kingpin Sanctions Regulations. (Please see: https://home.treasury.gov/system/files/126/20191125_apple.pdf).
Apple dealt in the property or interests in property of SIS, d.o.o. (“SIS”), a Slovenian software company previously identified on OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”) as a significant foreign narcotics trafficker (“SDNTK”). The SDN List provided the following identifying information for SIS: SIS D.O.O., 19 Spruha, Trzin 1236, Slovenia; Registration ID 5919070 (Slovenia); Tax ID No. SI91729181 (Slovenia) [SDNTK].
Apple screened the newly designated SDNTKs against its app developer account holder names using its sanctions screening tool. However, Apple failed to identify that SIS, an App Store developer, was added to the SDN List and was therefore blocked. Apple later attributed this failure to its sanctions screening tool’s failure to match the upper case name “SIS DOO” in Apple’s system with the lower case name “SIS d.o.o.” as written on the SDN List. The term “d.o.o.” is a standard corporate suffix in Slovenia identifying a limited liability company.
OFAC determined the following to be mitigating factors regarding Apple’s correction of its “fuzzy logic” deficiency in its screening software, namely, Apple:
• Reconfigured the primary sanctions screening tool to fully capture spelling and capitalization variations and to account for country-specific business suffixes, and implemented an annual review of the tool’s logic and configuration;
• Expanded sanctions screening to include not only app developers, but also their designated payment beneficiaries and associated banks; and
• Updated the instructions for employees to review potential SDN List matches flagged by the primary sanctions screening tool.
II. Amazon Fuzzy Logic Failure
Amazon.com, Inc.agreed to pay $134,523 in July 2020 to settle its potential civil liability for apparent violations of multiple OFAC sanctions programs (please see: https://home.treasury.gov/system/files/126/20200708_amazon.pdf).
As a result of deficiencies related to Amazon’s sanctions screening processes, Amazon provided goods and services to persons sanctioned by OFAC; to persons located in the sanctioned region or countries of Crimea, Iran, and Syria; and to individuals located in or employed by the foreign missions of countries sanctioned by OFAC.
The settlement amount reflects OFAC’s determination that Amazon’s apparent violations were non-egregious and voluntarily self-disclosed, and further reflects the significant remedial measures implemented by Amazon upon discovery of the apparent violations.
Overall, OFAC found the apparent violations consisted primarily of transactions involving low-value retail goods and services for which the total transaction value of the apparent violations was approximately $269,000. OFAC further determined the apparent violations occurred primarily because Amazon’s automated sanctions screening processes failed to fully analyze all transaction and customer data relevant to compliance with OFAC’s sanctions regulations.
What served as chief mitigating factors was that Amazon undertook significant remedial measures to address its sanctions screening deficiencies. Such measures included:
• Employing internal and third-party sources to conduct a thorough review of Amazon’s sanctions compliance program and its automated screening systems in order to address the screening failures that gave rise to the apparent violations. In particular, Amazon is incorporating additional automated preventative screening controls designed to scale and operate effectively for its overall retail business;
• Developing internally custom screening lists to minimize the risk of processing transactions that raise sanctions compliance concerns; and
• Enhancing its sanctioned jurisdiction Internet Protocol (IP) blocking controls and implementing automated processes to update continually its mapping of IP ranges associated with sanctioned jurisdictions.
III. “Fuzzy Logic” Becomes Clear Logic
After reviewing both the Apple and Amazon cases, it becomes readily clear why proper “fuzzy logic” capabilities in picking up alternate spellings and aliases is so important. While such “fuzzy logic” can result in an overwhelming number of “false positive” matches, the logic can be tweaked to match the risk profile of a given company, depending on types of business partners and geographies covered.
Because a given company’s risk profile can evolve over time, it is most helpful to undertake the commitment Apple made in implementing an annual review of the screening tool’s logic and configuration (likely best done as part of an annual risk assessment).