What happens when PayPal, the Treasury Department, and a New York magazine walk into a bar together? Nothing good!
Jacob Plitman, publisher and CEO of NYC-based magazine Jewish Currents, says that PayPal held paychecks for nine of the publication’s staff and contributors this week after he listed “January plus Iran piece” as the purpose of a payment to editor David Klion. Some of the payments were held for days, Plitman told Gizmodo via phone.
“We’re a small shop, right?” Plitman said. “And we’ve inherited some of our payment practices from when it was even smaller than it is.”
According to Plitman, the issues began on Feb. 2, when he began sending out pay to the magazine’s workforce. Two went through fine before he sent the one incidentally referencing Iran to Klion, he said, which brought up a message saying that the payment may need review. The remaining eight payments appeared to go through fine, even sending email confirmations, but Jewish Currents staff told Plitman they never received the money.
Nine paychecks of JC staff and contributors are currently being held by PayPal.
— Jewish Currents (@JewishCurrents) February 5, 2020
“That’s my paycheck, everyone’s paychecks beyond the first two that I did,” Plitman told Gizmodo. In total, that amounted to tens of thousands of dollars; Plitman said he personally lent money to Jewish Current contributors who had to pay “urgent expenses” like rent.
Plitman said that when he called PayPal, he was told that the matter was being reviewed by the security team and that the e-check might take time to clear, but was told he could not speak to that team directly. On Tuesday, Plitman finally received an email from PayPal saying that the Compliance Department required “an explanation of the reference to ‘Iran’” as well as “the purpose of this payment, including a complete and detailed explanation of what is intended to be paid for.”
PayPal cleared the payment to Klion after he filled out the request, according to Plitman, but the eight other payments remained in limbo. Plitman said he called again on Wednesday and was still waiting on the remaining payments to go through as of later that afternoon, as well as failed to hear back from a separate PayPal rep on Twitter.
What happened to Jewish Currents is actually incredibly common: Iran is facing sweeping sanctions that are (supposedly) intended to stop its uranium enrichment program. Those are administered and enforced by the Office of Foreign Assets Control (OFAC), a unit of the Treasury Department. OFAC issues lists of criteria to banks, payment providers, and other financial institutions on when they need to hold transactions that could potentially be going to sanctioned nations, as well as entities and persons on the Specially Designated Nationals (SDN) list. That means any transaction hinting at a connection to Iran or other sanctioned countries like Cuba, Syria, or North Korea might send up red flags.
There are potential legal consequences if U.S. companies fail to effectively screen for violations. In 2015, PayPal settled with OFAC for nearly $US7.66 ($11) million over what the agency described as a failure “employ adequate screening technology and procedures to identify the potential involvement of U.S. sanctions targets in transactions that PayPal processed.” In 2018, the Securities and Exchange Commission sent letters to PayPal and 41 other companies like Bank of New York Mellon Corp and Ctrip.com International asking them to disclose more information about dealings in sanctioned countries. OFAC has recently stepped up sanctions enforcement under the Trump administration, reaching 26 penalties and settlements totaling almost $US1.29 ($2) billion in 2019.
That pressure has resulted in companies like PayPal and its competitors deciding to flag a wide array of payments, acting as a sort of sanctions dragnet. OFAC regulations on Iranian financial sanctions appear to define “Iran,” the name, as synonymous with “the Government of Iran and the territory of Iran and any other territory or marine area” where the Iranian government “exercises partial or total de facto control over the area or derives a benefit from economic activity in the area pursuant to international arrangements.”
Venmo, a PayPal subsidiary, imposed similar delays on people donating to Syrian charities facing financial regulations in 2016. In some cases, payment processors have faced heat for behaviour that seemed to go beyond compliance and approach racial profiling. In 2018, Venmo blocked payments using the word “Persian,” while in 2019 the service blocked a transaction referencing Al-Aqsa Restaurant in New York.
There’s some ambiguity as to whether the Treasury Department requires certain terms be flagged for review (for example, “AL-AQSA a.k.a. AL-AQSA CHARITABLE FOUNDATION” is on the SDN list) or the payment processors are pre-emptively blocking anything vaguely related to the designated entities. The user in the al-Aqsa Restaurant situation, Shahana Hanif, told Gothamist such screening “prohibits Muslim communities from our heritage, our culture, our food. And that’s fucked up.”
In 2019 Newsweek found evidence of inconsistent enforcement. Phrases containing entities regulated by OFAC like “Cuba sanctions,” “North Korea food,” and “rough diamonds” went through just fine, according to Newsweek. Adding further opaqueness to the situation is that payment processor compliance systems may also flag other factors, like the size of payments or whether numerous ones are sent at the same time.
Regardless of what triggers the review, the result is the same: money held up while users stew over the time and hassle required to get their transactions cleared.
“PayPal and Venmo take regulatory and compliance obligations seriously, including U.S. economic and trade sanctions administered by [OFAC],” a PayPal spokesperson told Gizmodo in a statement. “Our goal is to deliver as seamless of a payments experience as possible while we do our job in making sure payments made on our platforms comply with applicable law. We realise any delay in making or receiving a payment can be frustrating, and we appreciate our customers’ patience as we comply with our regulatory obligations.”
For Plitman, the hassle has already been enough.
“What I value most in a payment service is the ability to make payments,” he told Gizmodo. “If I can’t do that with PayPal I won’t be using it much longer.”
The Treasury Department did not respond to a request for comment on OFAC requirements from Gizmodo, but we’ll update this post if we hear back.