On November 27, 2018, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) revealed a $87,507 settlement agreement with Virginia-based Cobham Holdings, Inc., a global provider of technology and services in aviation, electronics, communications, and defense, on behalf of its former subsidiary, Aeroflex/Metelics, Inc.

The settlement involved multiple shipments of goods through distributors in Canada and Russia to a Almaz Antey Telecommunications (“AAT”) in Russia.  AAT was not listed on the Specially Designated Nationals and Blocked Persons List (“SDN List”), but was 51% owned by a Joint-Stock Company Almaz-Antey (JSC Almaz-Antey), a company that was added to the Russia/Ukraine sanctions program during the course of business dealings with the Cobham subsidiary. Although the company followed established protocols for performing denied party screening and vetting of high-risk transactions (e.g. those involving Russia) through corporate compliance, third-party denied party screening software failed to return any hits on AAT.

The software, which is not mentioned by name in the settlement, was configured to use “fuzzy” logic in the search algorithm.  The fuzzy logic should have returned a hit for AAT as the words “Almaz” and “Antey” were present in the entity being screened and an entity on the SDN List.  A hit of this nature would have alerted reviewers to further investigate.  However, the software failed to return any hits.  As such, the transactions were approved and Cobham violated the Ukraine Related Sanctions Regulations, 31 C.F.R. part 589 (the URSR).

Key Takeaways:

• Fuzzy Logic – When relying on screening software, it is critical that companies perform a fuzzy logic search, not an “exact” search. SMALLER COMPANIES UTILIZING THE CONSOLIDATED SCREENING LIST (CSL) PROVIDED BY THE U.S. GOVERNMENT,BE WARNED.  THE CSL DEFAULT HAS FUZZY SCREENING TURNED OFF (see screenshot below).  If you’re using this functionality, it is recommended that you turn on Fuzzy Name search and perform a search using the Name field only.  This will cast the widest net.

• Test Fuzzy Logic – Based on the settlement agreement, it appears Cobham’s only failure was testing the fuzzy logic search to confirm it was working. Had the screening functionality worked properly, Cobham’s procedures would have caught and prevented the violations before they occurred.  Screening software should be tested upon initial deployment, after all patches/updates, and periodically (e.g. annual assessment) to ensure the latest changes to the SDN and other lists are being reflected in the software.

TC Engine’s experts have a combined 30+ years in the industry.  We tackle our clients’ challenges with a real-world, risk-based approach, assisting in the design, development, integration, and continuous improvement of trade compliance programs.