PacNet Services was created in 1994 to serve a growing need among catalogue sales companies and international publishers to accept payment in their customers' home currencies.
In 1994, "globalization" was a buzz word, and many companies within the US and around the world were wondering how best to tap into opportunities to sell their products internationally.
The internet was in its infancy; direct mail was the primary vehicle for international sales and cheques were the preferred method of payment. PacNet, one of the world's first international fintech companies, provided a way for companies to accept cheques in their customers' home currency, yet receive funds in their company-designated bank account quickly and without high fees.
As globalization continued apace and more and more companies recognized the opportunities presented by international markets, PacNet added payment services such as multi-currency card processing, bank transfers and cheque issuing to facilitate international e-commerce and consumer refunds.
PacNet Services was a well-respected, cutting-edge, fully licensed and compliant international payment processing company, among the first to recognize the importance of providing consumers and businesses with convenient local-currency payment options. The company ceased doing business on 22 September, 2016.
On 22nd September 2016, the United States Government, Department of Treasury’s Office of Foreign Assets Control designated PacNet Services, approximately 33 group companies and subsidiaries, and 12 individuals as a “Transnational Criminal Organization” and added their names to its list of Specially Designated Nationals. As a result, it was impossible to continue business and the Group commenced an orderly shut-down of all its business activities.
The designations were based on an allegation that PacNet Services conspired in fraudulent activities of “Direct Mail” marketers active in the United States and elsewhere. PacNet and its officers vigorously deny the allegation and have presented factual evidence to OFAC that the action was unjust and undeserved. No accusations or allegations whatsoever were made against Chexx Inc or Counting House. They were, nevertheless, included in OFAC's actions.
Prior to September 22, 2016, neither PacNet nor its affiliates, directors, or officers had ever been accused—much less charged and convicted—of any criminal offense arising from its business activities. To the contrary, PacNet's history of compliance and cooperation with law enforcement agencies and anti-money laundering initiatives was publicly recognized and appreciated.
Over the following 13 months the group debated vigorously with the Office of Foreign Asset Controls to remove the names of the affected directors and employees from the SDN list. Despite each person being removed from the list with unprecedented speed, the reputations and livelihoods of the affected individuals were irreparably damaged by OFAC's actions. The negative consequences endure to this day.
The consequences of OFAC's actions have been catastrophic. Reputable companies were destroyed, careers were ruined, financial services have been denied to those named to the list, hundreds of people were affected by loss of their job or the job of a supporting family member. Legal cases continue to be argued in jurisdictions where OFAC's allegations have been incorrectly interpreted as evidence of wrong-doing.
A surprising number of organizations believe that OFAC is a judicial body and that companies or individuals named to their list of sanctions have been charged and tried or otherwise given due process. However, this belief is incorrect, as many jurisdictions are slowly beginning to understand.
Despite OFAC's designation of the PacNet Services Group of Companies as a Transnational Criminal Organization, and the sanctioning of 12 PacNet employees, no PacNet company nor any employee, director or shareholder of any PacNet company has ever been charged with any crime, in any jurisdiction, at any time in PacNet's history.
On 19th September 2017, OFAC and the PacNet Group signed an agreement under which OFAC would remove all remaining entities and individuals from the SDN list.
The PacNet Group is in the process of dissolving the companies in an orderly manner. Any client funds in which the US Government claimed a law enforcement interest were paid under an Interpleader action into the District Court for the Eastern District of New York.
There was no fine, no penalty, and no agreement by the companies that any wrongdoing had occurred. However, on the insistence of OFAC, the agreement did include a clause which prevents the PacNet Services Group of Companies from suing OFAC for damages.
Incredibly, after PacNet filed the interpleader in compliance with its agreement with OFAC, the US government attempted to seize client funds. PacNet received court permission to file a complaint and request censure of the US Government's actions and some of the individual lawyers involved. A former Chexx Inc client, i-Payout, joined the court action in support of PacNet's complaint.
On 26 October 2017, OFAC announced removal of the entire PacNet Group of Companies from its sanctions list. However, the announcement lacked the sensationalized media coverage dedicated to the original designations. There has been a disappointing lack of media curiosity and discussion regarding OFAC's unprecedented and outrageous actions in designating PacNet, a reputable organization with no criminal history, as a Transnational Criminal Organization and its speedy removal of all associated individuals and companies from its list.
The OFAC designation was ill-considered, incorrect, and unlawful. The investigation leading to the OFAC designation was marred by impropriety, incompleteness, and a failure to consider contrary and strongly exculpatory facts readily available to, and in the possession of, the United States Government.
The consequences of OFAC's actions to the PacNet Group of Companies, their employees and each of the individuals originally named to OFAC's sanction list have been catastrophic and unjust. OFAC's actions have also unfairly impacted clients, banks and unrelated companies within the fintech sector. OFAC's allegations are commonly interpreted as evidence of wrong-doing. It is incorrect to believe or assume that OFAC is a judicial body and that companies or individuals named to their list of sanctions have been charged, tried or otherwise given due process.
PacNet's designation and recent unrelated OFAC actions strongly suggest that, rather than being used as an emergency measure to address threats to national security, as required by federal law, OFAC sanctions are being used inappropriately to further non-security agendas.