OFAC Car Dealership Compliance: Are You Prepared?

Check prospective buyers against the SDN list to ensure full OFAC car dealership compliance.

If someone were to ask you what you think is most important when owning an auto dealership, what would you say? Building a solid, effective sales team? An impressive, well-priced inventory? Great financing options?

Those would all be legitimate, understandable answers — but they would also be wrong.

The most important thing to think about when owning an auto dealership is compliance. There are many different rules and regulations that affect the auto industry, and if your dealership isn’t keeping up and prioritizing them, you won’t be in business much longer.

Dealership compliance has spread like wildfire since the passing of Dodd-Frank and the formation of the Consumer Finance Protection Bureau. There are numerous strict regulations, from F&I to marketing to inventory, that it’s your job to stay on top of.

How is it possible to keep up? As an owner, protecting yourself from these dealership compliance issues is a big deal. The penalties are potentially enormous and career-ending if you don’t watch your step.

At the same time, if you’re putting in the right amount of effort to stay on top of these issues, you’ll be fine. It’s all a matter of awareness, training, and prevention. Because there are so many regulations to adhere to, it’s wise to strategize so that no one in your dealership ends up breaking the rules. Blaming non-compliance as “an accident” won’t save you in a courtroom.

One type of regulation auto dealerships need to worry about is the Office of Foreign Assets Control (OFAC) compliance. The OFAC is a government agency, and it maintains a list of names and aliases of individuals, organizations, and companies that the U.S. government has classified as potentially dangerous and a potential threat to national security.

The basics of OFAC compliance for car dealerships

OFAC compliance has been a “must” for auto dealerships since the USA Patriot Act was signed into law on October 26, 2001. Since then, it has been required that auto dealers (and other businesses conducting financial transactions with consumers) screen any potential buyer before conducting a sale.

OFAC compliance checks are usually performed at the same time you conduct a credit check. You do not need to obtain authorization from the customer before running the search. You don’t even have to tell them. It should just be something you automatically do.

The customer’s name needs to be compared against the Specially Designated Nationals and Blocked Persons (SDN) list, which is a public list maintained by the U.S. Treasury Department and OFAC. The list, according to OFAC, is “of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific.” They also note that “their assets are blocked and U.S. persons are generally prohibited from dealing with them.”

Strategies for dealership compliance: the best ways to identify risk and squash it

1. Assign a compliance officer to review and update your dealership’s policies

It’s a law to designate a compliance officer in every dealership.

Here’s some advice: take this position and its responsibilities seriously.

Your officer is the spearhead of your compliance strategy. Send him to seminars, trainings, certification courses—anything that will help him protect your dealership from exposure. Here are a few ideas that will benefit your dealership.

• Invest in training from the Association of Finance and Insurance Professionals (AFIP).
• Have him teach best practices to the F&I and sales staff.
• Work with him to create a standard procedure that follows all the rules.

2. Review your Identity Theft Prevention Plan (ITPP) and train your staff

Identity theft prevention is paramount for car dealerships. The Red Flags Rule (RFR) mandates that your staff must be proficiently trained in examining the actual identity of your customers. The RFR is of particular importance because there are so many ways to fall into non-compliance, even when you think you’re doing it right. Besides training your staff to make more sales, you need to make sure they know who they’re selling to.

Don’t take these regulations for granted—identity theft is widespread in the U.S.

• Review your ITPP and update it with the latest practices set down by the RFR.
• Train your staff on how to identify red flags.
• Make a protocol of what to do if the salesperson is concerned about the identity of his customer.
• Always keep a paper trail of all documentation and scheduled trainings.

3. Hire a legal consultant to pinpoint issues

If your dealership compliance needs work, consider hiring a consultant to audit your procedures and set up a compliance checklist. This would be a perfect learning opportunity if you’re newly appointing a compliance officer.

It may be an added expense, but long-term it will cost much less than being slapped with a fine for being non-compliant. Think about it as insurance for your dealership’s future.

You may choose to hire a legal consultant to review your entire dealership once and leave the responsibility on your compliance officer moving forward. Another option is to create room in your budget to have a legal consultant do a large first-time audit, and then return annually to review the compliance officer’s overall work.

4. Create a standard process for all your salespeople to streamline compliance

Most of your salespeople know about the various dealership compliance regulations, but they may not know them enough to understand all the angles and consequences. Some people will cut corners on these rules. They’ll get comfortable, go about every deal in a casual way, and then it’s on your head when they screw up.

Don’t let that happen. Create a standard process for your sales team. Hit every point necessary, and make it clear that these steps are mandatory.

• Adverse action notices
• Credit score disclosure notices
• OFAC checks on customers
• Gaining permissible purpose for credit reports
• Following all steps under the Red Flags Rule

Those are only a few of the regulations your dealership must follow. The best way to stay fully compliant is to have your compliance officer provide quarterly trainings and audit sales files regularly.

How to ensure OFAC compliance if a buyer is on the SDN list

Most credit bureaus have adopted new measures to ensure OFAC compliance and use screening software to determine if an applicant is on the SDN list (which means you likely do not have to manually comb through the list of 6,000+ names). But what happens if the report comes back and the person is flagged as possibly being on the SDN list?

Compare the name of the person to what is found on the list. If that matches, look at all of the other information you have in front of you like address and date of birth — do those things match as well? If you’re not sure if you have an exact match, call the OFAC hotline at 1-800-540-6322. You don’t want to make a mistake, because if you fail to identify a person on the SDN list and you do business with them, you could end up in big trouble.

Depending on the program, criminal penalties for willful violations can include fines ranging up to $20 million and imprisonment of up to 30 years. Civil penalties for violations of the Trading With the Enemy Act can be up to $65,000 for each violation.

Total OFAC compliance for your car dealership is completely possible

OFAC compliance can feel overwhelming, but if you keep the basic principles in mind, your dealership should have no problems. Remember, no sale is worth breaking the law — make sure your dealership is fully compliant and your team will be in an ideal position to make sales and thrive.