Burma, OFAC and International Payments

Tages Anzeiger is on to something here.

In a first article (German) the newspaper writes about a Swiss citizen, Ms Zumsteg (not real name), who wanted to help her tourguide she met during a trip to Burma (Myanmar) in 2006.

The two have staid in contact ever since. Recently her Burmese tour guide had gotten into financial difficutlies. Because of the econmic crisis tourists staid away. Being asked if she would consider coming to Burma for another trip Ms Zumsteg declined due to lack of time but decided to help out by sending $500.
However, Burma due to international sanctions is not rechable via direct ransfer, so the two agreed to send the money to a cousin of the tourguide who lives in Singapore.
She asked her Bank, the Bank Raiffeisen, to execute the transfer. The bank recommended to name the Burmese tour guide as the “beneficiary” in the payment. His name is Han Soe Win, by the way.

Shortly thereafter trouble ensued. Raiffeisen called Ms Zumsteg raising hell accuesing her of “having supported a terrorist” and demanded to receive a photograph and copy of the passport of Han Soe Win. Raiffeisen claimed if they didn’t receive the information from her until 4pm that day, they would “lose their licence in the US”. They even threatened Ms Zumsteg to sue her for all the damages connected to that event. Raiffeisen also claimed that the “US had confiscated the $500.”

Now, Han Soe Win is a very common name in Burma, unfortunately it is also a name that appears for some reason on an US terror list.
Fortunately for the persons involved the issue was resolved within a few days. According to Raiffeisen it was “a missunderstanding”. The bank said that “names in transfers” were checked routinely against “lists of terror suspects”. The partner bank in Singapore had raised the issue and that this had to be resolved according to Raiffeisen.

Well, that may be, but that doesn’t explain the threats and claims made by Raiffeisen. As Raiffeisen does not have a bank licence in the US, how could it be in danger of losing that licences? How would the US find out about this payment anyway, as it was effected between Switzerland and Singapore as far as I know this doesn’t pass via the US. How then would the US know about such a transfer let alone be able to block or even confiscate the money so transfered? Was this all just false claims made by Raiffeisen, or is there something real behind those claims?

In a second article by Tages Anzeiger (German), some of the questions may have been answered. Obviously the mentioning of the term “Burma” in any context triggers something somewhere between one bank and the other.

Ms Schulthess ordered “Walnut Parquet” in China. Unluckily for her the wood used for manufacturing the parquet was called “Burma Walnut”, which btw is a commonly used term in this business. Also the wood is not from Burma but comes from the southern part of China.

However, these details are obviously lost on some people. While the first part of the payment went through, the second installment didn’t make it. After some investigation by Ms Schulthess, Swift, which executes those payments, said that the payment had been blocked for possible breach of the embargo against Burma. Swift claimed that this may be a case for the Office of Foreign Assets Control (OFAC) to get involved.
As it turned out later, the payment had been not been blocked by US authorities but by Citibank,  the correspondence bank for this payment. Citi had found the word “Burma” to be suspicious and had blocked the payment.

The Zurich Cantonal Bank (Zürcher Kantonalbank or ZKB), Ms Schulhess’ bank, explained this the following way:

All international payments are automatically sent through a so-called sanction filter. This filter contains all UN and some country specific sanctions. In this case the payment was routed through the US that is why the US sanctions against Burma were applied.

This sounds plausible. However, I wonder why this payment went through Citi and the US instead of going directly to China.

I conclude that under no circumstances should you use the word “Burma” – and certainly some other words – in any of your payments when not absolutely necessary.
How dumb do they think terrorists are anyway. I am sure not many of them would mention OBL as beneficiary of their payments, but that’s just a guess.

Also don’t assume that just because the US is not a party in a payment that the payment isn’t routed via the US.  Certainly it is worthwile to know more about the ownership of these physical networks through which the payments pass, and about the service provider(s) that deliver the payment services on these networks.
Might it be that the DTCC is involved here in some way? Maybe much more traffic is routed through the US than most of us think. Probably not just for efficiency, but that’s just a guess too.