Building Your OFAC Compliance Program: Punishment for Your Customer Loyalty Program
Updated: Oct 31
In September of 2022, Tango Card, Inc. a Seattle-based company that supplies and distributes electronic rewards agreed to pay the Office of Foreign Assets Control (OFAC), $116,049 to settle its potential civil liabilities for apparent violations of multiple U.S. sanctions programs.
Tango supplies and distributes rewards in the form of stored value cards, such as prepaid debit cards and gift cards. The supply and distribution are structured specifically to support clients' employees and customer incentive programs. Tango provides rewards to recipients via email and recipients click a link within the email that allows them to claim the reward and make a subsequent purchase.
Between September 2016 and September 2021, Tango transmitted nearly 28,000 cards for a total value of just over $386,000 to individuals with IP addresses associated with Cuba, Iran, Syria, North Korea, or the Crimea region of Ukraine. Tango actually had geolocation tools in place for transactions, but used them to avoid transactions with countries known to have a concentration of fraud. Tango's OFAC compliance program was only positioned to screen their direct customers and not necessarily the recipients of the rewards.
In this instance, the key lesson is that any transaction with a sanctioned entity or person, even if not a direct payment is subject to OFAC regulations and penalties. The issuance of the rewards still constituted a transaction and as OFAC claims, these transactions "conferred...economic benefit to jurisdictions and regions subject to sanctions."
Even though this may seem like a very distinct case, many businesses have rewards programs. Most businesses avoid interacting with nationals from sanctioned countries in general by blocking their site or services in those specific countries. Tango actually discovered their violations by realizing that the domain of the email of one of their reward recipients was unique to a sanctioned country.
Tango made the appropriate effort in screening their clients but clearly didn't realize that facilitating rewards programs meant that both their direct client that payments were coming from and the recipient of the benefit of their services needed to be screened.
Are you still curious about how a transaction is defined by OFAC? Are you confused about why rewards programs need to be OFAC compliant? Contact our office today.
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