Companies transacting goods and services over the internet should make sure they have IP address geolocation screening capabilities in place to reduce the risk of inadvertently doing business with a sanctioned country, if recent OFAC enforcement actions are anything to go by.

Since the beginning of 2020, the Commerce Department’s Office of Foreign Assets Control (OFAC) has levied fines of about US$4 million on at least six companies for doing business with individuals and entities in one or more of the sanctioned and embargoed countries of Iran, Syria, Sudan, Cuba, and North Korea, as well as the region of Crimea in Ukraine. The maximum collective penalty could have totaled $2.4 billion, but the amount was greatly reduced because the companies involved self-disclosed the violations and implemented a series of remedial measures to address sanctions screening deficiencies, including IP address screening and blocking, as part of the settlement terms.

The six consisted of a 3D animation hardware and software systems developer, an online money transmitter, a digital currency payment processing solution maker, a digital assets security enabler, an ERP application provider, and an ecommerce platform.

Part of the problem was that these companies were either collecting IP addresses but did not use the information for export compliance purpose, or they weren’t tracking the data at all. Had they been tuned to the issue, they would been aware faster that they were dealing with sanctioned countries.

What is IP Address Geolocation Screening?

The IP address is a unique string of characters that identifies a specific computer as it communicates with other computers over a network, and its geolocation is the technique employed to approximate the location of a device anywhere in the world.

Why is this important? It is because individuals wanting to circumvent OFAC and other sanctions might try to mask their whereabouts as they attempt to make purchases over the internet. For example, being able to discern someone emailing from Tehran, when the sender claimed they were in London.

OFAC’s Compliance Considerations

OFAC’s recent enforcement actions serve as a reminder that companies need to be accurate in their due diligence before entering into a business deal. And it has stressed that organizations need to thoroughly understand relevant sanctions regulations, especially when selling to global markets.

It stated that financial services providers, online software sellers, as well as other industry categories using the internet to distribute products and services, should deploy available tools to minimize compliance breaches. This included IP address geolocation screening, emphasizing that this was crucial where engagement with the end user was indirect. This is on top of the usual denied and restricted party screening of customers and other trade chain partners (whether online, bulk or automated), having established export controls and procedures, and organizing regular staff training, among others.

Industry observers said that the recent cases demonstrated that all businesses engaged in promoting their wares online need to have the capability to identify the exact location of the people they were dealing with.

They added that this added further weight to government moves to make companies more accountable in their international trade endeavors, highlighted by OFAC’s 50 percent rule, the equivalent rules in the European Union, and the Military End User (MEU) regulations where official guidance is more directional rather than through explicit instructions. It’s all about going above and beyond.

How Descartes Can Help

IP address geolocation screening is part of Descartes’ suite of denied and restricted party screening solutions. With it, organizations can be alerted the instant an IP address is found to be located in a sanctioned country and be able to take the appropriate action.

Descartes solutions help companies manage their export compliance risk more effectively with restricted party screening, export classification, license determination and management, and sanctioned party ownership screening. These solutions mitigate the risk of incurring penalties, adverse media, and reputational damage. Most important, they help enable business growth.

For other articles related to IP address geolocation screening, check out Three Denied Parties Screening Red Flags You Should Be On the Lookout For, and An Introduction to Restricted Party Screening.