If an eCommerce giant like Amazon is unable to flag illegal sales to terrorists for five years, how are other eCommerce businesses managing their trade compliance?
Amazon.com, Inc. (“Amazon”) (AMZN), the Seattle based electronic commerce (eCommerce) conglomerate, is currently involved in a major federal investigation for noncompliance with U.S. trade sanctions and export-control laws.
The Office of Foreign Assets Controls (OFAC) of the U.S. Department of the Treasury is responsible for administering and enforcing economic and trade sanctions based on U.S. foreign policy and national security programs. Such trade sanctions include those associated with the Iran Sanctions Act of 1996 (ISA), which was later expanded in 2012 when former President Barack Obama enacted the Iran Threat Reduction and Syria Human Rights Act (ITRA) with a purpose of deterring Iran from pursuing nuclear weapons.
OFAC is also responsible for maintaining a list of individuals and organizations known as the “Specially Designated Nationals” List (SDN List), whose assets are designated and blocked pursuant to Executive Order 13224. This Order, introduced on September 23, 2001 by former President George Bush, authorizes the U.S. Treasury, President and other U.S. government agencies to prohibit transactions “With Persons Who Commit, Threaten To Commit, or Support Terrorism” in an effort to disrupt financial support networks for terrorists and terrorist organizations.
Amazon’s Recent SEC Filing:
In an earlier filing with the Securities and Exchange Commission (SEC), Amazon revealed that products valuing approximately $300 were processed and sent to an individual specifically designated under Executive Order 13224.
A later SEC filing by Amazon stated that $24,700 worth of consumer goods were sold to an Iranian embassy and $8,100 worth of goods were sold to individuals who may have been working for Iranian embassies outside of Iran.
Amazon states that the above transactions occurred between January 2012 and June 2017, and included goods such as “books, other media, apparel, home and kitchen, jewelry, office, toys, health and beauty, consumer electronics, lawn and patio, automotive, and musical instruments.”
As a result, Amazon is now under federal investigation for potential violations of Executive Order 13224, the ITRA and other related export laws and regulations.
Amazon is being cooperative as the federal investigation takes place and has also been reviewing and enhancing their processes in order to identify transactions associated with any individuals or entities covered by the ITRA. Although Amazon said it does not plan to continue selling to the accounts of Iran-linked customers, the company still faces substantial potential consequences in both civil and criminal penalties.
What does this mean for other companies in the eCommerce space?
Amazon’s case presents a very important and significant example of how difficult it can be to identify unlawful transactions, particularly in the world of eCommerce. This case emphasizes the need for companies to have effective trade compliance programs, tools and procedures in order to avoid transacting business with sanctioned countries or individuals. Risk exposure to trade regulations in the U.S. and abroad continue to grow as companies expand their global footprints. In order to maintain compliance with local trade laws, companies must identify and adhere to applicable trade sanction lists in all jurisdictions in which they operate.
One way in which companies manage and mitigate such trade compliance risks is by implementing software specifically designed to screen customers against applicable sanction lists administered by the U.S. and local government.
A screening solution is beneficial for eCommerce merchants because it can generate automatic alerts when risks or potential “matches” to SDN lists are detected. Screening solutions enhance due diligence procedures and improve a company’s ability to spot red flags immediately and prevent transactions with sanctioned individuals and entities before they occur.
Implementing a screening solution can not only assist companies in avoiding business with terrorists, criminals, sanctioned entities and other bad actors, but also can serve as a reputational (and in some cases legal) defense should any allegations arise. This is significant because whether a customer is buying something as mundane as jewelry or toilet paper, the merchant is still ultimately responsible for selling to and accepting money from any individual or entity who they should not be doing business with.
By investing in a screening solution that provides the most current, effective, precise and up-to-date compliance solution, eCommerce merchants will be able to know who they are doing business with and prevent violations before they occur.
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