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Lawsuits Say Credit-Check Companies Misidentify Thousands As Enemies Of The US

This photo illustration shows Ramon Eduardo Arellano-Félix, who is on a blacklist of U.S. enemies kept by the Treasury Department’s Office of Foreign Assets Control. He was killed in 2002 but remains on the list along with his imprisoned brothers who ran the Tijuana drug cartel.
Megan Wood
This photo illustration shows Ramon Eduardo Arellano-Félix, who is on a blacklist of U.S. enemies kept by the Treasury Department’s Office of Foreign Assets Control. He was killed in 2002 but remains on the list along with his imprisoned brothers who ran the Tijuana drug cartel.
Lawsuits Say Credit-Check Companies Misidentify Thousands As Enemies Of The US
Lawsuits Say Credit-Check Companies Misidentify Thousands As Enemies Of The US GUESTS: Alain Stephens , investigative reporter, inewsource

thousands of credit checks are done every day on people trying to get a loan or a credit card. But in this process consumers can wind up wrongly linked to a government blacklist a news source. Reporter Alain Stephens explains the Treasury Department's Office of Foreign Assets Control ofat for short keeps a financial blacklist that is filled with names of international terrors and drug cartel kingpins. The people on it are considered enemies of the U.S.. Businesses and individuals are banned from doing business with them. Ofat has been around since 1950 but the list keeps expanded after the 9/11 terrorist attacks doing business with anyone on the list can lead to fines and prison time. That's why businesses pay credit reporting companies to check if consumers seeking loans are on the list but sometimes they get it wrong that feeling like the CIA or FBI or who knows what is about to kick down my door. Take Manhattan. And suddenly aray that's Alvira Rodarte. He's a 27 year old construction worker from the San Fernando Valley. He tried to co-sign on an auto loan when the dealership told him his credit was frozen and he was on Ofex blacklist and not a terrorist. I'm not at anything like that. The man who's trying to make his way to providers. The government never came calling and radar to his case because he was in fact not on the list. A third party credit check company had mis identified him. But federal court records show what happened to him has happened to thousands of people. Among them a 43 year old painter from the Bay Area who denied a car loan when the blacklist linked his name to drug cartels including the Arellano Felix organization that used to operate in Tijuana. He successfully sued Trans Union over the mistake as part of a class action suit that ended with a 60 million dollar judgment against the company. A lawyer for Trans Union had argued that anyone wrongly flagged suffered only a minor inconvenience akin to walking through courthouse security. The credit check company is appealing the verdict. In another case a 28 year old L.A. bank manager is suing credit bureau connection. He too was trying to buy a car when the credit check company wrongly identified him as a blacklisted North Korean security minister a follow up check tied his name to a North Korean boat. Also on the list John Somali's is a Washington D.C. attorney who specializes in representing people falsely tied to the ofat list. I mean I think it's sad and laughable look no matching criteria should possibly result in a person being identified as a you know a boat associated with terrorism or narco trafficking or whatever it is. So what's the problem. Court documents and experts say it's the software used by credit check companies. David Long is a former federal agent with the Labor Department and a criminal justice professor at Brandon University in San Diego. He says ofat false positives happen all the time. The strength of the software dictates the integrity of those who whose transactions may get blocked if they're on the list. This situation though has been with some programs of producing false positives for people. That are not on the list but are flagged by this software programs by the financial institution. The credit check companies also don't always disclose ofat alerts to consumers. That makes disputing them difficult. If you want to see if your name or people with similar names to yours are on the ofat list you can use a search tool on the Treasury Department's website. And joining me is I knew source reporter Alon Stephens. And welcome to the program. Thanks for having me. I never even heard of the Treasury Department's Office of Foreign Assets Control I don't think that I'm alone in that. Why was this office set up so this office was actually set up years ago and the official title Office of Foreign Assets Control actually came came about in the 19 1950. And essentially it's to wage financial warfare against enemies of the United States to ostracize them and monetary cripple them and to make sure that businesses are not inadvertently funding terrorist activity or nefarious activity across the world. Now are terrorists and drug cartel kingpins the only people on the list. In other words what other foreign businesses might end up on this list. So yeah so there are Russian oligarchs there are you know shipping businesses planes merchant vessels. There are also charities on there so for instance the Holy Land Foundation for Relief and Development which had an office here in San Diego at one time. They got put on the list for sending money to the Palestinian terrorist group Hamas. So really anything that can provide financial support whether it's a front company or an individual can be put on this list. Do all credit checks include the fact database so no. For instance TransUnion which is a major credit reporting company they offer this as kind of a ancillary service that they offer but many many do. Put this ofat check as far as credit reporting. The reason why is because if a business does do you know some sort of financial transaction with someone on the list they could be subjected to major fines and even prison time. So it's highly encouraged by the government and it's highly encouraged by the credit check companies to do these ofat checks for consumers. OK so you spoke with an attorney who specializes in representing people who have been falsely identified as being on the fact list. Does it happen so often that a lawyer can actually specialize in it. Yes I talked to a couple of attorneys actually and there is this small industry of fact sanctions attorneys that's what they specialize in. And to give you an example of how some of these cases can really balloon out they have an individual and we bring up one in this story Sergio Ramirez who is accused of being a drug dealer when he went to go and buy a car and this turned into a major class action where they the attorneys in that case which was against Trans Union were able to identify eight thousand one hundred fifty eight people in a six month period that had been mis identified as being on the ofat list but also subsequently when these people went to Trans Union to ask them about these ofat Allard's Trans Union had denied that these were going on. And that is a violation of Fair Credit Reporting Act. So that's how they were kind of dealing with these cases and Trans Union took a major hit at 60 million dollar hit. They're appealing that case. But that's kind of how some of these cases could rapidly expand into these class action lawsuits that involve a lot of people. What does this misidentification have to do with the Fair Credit Reporting Act. So the Fair Credit Reporting Act essentially it gives consumers the right to see their credit reports and make sure that they are accurate. And the reason for that is so you can dispute that. So courts have found that your credit report and credit reporting agencies are really dealing in the reputation of consumers so they want that they want a level of transparency there so you need to be able to see you know these ofat alerts so you can dispute them. So they're not being sold and resold to businesses and you're constantly being denied credit and you don't know why. So one of the things they found in these cases is that when people are requesting their credit reports they're withholding the fact alerts. And that makes those disputes that much more difficult and people were concerned that this is going to continue going on and on. And there's nothing they can do about it. Now if someone is denied a loan because of this kind of false identification is there any way the person can find out that ofat caused them to lose the loan. So a lot of these cases they found out because the person the business that got the credit report had let them know they said hey we had a ofat alert now they don't always do that. And sometimes it can keep consumers and victims essentially in the dark because sometimes they'll just say you're denied credit go on. But if people do find out that there is a oh fack alert attorneys as well as fack itself says hey go to the Department of Treasury Web site. There is a ofat SDN sanctioned Designated Nationals search tool and you can type your name in there to see if you're actually on the ofat list. Now if you're having a car dealership or a credit card provider say you're on the ofat list but Ofex says you're not on the list then it might be that the credit check company had misidentified you. So then you would try to find that credit check company and ask them and kind of confront them and say hey why is this going on. So since this software glitch is a known thing is in fact doing anything to fix it. So that's interesting because ofat is this government entity and they really place everyone kind of places the responsibility on the credit check companies. So as a government entity they say that essentially their mission is to make sure that no one's financing terrorist they say to be very careful with you know who you do business with. And that's really kind of their priority it's really on the credit check companies to make sure that their software is being implemented correctly. And right now the only enforcement measure that they're facing are these lawsuits that are coming up where they may be taking major hits from just being flat out wrong. Really interesting. I've been speaking with eye news source reporter Alain Stephens thank you so much. Thanks for having me.

All Alvaro Rodarte wanted to do was help a friend by co-signing a loan for a used Subaru.

The 27-year-old construction worker from the San Fernando Valley didn’t anticipate any problems. He had gotten car loans before. But the salesman at the Los Angeles car dealership quickly broke off the deal after running a credit check on Rodarte.

Rodarte said the salesman told him his credit was frozen, that he was on some sort of “government watchlist.”

“They told me that when you typed in my information, that I was OFAC red listed. … At that time, I had no idea what OFAC was,” Rodarte said.

Most Americans probably don’t know about this list, a registry kept by the U.S. Treasury Department’s Office of Foreign Assets Control. The OFAC list includes drug cartel kingpins, members of international terrorism organizations and others who financial institutions are banned from conducting business with because they are considered enemies of the United States.

Thousands of people with names identical or similar to those on this list have been wrongly flagged as threats to national security, and it often happens when a credit check is run on them. It can keep them from getting a car or home loan or from obtaining a credit card. In some cases, people aren’t even told the reason for credit denials is their names showed up with an OFAC alert, making it difficult to challenge the information so it can be corrected.

These kinds of “false positives” happened to more than 8,100 people in a six-month period, according to court records in a recent federal class-action case in California.

If you’ve been wrongly flagged with an OFAC alert, inewsource wants to hear from you. Contact reporter Alain Stephens at alainstephens@inewsource.org

When Rodarte got rejected in August for the car loan, he turned to the internet to find out what he could about OFAC. He uncovered bits and pieces about who is on the list and read stories about its role in the war on terrorism in post-9/11 America. He said he started to get this “giant pit in my stomach.”

Rodarte said when he tried to go to sleep that night, “I kept having a feeling that some government agency was going to kick down my front door, drag me out of bed and put a bag over my head and make me disappear.”

The government never came calling, and the construction worker eventually learned he was never on the OFAC list. His name was just a partial match to one of the thousands of names on it.

History of OFAC and its role in war on terror

The Treasury Department has been waging financial strikes on America’s enemies since the War of 1812 between the United States and Great Britain. That job became the responsibility of the department’s newly created Office of Foreign Assets Control in 1950, when China entered the Korean War. At the time, President Harry Truman ordered financial sanctions against China and North Korea.

The OFAC list includes not only countries and individuals involved in drug trafficking and international terrorism. It also identifies businesses and property, such as ships and aircraft, connected to governments under sanctions by the U.S., including Syria and Iran. Together, this OFAC blacklist labels all of them “specially designated nationals,” and financial institutions are enlisted by the government in its effort to monetarily cripple these enemies of the U.S.

During the mid-1990s, when President Bill Clinton was going after Middle Eastern terrorist groups, many names and organizations were added to the list but not that of Osama bin Laden, who would go on to orchestrate the terror attacks on Sept. 11, 2001. Eventually, Clinton ordered bin Laden’s name be added, but the 9/11 Commission report said it was largely ineffective, in part because he did not have financial assets the U.S. could control.

Less than two weeks after the 9/11 attacks, President George W. Bush signed an executive order ramping up the “war on terrorism” by promising to go after the financial assets of terrorists and their organizations.

“We will starve the terrorists of funding, turn them against each other, rout them out of their safe

hiding places and bring them to justice,” Bush said.

This put the Office of Foreign Assets Control in overdrive, but not in a good way. “The post-9/11 period at OFAC was ‘chaos.’” according to the 9/11 Commission report. It said the White House was pushing for major names to be added to the list every four weeks and “derivative” names to be added throughout the month. Treasury officials acknowledged in the report that the “evidentiary foundations for those early designations were quite weak.”

One group targeted under Bush was the Holy Land Foundation for Relief and Development, which was on OFAC’s blacklist. Less than three months after the 9/11 attacks, the group’s San Diego office was raided by the FBI.

Eventually that raid and others led to the arrest and conviction of five foundation members in a Dallas federal court for using the charity to funnel $12.4 million to the Palestinian terrorist group Hamas. Among those convicted was Mohammad El-Mazain, who had led the foundation’s San Diego office.

This file photo shows Imam Anwar al-Awlaki in Yemen, October 2008.
Associated Press
This file photo shows Imam Anwar al-Awlaki in Yemen, October 2008.

Also on the list is Anwar al-Awlaki, who was an imam at a mosque on the border of San Diego and La Mesa when two of the 9/11 hijackers worshipped there. He was killed in Yemen in a U.S. drone attack in 2011, but U.S. authorities say he continues to be revered by some and has inspired dozens of terrorist attacks since his death.

His name remains on the list, even though OFAC says it adds and removes names regularly, and archives on its website changes to the list back to 1994.

It’s up to financial institutions operating in the United States to make sure they don’t do business with anyone on OFAC’s blacklist. If authorities catch them involved in transactions with sanctioned countries, individuals or organizations, they face fines and prison time.

That has led businesses, including banks, mortgage companies and car dealerships, to pay third-party screeners such as TransUnion, Equifax and Experian to check customers’ identities against the OFAC list before they will enter into financial transactions with the people.

“They have implemented software programs, filtering programs basically, to run against the OFAC list,” said David Long, a criminal justice professor at Brandman University in San Diego and a former special agent for the Racketeering Division of the Labor Department’s Office of Inspector General.

The integrity of the software is integral to the accuracy of such checks, Long said.

“The situation though, has been with some programs, of producing false positives for people that are not on the list,” he said.

OFAC list and false positives

Erich Ferrari, a Washington, D.C., attorney who represents clients before OFAC, said he sees fewer false positive cases today than he did less than a decade ago. But for those caught up in this, it’s usually a surprise, he said. They had no idea their names were being run against a list of terrorists and drug kingpins considered enemies of the U.S.

Americans need to be made “aware of the scrutiny they’re under in the name of national security, and the consequences that arise when that scrutiny goes awry,” Ferrari said.

Sergio Ramirez, a 43-year-old painter from the Bay Area, experienced the consequences when he was denied an auto loan. He sued, contending software used by TransUnion wrongly identified him as a member of two drug cartels on the OFAC list. One was the Arellano Félix Organization, which for years controlled the drug trade in Tijuana before being dismantled by federal authorities in San Diego.

Ramirez was the lead plaintiff in the federal class-action suit filed against TransUnion in San Francisco. A jury last year reached a $60 million verdict against the credit-reporting company. Each of the 8,185 class members was awarded $7,337 in punitive and statutory damages. The company is appealing the verdict.

Ramirez’s lawyers argued that TransUnion should have used other information such as birth dates and Social Security numbers to verify if he and others were truly on the OFAC list. They also said that when people hit with OFAC matches requested reports from TransUnion, the company violated the Fair Credit Reporting Act by omitting those results — keeping victims in the dark about how to challenge and correct the information so it wouldn’t further damage their reputation and ability to obtain credit.

The judge in the case said Ramirez’s lawyers provided ample evidence for the jury to reach its verdict. The lawyers contended TransUnion knew from a previous lawsuit about problems with its background-checking software yet continued to sell its OFAC checking services, the judge said. She said the company also could not “identify a single instance in which its OFAC Alert product identified someone actually on the OFAC list.”

TransUnion attorney Stephen Newman had contended that anyone wrongly flagged was suffering a minor “inconvenience” akin to walking through courthouse security.

“It would be very nice if we lived in a world where we do not have to take our shoes off and go through metal detectors,” Newman said. “But we do. This is our world today, unfortunately.”

In a statement about the Ramirez case to inewsource, TransUnion said that “while the potential name match to the OFAC list maintained by the U.S. government was regrettable, the consumer did not incur any financial harm.” The company said it also abided by all of the credit-reporting rules and regulations, including those set by the Treasury Department.

In another class-action lawsuit filed in 2012 in San Francisco, TransUnion was accused of wrongly attaching OFAC alerts on the credit files of more than 18,000 Californians, and confused TransUnion customer service operators began receiving calls from people wanting to dispute the alerts. TransUnion determined a “coding error” caused the alerts and fixed it.

The federal case was settled this year when the company agreed to offer free credit monitoring for three years to those affected. TransUnion also said it would pay up to $1.48 million in legal fees for the plaintiffs.

OFAC issues aren’t limited to TransUnion.

In October, Sung Gon Kang, a 28-year-old bank manager from Los Angeles, sued Credit Bureau Connection in federal court after he said he was misidentified as being on the OFAC list when he went to a Huntington Beach car dealership to buy a used car with his father. The suit also faults the credit-reporting company for not telling Kang he was on the list.

Kang’s suit said the company’s software for checking names on the OFAC list matched his name to “Song Nam Kang,” a state security minister for the North Korean government.

Sung Kang was “horrified and embarrassed,” according to his lawsuit, and asked the dealership to run his name again. The second check returned the same as the first, along with an additional alert — this time positively identifying him as “Kang Song 1,” a North Korean boat.

“The criteria is so loose that it leads to these really absurd results of potential hits,” said Kang’s lawyer, John Soumilas, who also represented the plaintiffs in the TransUnion lawsuits.

“It’s sad and laughable. No matching criteria should possibly result in a person being identified as a boat associated with terrorism or narco trafficking,” Soumilas said.

OFAC does say the list includes vessels that could be used by people or organizations considered threats to the U.S.

One aspect of these OFAC lawsuits and the false positive alerts is that the people flagged have non-Western European names.

“It’s not something that affects your average Joe,” said Mohsen Zarkesh, an OFAC sanctions attorney in Washington, D.C.

“It's gonna affect the Omar, the Muhammad, the Cesars of the world,” Zarkesh said.

In court documents in Ramirez’s case against TransUnion, the company’s attorneys cited a lack of instruction from the government as a problem. “They have provided no guidance,” TransUnion argued. “They have never set a standard for how results are to be reported. They have never set a standard for how information is to be delivered to members of the public.”

TransUnion’s attorneys added that a number of federal agencies encourage OFAC screenings to continue, but there is no clear direction on how it should work. “They have had lots to say. They have had lots of contradictory things to say. Some want to see fewer hits. Some want to see more hits,” the attorneys said.

The Treasury Department declined requests by inewsource for interviews with department or OFAC officials to explain the list and how it works.

In an email, it sent a link to its “Sanctions Search List Tool,” which explains that OFAC “employs fuzzy logic on its name search field to look for potential matches” on the list. “This logic uses character and string matching as well as phonetic matching,” according to the website, which added that “other fields on the tool use character matching logic.”

The department’s email also pointed out new measures credit bureaus and agencies are using to comply with OFAC regulations, including verifying potential matches when a “red flag” or alert shows up on a credit report.

For people who want to know if their name or names similar to theirs are on the OFAC list, the office has a search tool they can use.

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Lawsuits Say Credit-Check Companies Misidentify Thousands As Enemies Of The US
Credit-check companies misidentify thousands as terrorists and cartel kingpins. One man’s name came back as the name of a boat.