By Rachel Louise Ensign
The U.S. Treasury Department announced Wednesday a $7.7 million
settlement with eBay Inc. unit PayPal Inc. over multiple alleged
sanctions violations by the payments company.
Those alleged violations included processing payments for a man
allegedly involved in the black market for nuclear-weapons
technology as well as thousands of dollars' worth of transactions
involving goods and services going to and from Cuba, Sudan and
Iran. In all, nearly 500 PayPal transactions, worth almost $44,000,
potentially violated U.S. sanctions, according to the Treasury
Department.
Under the settlement, PayPal didn't admit or deny the
allegations, though the company and the Treasury said PayPal
voluntarily disclosed the transactions to Treasury's Office of
Foreign Assets Control, which supervises the enforcement of
sanctions.
"Government compliance is a priority and a central component of
how we do business around the world," PayPal chief compliance
officer Gene Truono said in a statement. "We recognize that prior
to April 2013, PayPal did not have a system that could scan
payments in real time in order to block prohibited payments. There
was a delay in the scanning, which allowed some prohibited payments
to be processed."
The allegations against PayPal are the latest in a series of
U.S. cases against financial institutions for having inadequate
systems to block transactions that violate sanctions. Large
penalties have been paid by major banks but regulators have also
focused their efforts on other types of companies.
"While the spotlight has been on the banks, [Treasury's Office
of Foreign Assets Control] is increasing its focus on the nonbank
financial institutions," said Amanda DeBusk, a partner at law-firm
Hughes Hubbard & Reed LLP.
PayPal failed to catch more than $7,000 worth of transactions
over a number of years involving an account in the name of Kursad
Zafer Cire, a Turkish man on a U.S. blacklist for weapons of mass
destruction proliferation, the Treasury Department alleged. Mr.
Cire couldn't be reached for comment.
Mr. Cire was blacklisted in 2009 for his alleged involvement in
a sales network for nuclear technology operated by Pakistani
scientist A.Q. Khan that the State Department said provided
"one-stop shopping" for Iran, Libya and North Korea in their
efforts to develop nuclear weapons.
PayPal blocked Mr. Cire's account in April 2013, after it had
processed 136 transactions involving the account since October
2009, the Treasury Department said. At first, the company didn't
catch Mr. Cire's transactions because its automated filter meant to
catch and block transactions involving the sanctions blacklist
wasn't working properly. The filter later flagged the transactions
multiple times, but the alerts were dismissed by PayPal staffers,
according to the Treasury Department.
"PayPal demonstrated reckless disregard for U.S. economic
sanctions requirements," the Treasury Department said in the
settlement. "PayPal agents engaged in a pattern of conduct by
repeatedly ignoring certain warning signs about potential matches
to the [blacklist]."
In addition, the company processed thousands of dollars' worth
of transactions involving goods and services going to and from
Cuba, Sudan and Iran, the Treasury Department said. PayPal also
processed transactions involving another blacklisted entity, U.K.
charity Interpal, which the U.S. has accused of supporting
Hamas.
"With all these screening tools, there's really a lot of
discretion that companies have in terms of how they set the tool,"
Ms. DeBusk said. Another issue with the tools can be "human
error...where someone should have noticed the potential issue but
the process failed," she said.
PayPal self-reported the transactions, cooperated with the
investigation and has improved its sanctions compliance program,
the department said.
"As part of our commitment to compliance, we hired the right
people, increased our compliance budget, and over two years worked
to build a new scanning payment system. We've now put in place
proprietary state-of-the art systems that allow for real-time
scanning of potentially sanctioned payments before they are
processed," Mr. Truono said in his statement.
EBay plans to spin off PayPal as a separate publicly traded
company.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com
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