Saturday, 9 April 2016

More news about blocking of money transfers

Hard on the heels of last month’s report of the bank that blocked a request for a check to a dog-walker because the dog’s name (“Dash”) on the memo line of the check resembled the Arabic acronym “Daesh” for the Islamic State in Iraq and Syria (ISIS) comes a new report on a money transfer app that has been blocking requested payments if they are accompanied by payments mentioning Iran, Syria, or other keywords on some (secret) blacklist.

According to an article by Claes Bell on, in which I’m quoted at some length, the Venmo app-based money transfer service has blocked numerous (entirely legal) payment requests that included memo lines like “for Persian New Year Celebration” or mentioning “Syria”.

As with the bank whose transaction-screening robot blocked the check for the dog named Dash last month, and the bank that froze my entire account and rejected deposits as well as payments after I tried to check my balance from a Syrian IP address in 2008, money-transfer services are using automated profiling algorithms to pre-emptively block any transaction with even a slight chance of offending the Office of Foreign Assets Control (OFAC) — the division of the US Department of the Treasury that enforces numerous diverse financial sanctions against alleged (but in most cases never accused or convicted) “narco-traffickers” and supporters of terrorism, governments like that of Cuba that have been deemed “enemies” of the USA despite the absence of a declaration of war, and so forth. The consolidated OFAC blacklist, as notes, currently runs to 963 pages. And that’s not all: It’s a violation of OFAC regulation for any US person do do business with any entity in which any of the people, corporations, governments, or organizations on the blacklist has any “interest”, no matter how small. And it’s your legal duty, before any transaction with anyone, to make sure that the other party isn’t on the blacklist and that no blacklisted entity has even the slightest share of ownership or other interest in the other party.

Needless to say, nobody complies with these rules, or could possibly do so. Imagine if, before you bought a quart of milk or a pack of chewing gum at the corner store, you insisted on examining the complete list of stockholders of the corporation that operates the store, and checking each of them against the OFAC blacklist. And each of their owners in turn, if that stockholder is itself a corporation, ad infinitum. So far as I can tell, it’s illegal for any US citizen or resident to buy or sell anything or do any other business with any privately-held corporation, since you can’t tell who its stockholders are and they might include blacklisted entities.

The madness begins with OFAC, not with the banks. But in this mad world, it makes crazy sense for banks and other businesses to take extreme and overreaching measures to avoid the heavy hand and of OFAC as enforced by crushing fines for even inadvertent transgressions. International money transfer apps are likely to be at especially high risk of being accused of allowing their services to be used for money laundering, drug dealing, or financing of terrorist or other international crimes. In response, the logical business decision is to err on the side of caution by scanning and scoring each requested transaction for its risk of being fraudulent, violating OFAC rules, etc., and declining to process any transaction that automated scanning flags as in any way “risky” or “suspicious”, even if that means blocking many legitimate payment requests.

This matters to travellers because growing numbers of us are using apps and Web-based payment and money-transfer services, especially for advance payments or deposits to small local tour operators, private guides, or informal lodgings that don’t have credit card merchant accounts. The fees for international money transfers through these apps can be less, and the exchange rates can be better, than those for international wire transfers made through banks or through services like Western Union.

The electronic payment industry is still evolving, but in addition to Venmo these services currently include Square Cash, Skrill (formerly Moneybookers), Payoneer, Xoom (bought by Paypal in 2015 but still being operated as a separate service, at least for now) and of course Paypal itself — each with its own pros and cons depending on how you plan to use it. Different services have become better known and more widely used in different countries and virtual communities. Skrill appears to be especially (although not exclusively) popular for online gambling, for example, and Payoneer with freelance contractors working for clients in other countries. Xoom can be used to transfer money to yourself from your bank account back home while you are abroad, to be picked up in cash from a local Xoom-affiliated office, sometimes at a much better exchange rate than if you withdrew cash from an ATM. All of the services I’ve just mentioned have pretty broad (although in no case universal) international coverage. Some other services, including as of now Google Wallet, only work in the USA or a small number of countries.

As should be clear from the description of the process above and in my previous article about the dog named Dash, there’s no way to guarantee that any particular payment request will be approved by any one of these services. These services aren’t public utilities or common carriers that are required to accept all customers or transaction requests. Each of them reserves the right to refuse service to anyone, at any time, for any reason. (Another reminder of why the universal service obligations of common carriers and public utilities are such essential consumer protections.) It’s been common for years for people to have their Paypal accounts closed without warning, for reasons known only to Paypal or for no reason at all. Each of the others of these services works the same way.

There is nothing you can really do — short of the political solution of fundamental reform of the OFAC-enforced sanctions regime — to protect yourself against any of your bank accounts, credit cards, or other financial services turning into a pumpkin in the middle of your trip. What you can do to mitigate the risk to you that results from banks’ and payment processors’ efforts to reduce the risks to themselves is not to rely on any one account, service, or form of payment, no matter how convenient it is and how favorable its terms. Always assume that any account could be closed or frozen at any time, without warning or notice.

Have a plan B, and maybe plans C and D. Keep enough money to tide you over for a month or two in a separate account at a separate bank or credit union, accessible with a separate credit, debit, or ATM card issued by a different bank and associated with a different network. Carry enough cash for at least a week’s expenses: Local banks could be closed throughout a country where you are travelling by government order (it’s happened in the USA), or a moratorium imposed on cash withdrawals, even if your bank back home and your account are still open. If you are afraid to carry too much cash, consider carrying some travellers checks for emergency money. Travellers checks have become less and less common, and harder and harder to cash. But in a pinch, you can probably find a black-market money changer to cash them, or a hotel or other business that will accept them, even during a government-imposed bank shutdown.

Link | Posted by Edward on Saturday, 9 April 2016, 21:10 ( 9:10 PM)

“Banks Caught Between Scylla (OFAC) and Charybdis (Customer Wrath)” by Clif Burns, Export Law Blog, May 4, 2016:

Posted by: Edward Hasbrouck, 5 May 2016, 04:55 ( 4:55 AM)

A very interesting article to read. Thanks a lot for posting this. Good Work. Keep it Up.

Posted by: Henry Jacob, 3 July 2016, 20:18 ( 8:18 PM)
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