French retailer Cartier agreed to pay the Office of Foreign Assets Control $334,800 to settle allegations that it made four sales of jewelry in a United States store to a an individual designated under the Foreign Narcotics Kingpin Sanctions Regulations. In announcing the settlement, OFAC did not reveal the value of the jewelry sold by Cartier to Shuen Wai Holding Limited but did note that the ship-to address for Shuen Wai was the same as the address shown on the SDN List.

This is the first penalty that I am aware of levied against a retail operation in the United States. This, no doubt, will send shock waves through the retail community. Technically speaking, if an SDN walks into McDonald’s and orders a Happy Meal, McDonald’s would be in violation of OFAC’s rules if it sold the Happy Meal to the SDN and it did not keep any money for the Happy Meal that the SDN had handed to the cashier. Does this mean that McDonald’s can’t sell you a Happy Meal or a Big Mac now without checking your ID and running it against the SDN List?

For the moment at least, the answer is you won’t have to make sure you have your driver’s license with you before you purchase a Big Mac. The OFAC announcement pointed out several things that lead to its decision to seek a fine from Cartier. First, it noted, that this was an international transaction. So unless you’re planning on asking them to send the Big Mac to some foreign country for you, there’s one difference. OFAC also noted that the luxury jewelry business was an “industry at high risk for money laundering.” This is a little puzzling since OFAC is not in the business of enforcing money laundering laws and regulations but, be that as it may, Big Mac’s are probably not a good vehicle for money laundering. (Viewers of Breaking Bad will remember, car washes are good for that.)   Another important fact, not mentioned by OFAC, is that this was a third-party transaction.   Unlike a party using its own U.S.-issued credit card, where the bank would presumably have screened the customer, no one would have screened the recipient of the Cartier merchandise in this instance.

In any event, OFAC reaffirmed that compliance programs should be “risk-based” and should take into account the company’s “products and services, frequency and volume of international transactions and shipments, client base, and size and geographic location(s).”  It is a bit difficult to determine what that means in a practical matter for retail stores beyond meaning that restaurants, grocery stores, and dog grooming parlors do not need to screen all their customers against the SDN List.  But it is probably the case that other retail businesses, particularly where the transaction involves international shipments of merchandise paid for by third parties, should consider screening those customers receiving merchandise.

Copyright © 2017 Clif Burns. All Rights Reserved. 

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