Executive Order 13438: Blocking Property of Certain Persons Who Threaten Stabilization Efforts in Iraq

Executive Order 13438: Blocking Property

of Certain Persons Who Threaten

Stabilization Efforts in Iraq

-name redactedLegislative Attorney

January 24, 2014

Congressional Research Service

7-....

www.crs.gov

RL34254

Executive Order 13438

Summary

On July 17, 2007, President Bush issued Executive Order 13438, Blocking Property of Certain

Persons Who Threaten Stabilization Efforts in Iraq. It is the latest in a series of executive orders

based on the national emergency declared by President Bush with respect to “the unusual and

extraordinary threat to the national security and foreign policy of the United States posed by

obstacles to the orderly reconstruction of Iraq, the restoration and maintenance of peace and

security in that country, and the development of political, administrative and economic

institutions in Iraq.” Regulations implementing this Executive Order were issued on September

13, 2010.

The President’s authority to issue the executive order stems from the International Emergency

Economic Powers Act of 1977 (IEEPA). The executive order covers financial transactions and

authorizes property controls with respect to three categories of persons: (1) individuals or entities

determined “to have committed, or to pose a significant risk, of committing an act or acts of

violence that have the purpose or effect of ... threatening the peace or stability of Iraq ...”; (2)

individuals or entities determined “to have materially assisted, sponsored, or provided financial,

material, logistical, or technical support for, or goods or services in support of, such an act or acts

of violence or any person whose property and interests in property are blocked pursuant to this

order ...”; and (3) individuals and entities determined “to be owned or controlled by, or to have

acted or purported to act for or on behalf of, directly or indirectly, any person whose property and

interests in property are blocked pursuant to this order....”

This report provides a brief history of the development of presidential powers in peacetime. It

discusses some of the issues that might be raised in light of the contrast between the executive

order’s broad language and its narrow aim—supplementation of sanctions applicable to Al Qaeda

and former Iraqi regime officials to cover terrorists operating in Iraq. It examines the reach of the

executive order and provides legal analyses of some of the constitutional questions raised in the

courts by similar sanctions programs, noting that the broad language of the executive order is not

unprecedented. The Department of the Treasury’s Office of Foreign Assets Control (OFAC) has

published names of persons designated under the executive order and issued regulations further

refining its terms and applicability. The report examines some of the procedures available to

challenge OFAC sanction regulations and briefly discusses OFAC’s rules, which may be of

concern to attorneys representing individuals and entities subjected to sanctions or involved in

transactions with sanctioned persons.

Since December 2009, there have been no additions to the list of blocked persons and several

OFAC announcements removing designated individuals and entities from the List of Designated

Nationals and Blocked Persons.

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Executive Order 13438

Contents

Background ...................................................................................................................................... 1

Recent Developments ...................................................................................................................... 2

Statutory Basis: IEEPA .................................................................................................................... 4

Executive Order 13438 Coverage .................................................................................................. 11

Persons Covered ...................................................................................................................... 11

Objectives ................................................................................................................................ 12

Transactions Covered .............................................................................................................. 12

Implementation ........................................................................................................................ 13

Reach—Is It Limited to “Foreign” Persons? ........................................................................... 14

Attorney-Client Implications ................................................................................................... 17

OFAC Administrative Procedures.................................................................................................. 20

Challenging Designations .............................................................................................................. 21

Potential Impact of OFAC Designations........................................................................................ 23

Contacts

Author Contact Information........................................................................................................... 23

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Executive Order 13438

Background

On July 17, 2007, President Bush issued Executive Order 13438, Blocking Property of Certain

Persons Who Threaten Stabilization Efforts in Iraq.1 It is the latest in a series of executive orders

based on the national emergency declared by President Bush with respect to “the unusual and

extraordinary threat to the national security and foreign policy of the United States posed by

obstacles to the orderly reconstruction of Iraq, the restoration and maintenance of peace and

security in that country, and the development of political, administrative and economic

institutions in Iraq.”2 The broad language of this executive order has been the subject of a degree

of criticism as potentially reaching beyond insurgents in Iraq to third parties, such as U.S.

citizens, who may unknowingly be providing support for the insurgency.3

Having declared a national emergency, the President invoked authority available under the

International Emergency Economic Powers Act of 1977 (IEEPA)4 and ordered the blocking of

financial transactions and the institution of property controls with respect to any property or

interests in property of persons determined to fall within three categories of individuals or entities

threatening the stabilization efforts in Iraq. Implementation of this executive order is the

responsibility of the Department of the Treasury’s Office of Foreign Assets Control (OFAC),

which currently “administers economic and trade sanctions based on US foreign policy and

national security goals against targeted foreign countries, terrorists, international narcotics

traffickers, and those engaged in activities related to the proliferation of weapons of mass

destruction.”5 OFAC has promulgated regulations implementing sanctions involving the Balkans,

Belarus, Burma, Cote d’Ivoire (Ivory Coast), Cuba, diamond trading, Iran, Iraq, Liberia, Libya,

narcotics trafficking, weapons of mass destruction proliferation, North Korea, Sudan, Syria,

terrorists, and Zimbabwe.6

1

72 Fed. Reg. 39,719 (July 19, 2007). The national emergency has been continued for one-year periods, in accordance

with section 50 U.S.C § 1622(d), the latest of which continues the national emergency for one year beyond May 22,

2013, 78 Fed. Reg. 3019527399 (May 21, 2013).

2

Exec. Order No. 13350, 69 Fed. Reg. 46,055 (July 30, 2004) (expanding on the national emergency declared May 28,

2003 (Exec. Order No. 13303, 68 Fed. Reg. 3,193), which was expanded on September 3, 2003 (Exec. Order No.

13155, 68 Fed. Reg. 52,314)).

3

See, e.g., Walter Pincus, “Destabilizing Iraq, Broadly Defined,” Washington Post, A-15 (July 23, 2007) (quoting

Bruce Fein as raising questions about whether lawyers who provide legal assistance for persons listed under the

executive order might be subject to asset freezes); ACLU website, “ACLU Says Executive Order ‘Material Support’

Provision Sweeps Too Broadly and Will Restrict Humanitarian Efforts in Iraq” (7/27/2007) http://www.aclu.org/natsec/

warpowers/31113prs20070727.html; and, CivicActions website (asking whether the “executive order just

criminalize[d] the anti-war movement in the US, giving the president the power to clean out our bank accounts?”)

http://www.civicactions.com/blog/

executive_order_blocking_property_of_certain_persons_who_threaten_stabilization_efforts_in_iraq.

4

P.L. 95-223, Tit. II, 91 Stat. 1652, 1626; 50 U.S.C. §§ 1701 et seq. IEEPA authority is triggered when the President

declares a national emergency with respect to “any unusual and extraordinary threat, which has its source in whole or

substantial part outside the United States, to the national security, foreign policy or economy of the United States.”

Other statutes invoked by the President in issuing the executive order are: the National Emergencies Act, 50 U.S.C. §§

1601 et seq (setting procedures for declaring, terminating, informing Congress about, reporting expenses incurred by

national emergencies, and establishing a joint resolution as the means by which Congress may terminate the national

emergency); and section 301 of Title 3, U.S.C. (authorizing agency heads to issue regulations).

5

U.S. Department of the Treasury, Terrorism and Financial Intelligence, Office of Foreign Assets Control (OFAC),

“Mission,” http://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-AssetsControl.aspx (last visited December 14, 2010).

6

Texts of the sanctions regulations, legal documents ordering the sanctions, and guidance to the various industries

(continued...)

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Recent Developments

On September 13, 2010,7 OFAC issued regulations implementing Executive Order 13438 as well

as various other Executive Orders issued since 2003 to deal with the situation in Iraq.8 These

regulations, the Iraq Stabilization and Insurgency Sanctions Regulations, 31 C.F.R., Part 576,

elaborate to some extent on the Executive Order. For instance, they specify that the blocking

orders for persons sanctioned under Executive Order 13438 are effective on “the earlier of the

date of actual or constructive notice that such person’s property and interests in property are

blocked,”9 rather than, for example, on the date of publication in the Federal Register of the

person’s designation as a Specially Designated Terrorist. The regulations also declare to be

blocked any property or interests in property of any entity in which the blocked person has,

directly or indirectly, a 50% interest, whether or not that entity has been designated under the

Executive Order.10 Persons whose interests have been blocked may challenge the blocking orders

in two ways. If they can claim “mistaken identity,” they may seek to have the funds or property

released by observing the procedures specified in 31 C.F.R. § 501.806. They also have the

possibility of seeking administrative review of their designation as a Specially Designated

Terrorist by showing that the basis on which they have been designated is “insufficient” or by

proposing “remedial steps” that they could take to “negate the basis for designation.”11

A list of designees added to OFAC’s Special Designated Nationals and Blocked Persons List12

under Executive Order 13438 was issued by Treasury on January 9, 2008.13 It included Ahmed

Fruzandeh, Brigadier General, Commanding Officer of the Iranian Islamic Revolutionary Guard

Corps-Qods Force, Ramazan Corps, who “leads terrorist operations against Coalition Forces and

Iraq Security Forces, and directs assassinations of Iraqi figures.”14 Also included were two Iran(...continued)

required to abide by the sanctions can be found at OFAC’s website: http://www.treasury.gov/about/organizationalstructure/offices/Pages/Office-of-Foreign-Assets-Control.aspx. (last visited, December 14, 2010).

7

75 Fed. Reg. 55463 (September 13, 2010).

8

Executive Orders 13303, 13315, 13350, and 13364.

9

31 C.F.R 576.303(b);. 75 Fed. Reg. 55470.

10

31 C.F.R. § 576.412; 75 Fed. Reg. 55472.

11

A blocked “person may seek administrative reconsideration of his, her or its designation … as blocked, or assert that

the circumstances resulting in the designation no longer apply” pursuant to 31 C.F.R. 501.807. Upon receiving a

request for reconsideration, OFAC will review the request and the arguments submitted and provide a written decision.

If the request is denied, the OFAC decision may be challenged in federal court and upheld if the court finds that it is

supported by substantial evidence on the record. See, e.g. Al Haramain Islamic Foundation, Inc. v. U.S. Department of

the Treasury, 585 F. Supp. 2d 1233 (D.Or. 2008). It must be noted, however, that there is one case which treated the

blocking order as a seizure under the Fourth Amendment and required that the government show “exigent

circumstances” to justify its actions. Kind Hearts for Charitable Humanitarian Development, Inc., v. Geithner, 647 F.

Supp. 2d 857 (N.D. Ohio, 2009).

12

The current list, issued on January 6, 2011, can be found at http://www.treasury.gov/ofac/downloads/t11sdn.pdf.

Names of “blocked persons,” “specially designated nationals,” and “specially designated terrorists,” with whom U.S.

persons may not trade are also published in the Federal Register and in appendices to 31 C.F.R. “IRAQ3” is the

designation given to names added pursuant to Executive Order 13438.

13

U.S. Department of the Treasury Press Release HP-859, “Treasury Designates Individuals, Entity Fueling Iraqi

Insurgency.” http://www.treasury.gov/press-center/press-releases/Pages/hp759.aspx.

14

Id. The OFAC notes that the Brigadier General, Commanding Officer of the Iranian Islamic Revolutionary Guard

Corps-Qods Force, Ramazan Corps, is also known as Ahmad Foruzandeh, Ahmad Fruzandah, Ahmad Fayruzi, Jafari

Ahmad Foroozandeh, Abu Shahab, and Abu Ahmad Ishab.

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based Iraqi nationals, and one Syria-based Iraqi national as well as Al-Zawra Television Station,

based in Syria. The Treasury announcement includes a description of the activities of the

designees that have led to the prohibition of transactions between them and any U.S. person and

the freezing of any of their assets that are under the jurisdiction of the United States.

On September 23, 2008, the names of five newly designated individuals and two newly

designated entities were added to the list of blocked persons and entities under the authority of

Executive Order 13438.15 One Iranian national was included,16 as were three Iraqi nationals,17 and

one Syrian national.18 The newly designated entities were both broadcasters operating in Syria:

Al-Ra’y Satellite Television Channel, Near Damascus in the Yaafur area, and Suraqiya for Media

and Broadcasting, Damascus.

On July 16, 2009, OFAC announced the names of one newly designated entity and one newly

designated individual whose property and interests in property are blocked pursuant to Executive

Order 13438.19 On January 5, 2010, OFAC added the following designee to the list of entities and

individuals whose property is blocked pursuant to Executive Order 13438: Jaysh Rijal Al-Tariq

Al-Naqshabandi (a.k.a. Armed Men of the Naqshabandi Order; a.k.a. Naqshabandi Army; a.k.a.

“AMNO”; a.k.a. “JRN”; a.k.a. “JRTN”), Iraq; website: http://www.alnakshabandia-army.org;

http://www.alnakshabandia-army.com [IRAQ3].20

On January 10, 2012, OFAC removed the following individual from the list of blocked persons:

Dr. Safa Al Habobi, Flat 4D Thorney Court, Palace Gate, Kensington, United Kingdom (former

Minister of Oil).21

On July 7, 2012, OFAC removed the following entities from the list of blocked persons: Alfa

Company Limited for International Trading and Marketing, P.O. Box 910606, Amman 11191,

15

73 Fed. Reg. 54896.

Abdul Reza Shahlai.

17

Arkam Abbas Al-Kabi, Harith Sulayman Al-Dari, and Ahmad Hassan Kaka Al-Ubaydi.

18

Raw’a Al-Usta.

19

74 Fed. Reg. 34639. The entire list of blocked individuals and entities, as published on that date, is:

AL-MUHANDIS, ABU MAHDI (a.k.a. AL BASERI, Abu Mahdi; a.k.a. AL-BASARI, Abu

Mahdi; a.k.a. AL-BASRI, Abu-Mahdi al-Mohandis; a.k.a. AL-IBRAHIMI, Jamal; a.k.a. ALIBRAHIMI, Jamal Ja’afar Muhammad Ali; a.k.a. AL-IBRAHIMI, Jamal Ja’far; a.k.a. ALMADAN, Abu Mahdi; a.k.a. AL-MOHANDAS, Abu-Mahdi; a.k.a. AL-MOHANDESS, Abu

Mehdi; a.k.a. AL-MUHANDES, Abu Mahdi; a.k.a. AL-MUHANDIS, Abu Mahdi al-Basri; a.k.a.

AL-MUHANDIS, Abu-Muhannad; a.k.a. BIHAJ, Jamal Ja’afar Ibrahim al-Mikna; a.k.a.

EBRAHIMI, Jamal Jafaar Mohammed Ali; a.k.a. JAMAL, Ibrahimi; a.k.a. “AL-IBRAHIMI, Jamal

Fa’far ‘Ali”; a.k.a. “AL-TAMIMI, Jamal al-Madan”; a.k.a. “JAAFAR, Jaafar Jamal”; a.k.a.

“MOHAMMED, Jamal Jaafar”), Mehran, Iran; Al Fardoussi Street, Tehran, Iran; Al Maaqal, Al

Basrah, Iraq; Velayat Faqih Base, Kenesht Mountain Pass, Northwest of Kermanshah, Iran; DOB

1953; POB Ma’ghal, Basrah, Iraq; citizen Iran; alt. citizen Iraq; nationality Iraq (individual)

[IRAQ3] KATA’IB HIZBALLAH (a.k.a. HIZBALLAH BRIGADES; a.k.a. HIZBALLAH

BRIGADES IN IRAQ; a.k.a. HIZBALLAH BRIGADES-IRAQ; a.k.a. KATA’IB HEZBOLLAH;

a.k.a. KHATA’IB HEZBOLLAH; a.k.a. KHATA’IB HIZBALLAH; a.k.a. KHATTAB

HEZBALLAH; a.k.a. “HIZBALLAH BRIGADES-IRAQ OF THE ISLAMIC RESISTANCE IN

IRAQ”; a.k.a. “ISLAMIC RESISTANCE IN IRAQ”; a.k.a. “KATA’IB HIZBALLAH FI ALIRAQ”; a.k.a. “KATIBAT ABU FATHEL AL A’ABAS”; a.k.a. “KATIBAT ZAYD EBIN ALI”;

a.k.a. “KATIBUT KARBALAH”), Iraq; Najaf, Iraq [FTO] [SDGT] [IRAQ3]

20

75 Fed. Reg. 518.

21

http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20120110.aspx.

16

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Jordan; Nabil Victor Karman, c/o Alfa Company Limited for International Trading and

Marketing, P.O. Box 212953, Amman 11121, Jordan; Trading and Transport Services Company,

Ltd., Al-Razi Medical Complex, Jabal Al-Hussein, Amman, Jordan; P.O. Box 212953, Amman

11121, Jordan; P.O. Box 910606, Amman 11191, Jordan [IRAQ2].22

On January 3, 2013, OFAC removed one entity and one individual from the list of Designated

Nationals and Blocked Persons: Euromac European Manufacturer Center SRL, Via Amerer 5,

Monza Italy; and Jeanne Speckman of the United Kingdom.23

Statutory Basis: IEEPA

The July 17, 2007, executive order cites as its authority IEEPA. Under IEEPA, once the President

has declared a national emergency with respect to a threat “to the national security, foreign policy,

or economy of the United States” from a source “in whole or in substantial part outside the

United States,”24 broad authority is available to the President to impose an economic embargo

over transactions and property in which a foreign nation or foreign person has an interest.

Specifically, the statute authorizes the President to

(A) investigate, regulate, or prohibit—

(i) any transactions in foreign exchange,

(ii) transfers of credit or payments between, by, or through, or to any banking

institution, to the extent that such transfers or payments involve any interest of any

foreign country or national thereof; and

(iii) the importing or exporting of currency or securities ... and

(B) investigate, regulate, direct and compel, nullify, void, prevent or prohibit, any

acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or

exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or

transactions involving, any property in which any foreign country or a national thereof has

any interest; by any person, or with respect to any property, subject to the jurisdiction of the

United States.25

This language is derived from section 5(b) of the Trading with the Enemy Act of 1917 (TWEA),26

which grants authority to the President to block and freeze enemy property and interests in

property and to regulate financial transactions involving enemy countries, their nationals and their

allies during a declared war.27 It was first used in peacetime in 1933, in the midst of the Great

Depression, when President Franklin D. Roosevelt proclaimed a bank holiday and closed banks in

22

http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20120717.aspx.

http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20130103.aspx.

24

50 U.S.C. § 1701(a).

25

50 U.S.C. App. 1702(a)(1).

26

Act of October 6, 1917, ch. 106, § 5, 40 Stat. 411; as amended 12 U.S.C. § 95(a), 50 U.S.C. App. §§ 1 - 44.

27

As enacted, this statute excluded U.S. citizens and corporations incorporated in the United States from the definition

of “enemy.” Id. § 2, 40 Stat. 441. The current version continues to exclude “citizens of the United States” and

corporations incorporated in the United States from its definition of “enemy.” 50 U.S.C. App. §§ 2(c) and (a).

23

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the United States, thereby interfering with both foreign and domestic financial transactions, in

response to what he deemed to be a national banking emergency related to “extensive speculative

activity abroad in foreign exchange ... [resulting] in severe drains on the Nation’s stocks of

gold.”28 Congress immediately ratified this action and amended TWEA,29 extending the

emergency powers granted under the original legislation to cover both wartime and “any other

period of national emergency declared by the President” and provided the President with

authority to regulate purely domestic transactions.30 President Roosevelt invoked TWEA again in

peacetime in 1939, as Hitler was advancing in Europe, to block assets of Norway and Denmark

and their nationals. Eventually TWEA was used to block assets of the Axis enemies of the United

States.31 A 1940 amendment expanded presidential power under TWEA by specifically

authorizing asset freezes and expanding authority beyond transactions with enemies or allies of

enemies to cover financial transactions in which any foreign state or foreign national had an

interest.32 TWEA, thus, was used to block assets of friendly nations threatened by Axis

occupation. A 1941 amendment to TWEA added the power to seize and vest33 title to any property

of a foreign person or nation.34 This amendment extended the “power of seizure ... to all property

28

Proclamation No. 2039, 48 Stat. 1689 (March 6, 1933).

Act of March 9, 1933, ch. 1, 48 Stat. 1.

30

Act of March 9, 1933, ch. 1, § 2, 48 Stat. 1. Not only did the 1933 amendment remove the TWEA requirement for a

declared war, it also removed the requirement of a foreign nexus, authorizing the President “to investigate any

transactions in foreign exchange, transfers of credit between or payments by banking institutions ... and export,

hoarding, melting, or earmarking of gold or silver coin or bullion or currency by any person within the United States.”

Upon enactment of this legislation, President Roosevelt issued an executive order authorizing the Secretary of the

Treasury to permit banks to reopen and to regulate exports of gold. Exec. Order No. 6073 (March 10, 1933).

31

After Hitler invaded Norway and Denmark, President Roosevelt issued Executive Order 8389 on April 10, 1940,

prohibiting foreign exchange transactions involving the property of Norway or Denmark or any national thereof.

Congress confirmed that executive order and its implementing regulations by Joint Resolution of May 7, 1940, ch. 185,

§ 2, 54 Stat. 179. Subsequently, this executive order was amended repeatedly to regulate transactions with over thirty

Axis nations, Axis-occupied countries, Axis allies, and other countries threatened by the Axis powers. See 12 U.S.C. §

95a, note.

32

As amended in 1940, TWEA section 5(b) specifically authorized the President to “investigate, regulate, or prohibit ...

any transfer, withdrawal or exportation of, or dealing in, any evidences of indebtedness or evidences of ownership of

property in which any foreign state or a national or political subdivision thereof, as defined by the President, has any

interest.” Joint Resolution of May 7, 1940, ch. 185, § 2, 54 Stat., at 179.

33

According to material that Bethany Kohl Hipp, “Defending Expanded Presidential Authority to Regulate Foreign

Assets and Transactions,” 17 Emory Inter’l L. Rev. 1311, 1345 – 1346 (2003)(citations omitted), gleaned from

Emergency Controls on International Economic Transactions: Hearing on H.R. 1560 and H.R. 2382 Before the

Subcomm. On Int’l Econ. Policy & Trade, House Comm. on Int’l Relations & Markup of Trading with the Enemy

Reform Legislation, 93d Cong., 1st Sess., n. 30, at 51 (1977):

Freezing, or blocking, is not taking assets; rather it is a short- or long-term deprivation of the assets

or the usage thereof. Freezing does not involve a transfer of title. For example, during World War

II, both German and Dutch assets held in the United States were frozen. German assets were

subsequently vested in the United States—title passed from Germany or nationals thereof to the

United States. The Court held that the vesting of German property was not a compensable taking

because the Fifth Amendment does not apply to enemy property. Conversely, Dutch assets were

never vested. The blocking, or freezing, and vesting of foreign assets have never been held to be

unconstitutional.

34

Act of December 18, 1941, ch. 593, § 301, 55 Stat. 838, 839 - 841, 77th Cong., 1st Sess. The statute provided, inter

alia, that “any property or interest of any foreign country or national thereof shall vest, when, as, and upon the terms,

directed by the President, in such agency or person as may be designated from time to time by the President, and upon

such terms and conditions as the President may prescribe such interest or property shall be held, used, administered,

liquidated, sold, or otherwise dealt with in the interest of and for the benefit of the United States.” Id. at 840.

Originally, TWEA permitted vesting of “enemy” property and defined “enemy” in terms of nations at war with the

United States and citizens thereof and entities having a principal place of business therein. 40 Stat. 411, § 2. This

(continued...)

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of any foreign country or national so that no innocent appearing device could become a Trojan

horse,” i.e., it was designed “to reach enemy interests which masqueraded under ... innocent

fronts.”35 The Supreme Court upheld the seizing and vesting of property of a non-enemy alien in

wartime;36 it also upheld the authority of the Treasury Department to vest assets of an enemy

(Austrian) entity, making them unavailable to U.S. creditors despite a New York court’s having

appointed a temporary receiver to collect the Austrian concern’s assets and ultimately distribute

them to U.S. creditors.37

In the 1970s, during the Vietnam War, congressional concern with ways to oversee presidential

use of emergency power led to questioning of the broad invocation of TWEA in circumstances

not directly related to war and not substantially originating abroad.38 One result was the

enactment of the National Emergencies Act of 1976 (NEA) and IEEPA, in 1977. NEA sets forth

various procedures to be followed by the President when declaring a national emergency, such as

Federal Register publication39 and specification of the provisions of law under which the actions

under the national emergency are to be taken.40 It specifies procedures for terminating national

emergencies and provides a role for Congress by imposing presidential reporting requirements

and establishing congressional review procedures.41 NEA terminated existing national

emergencies,42 except for those invoking section 5(b) of TWEA, therefore, imposing no notice

and reporting requirements on the President when invoking section 5(b). This was changed with

the enactment of IEEPA.43

IEEPA was enacted primarily, according to the Senate Report accompanying the legislation, as a

direct response to expanding use of emergency power by Presidents:

(...continued)

allowed enemy nations to “cloak” their ownership of property by organizing a business entity under the laws of a

friendly nation.

35

Clark v. Uebersee Finanz-Korp., 332 U.S. 480, 48 and 485 (1947).

36

Silesian-American Corporation v. Clark, 332 U.S. 469 (1947).

37

Propper v. Clark, 337 U.S. 472 (1949). The Court, thus, held that the freezing order nullified any subsequent

unlicensed judicial attempt to transfer the assets. The Court stated: “Through the Trading with the Enemy Act, in its

various forms, the nation sought to deprive enemies, actual or potential, of the opportunity to secure advantages to

themselves or to perpetrate wrongs against the United States or its citizens through the use of assets that happened to be

in this country. To do so has necessitated some inconvenience to our citizens and others who, as here, are not involved

in any actions adverse to the nation’s interest.” Id. at 481 - 482.

38

See, e.g., Exec. Order No. 8843, 6 Fed. Reg. 4,020 (August 15, 1940) (issued by President Roosevelt to regulate

consumer installment loans); Exec. Order No. 11387, 33 Fed. Reg. 47 (January 3, 1968) (issued by President Lyndon

Johnson to regulate capital transfers abroad).

39

50 U.S.C. § 1621(a).

40

50 U.S.C. § 1631.

41

50 U.S.C. § 1622.

42

P.L. 94-412, Tit. V, § 502(a)(1), 90 Stat. 1258.

43

To continue in existence, declarations of national emergencies must be renewed annually. 50 U.S.C. § 1622(d). Other

procedural requirements are succinctly summarized as follows:

IEEPA requires the President to consult with Congress, whenever possible before declaring a

national emergency, and while it remains in force. Once a national emergency goes into effect, the

President must submit to Congress a detailed report explaining and justifying his actions and listing

the countries against which such actions are to be taken, and why. The President is also required to

provide Congress periodic follow up reports every six months with respect to actions taken since

the last report and any change in information previously reported. H. Comm. on Ways and Means.

Overview and Compilation of U.S. Trade Statutes 209 (Comm. Print 2003 ed.).

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The purpose of the bill is to revise and delimit the President’s authority to regulate

international economic transactions during wars or national emergencies. The bill is a

response to two developments: first: extensive use by Presidents of emergency authority

under section 5(b) of the Trading With the Enemy Act of 1917 to regulate both domestic and

international economic transactions unrelated to a declared state of emergency and, second,

passage of NEA, which provides safeguards for the role of Congress in declaring and

terminating national emergencies, but exempts section 5(b) of the Trading With the Enemy

Act from its coverage.44

By restricting the use of TWEA section 5(b) to wartime, IEEPA draws a distinction between the

power provided Presidents in declaring peacetime national emergencies having their origin

abroad and that available when war has been declared. Nonetheless, because of the need to

provide Presidents with sufficient flexibility to respond to emergencies,45 the breadth of authority

provided in IEEPA is considerable with respect to affording powers to the President to impose

economic sanctions in peacetime emergencies originating abroad. To use these powers, the

President must declare a national emergency with respect to “any unusual and extraordinary

threat, which has its source in whole or substantial part outside the United States, to the national

security, foreign policy or economy of the United States.”46 Once such a national emergency has

been declared, IEEPA provides the President with broad power to impose controls over economic

transactions involving transfers abroad and foreign property controls.

(1) Under IEEPA, the President may “under such regulations as he may prescribe, by means of

instructions, licenses, or otherwise ... investigate, regulate, or prohibit” any foreign exchange

transaction, any transfers of credit or payments involving any foreign interest, and the import or

export of currency or securities “by any person, or with respect to any property, subject to the

jurisdiction of the United States.”47

(2) IEEPA also empowers the President to “investigate, block during pendency of an

investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition,

holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or

dealing in, or exercising any right, power, or privilege with respect to, or transactions involving,

any property in which any foreign country or national thereof has any interest by any person, or

with respect to any property, subject to the jurisdiction of the United States.”48

(3) IEEPA does not provide authority to block international communications,49 information or

informational materials.50 Humanitarian aid51 is excepted to the blocking authority; however,

44

Sen. Rep. 95-466, 95th Cong., 1st Sess 2 (1977).

45

See Note, “The International Emergency Economic Powers Act: A Congressional Attempt to Control Presidential

Emergency Power,” 96 Harvard Law Review 1102, 1106 (1983).

46

50 U.S.C. § 1701(a). The statute emphasizes that “[t]he authorities granted to the President ... may only be exercised

to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared for

purposes of this chapter and may not be exercised for any other purpose. Any exercise of such authorities to deal with

any new threat shall be based on a new declaration of national emergency which must be with respect to such threat.”

50 U.S.C. § 1701(b).

47

50 U.S.C. § 1701 (a)(1)(A).

48

50 U.S.C. § 1701 (a)(1)(B). The USA PATRIOT Act, P.L. 107-56, § 106(1)(B), 115 Stat. 277, added “block during

the pendency of an investigation.”

49

50 U.S.C. § 1702(3)(b)(1) specifies that the authority granted to the President does not include authority to regulate

“any postal, telegraphic, telephonic, or other personal communication, which does not involve a transfer of anything of

value.”

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humanitarian aid may be restricted if the President determines that humanitarian aid “would

seriously impair his ability to deal with” the national emergency; is coerced; or would endanger

U.S. armed forces.52

(4) Until 2001, IEEPA did not authorize the vesting of property, i.e., taking title to blocked or

frozen property. With the enactment of the USA PATRIOT Act53 in 2001, IEEPA provides

authority for the President, during “armed hostilities” or when the United States has been

attacked, to confiscate property of foreign persons, organizations, or countries he has determined

to have “planned, authorized, aided or engaged in” the armed hostilities or attacks and to vest title

in any agency or person for the benefit of the United States.54 The first and, to date only, use of

this power under IEEPA occurred on March 20, 2003. On that date, in Executive Order 13290,

President Bush ordered the blocked “property of the Government of Iraq and its agencies,

instrumentalities, or controlled entities” to be vested “in the Department of the Treasury.... [to] be

used to assist the Iraqi people and to assist in the reconstruction of Iraq.”55 A subsequent

executive order ordered further blocking and confiscation of property of former Iraqi officials and

their families and the vesting of title in the Department of the Treasury to be transferred to the

Development Fund for Iraq to be “used to meet the humanitarian needs of the Iraqi people, for the

economic reconstruction and repair of Iraq’s infrastructure, for the continued disarmament of

Iraq, for the cost of Iraqi civilian administration, and for other purposes benefitting of the Iraqi

people.”56

Unlike the language of TWEA, the language of IEEPA appears to withhold certain powers from

the President: (1) IEEPA provides no explicit authority over purely domestic transactions;57 (2)

(...continued)

50

50 U.S.C. § 1702(b)(2).

51

50 U.S.C. § 1702(b)(3). It has been held that the plain language of the statute does not include monetary aid within

the humanitarian aid exception. Veterans Peace Convoy Inc. v. Schultz, 722 F. Supp. 1425 (S.D. Tex. 1988); Holy Land

Foundation for Relief and Development v. Aschroft, 219 F. Supp. 2d 57 (D.D.C. 2002), aff’d 333 F. 3d 156 (D.C. Cir

2003), cert. denied, 540 U.S. 1218 (2004). OFAC’s refusal of a license to a Quaker wishing to contribute $2,000 to a

Canadian Friends organization to aid North and South Vietnam non-combatants was upheld in Welch v. Kennedy, 319

F. Supp. 945 (D.D.C. 1970) with the court noting the possibility that any funds or supplies sent to North Vietnam

would be diverted from civilian purposes to free up funds for military weaponry.

52

50 U.S.C. § 2702(b)(2).

53

Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Act of 2001, P.L. 107-56, 115 Stat. 272.

54

The statute reads,

... the President may ... when the United States is engaged in armed hostilities or has been attacked

by a foreign country or foreign nationals, confiscate any property, subject to the jurisdiction of the

United States, of any foreign person, foreign organization, or foreign country that [the President]

determines has planned, authorized, aided, or engaged in such hostilities or attacks against the

United States; and all right, title, and interest in any property so confiscated shall vest, when, as,

and upon the terms directed by the President, in such agency or person as the President may

designate from time to time, and upon such terms and conditions as the President may prescribe,

such interest or property shall be held, used, administered, liquidated, sold, or otherwise dealt with

in the interest of and for the benefit of the United States, and such designated agency or person may

perform any and all acts incident to the accomplishment or furtherance of these purposes. P.L. 10756, § 106, 115 Stat. 272, 277, 50 U.S.C. § 1702(a)(1)(C).

55

Exec. Order No. 13290, 68 Fed. Reg. 14,307 (March 24, 2003).

56

Exec. Order No. 13315, 68 Fed. Reg. 52,315 (September 3, 2003).

57

Section 5(b) of TWEA includes language authorizing the President in wartime to regulate an array of financial

transactions, including inter alia, “transfers of credit or payments between, by, through, or to any banking institution”

(continued...)

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Executive Order 13438

IEEPA provides no explicit authority to regulate gold and silver bullion;58 (3) IEEPA provides no

explicit authority to seize records;59 and (4) IEEPA provides no authority to interfere with

international communications.60 Because IEEPA covers “any interest” in property by a foreign

national or government and provides the President with expansive power to issue interpretative

regulations,61 there has been some speculation that “any large scale financial transaction, even if it

involved only United States parties, might be subject to regulation if it affected the economy of a

foreign nation.”62

Constitutional challenges to actions taken under IEEPA’s authority to regulate foreign transactions

and property have generally failed. Regulations issued under the authority of IEEPA placing

controls on foreign assets have been upheld against claims of impermissible delegation and

violation of the U.S. Constitution’s Fifth Amendment.63 The fact that blocked assets are those of a

U.S. person and purely domestic has not been held to place them beyond the reach of the

President’s power to subject them to freeze orders under IEEPA so long as there is an “interest”64

of a foreign country or national.65 Moreover, provided the executive order declaring the national

(...continued)

“by any person, or with respect to any property, subject to the jurisdiction of the United States.” 50 U.S.C. App. §

5(b)(1). IEEPA’s grant of authority over such financial transactions runs only “to the extent that such transfers or

payments involve any interest of any foreign country or a national thereof.” 50 U.S.C. § 1702(a)(1)(A)(ii).

58

Included in the language of section 5(b) of TWEA is the authority to regulate “the importing, exporting, hoarding,

melting, or earmarking of gold or silver coin or bullion.” 50 U.S.C. App. § 5(b)(1)(A).

59

IEEPA provides authority to order recordkeeping and production of records, 50 U.S.C. § 1702(a)(2), but does not

include authority as included in TWEA to require “if necessary to the national security or defense, the seizure, of any

books of account, records, contracts, letters, memoranda, or other papers, in the custody or control of” persons required

to keep reports on covered transactions. 50 U.S.C. § 5(b)(B).

60

Section 3 of TWEA includes authority to censor international communications, 50 U.S.C. App. § 3; IEEPA states

that “[t]he authority granted to the President by this section does not include the authority to regulate or prohibit,

directly or indirectly ... any postal, telegraphic, telephonic, orother personal communication, which does not involve a

transfer of any thing of value.” 50 U.S.C. § 1702(3)(b).

61

50 U.S.C. § 1703 provides that “[t]he President may issue such regulations, including regulations prescribing

definitions, as may be necessary for the exercise of the authorities granted by this chapter.”

62

Note, “The International Emergency Economic Powers Act: A Congressional Attempt to Control Presidential

Emergency Power,” 86 Harvard L. Rev. 1102, 1110 - 1111(footnote omitted) (1983). The author reasoned: “It is

unlikely that any significant economic activity in the United States would not be reached under such a theory of

presidential power, given the current interdependence of the world’s industrial economies.” Id. at 1111.

63

In Sardino v. Federal Reserve Bank of New York, 361 F. 2d 106 (2d Cir. 1966), the indefinite freezing of a Cuban

national’s U.S. bank account pursuant to the Cuban Assets Control Regulations was upheld against claims of

impermissible delegation by Congress to the President and by the President to the Department of the Treasury. The

court also ruled that the regulations did not constitute a taking both because, without vesting, there was no transfer of

title, hence no taking, and because the regulations were found to have provided adequate due process protections.

64

“Interest” is defined in OFAC regulations, 31 C.F.R. § 500.311 - .312 to mean “an interest of any nature whatsoever,

direct or indirect.” The Supreme Court has ruled that “any interest” may be construed as broadly as possible. Regan v.

Wald, 468 U.S. 222 (1984).

65

In Global Relief Foundation, Inc. v. O’Neill, 207 F. Supp. 2d 779 (N.D. Ill. 2002), aff’d 315 F. 3d 748 (7th Cir.

2002), cert. denied, 540 U.S. 1003 (2003), the court upheld an order freezing assets of a U.S.-based Muslim charitable

organization pending investigation of its possible links to the September 11 terrorist attack upon the United States.

Although the organization itself was a U.S. person, two of its three directors were resident aliens, i.e., foreign nationals,

who were directly involved in soliciting funds and distributing them abroad. The freeze order was based on Executive

Order 13224, declaring a national emergency based on terrorist acts and the threat of further acts of terrorism. In

upholding the freeze order, the court relied on the grant of authority authorized by Congress in the 2001 amendment to

IEEPA, which authorized the President to “block during the pendency of an investigation ... any acquisition, holding,

withholding, use, transfer, withdrawal, transportation, importation or exportation of ... any right, power, or privilege

with respect to ... any property in which any foreign country or a national thereof has any interest by any person ...

(continued...)

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emergency makes the requisite findings with respect to regulating humanitarian assistance, a

freeze order directed against assets intended for humanitarian aid is enforceable.66 It has also been

held that notice and a pre-seizure hearing are not constitutionally mandated with respect to freeze

orders.67 It has also withstood challenge on First Amendment grounds.68

The Supreme Court has upheld Presidential exercise of authority under IEEPA on very broad

grounds, saying that when “taken pursuant to specific congressional authorization, it is ‘supported

by the strongest presumptions and the widest latitude of judicial interpretation, and the burden of

persuasion would rest heavily upon any who might attack it.’”69

(...continued)

subject to the jurisdiction of the United States.” According to the court,

Congress’ decision to use repeatedly the word ‘any’ in this section of the statute guides our

interpretation of the President’s power to block during the pendency of an investigation. It is clear

that Congress intended to provide the President with sweeping power to regulate all relevant

property upon his declaration of a national emergency. Furthermore, if Congress had intended to

only authorize the President to block foreign assets that were located within the United States, it

could have made that intention clear. However, repeated use by Congress of the word ‘any’ as well

as its choice of the phrase ‘any property, subject to the jurisdiction of the United States,’ without an

indication that it meant only foreign property, compels our conclusion that the powers granted to

the President under IEEPA include the ability to block purely domestic assets of a U.S. person

pending an investigation. Id. at 793 (emphasis in original).

66

Id. at 794 - 796.

67

Global Relief Foundation, Inc. v. O’Neill, 315 F3d 748 (7th Cir. 2002). According to the court:

[a]lthough pre-seizure hearing is the constitutional norm, postponement is acceptable in

emergencies.... Risks of error rise when hearings are deferred, but these risks must be balanced

against the potential for loss of life if assets should be put to violent use. Opportunity to obtain

recompense under the Tucker Act, 28 U.S.C. § 1491(a), if the blocking turns out to be invalid,

provides the private party with the very remedy that the Constitution names: just compensation. Id.

at 754 (citations omitted).

68

In Holy Land Foundation v. Aschroft, 333 F. 3d 156 (D.C. Cir. 2003). cert. denied, 540 U.S. 1218 (2004), the U.S.

Court of Appeals for the District of Columbia stated that “there is no First Amendment right nor any other

constitutional right to support terrorists” and that a freeze order affecting all the property of a Muslim charity supported

by evidence of original sponsorship by, fund raising on behalf of, meetings with, and funneling money to Hamas

supplied sufficient evidence of supporting terrorists.

69

Dames & Moore v. Regan, 453 U.S. 654, 674 (1981), citing Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579,

637 (1952). The case involved a plaintiff who had a contract claim against the Iranian government and had secured a

prejudgment attachment pursuant to a general license issued under the regulations implementing Executive Order

12170. That executive order invoked IEEPA to declare a national emergency with respect to the seizure of the U.S.

embassy in Tehran and to freeze the assets of the government and the central bank of Iran. Under the Algiers Accords,

an executive agreement with Iran to secure the release of American hostages held in the embassy, all litigation was

terminated; all interests of U.S. nationals in Iranian assets were nullified; all Iranian assets were to be transferred to the

Federal Reserve Bank of New York for transfer to Iran; and claims against Iran or against the assets to be transferred to

Iran were to be subjected to a binding arbitration process—the Iran-United States Claims Tribunal. After executive

orders implementing the Algiers Accords had been issued, the plaintiff secured a final judgment, which the district

court suspended. It also vacated the prejudgment attachment and stayed further proceedings. Plaintiff sued to prevent

enforcement of the executive orders and implementing Treasury regulations, alleging that they were unconstitutional to

the extent that they affected its litigation. Ultimately, the Supreme Court interpreted the language of IEEPA to

authorize the President’s action, saying, “where, as here, the settlement of claims has been determined to be a necessary

incident to the resolution of a major foreign policy dispute between our country and another, and where, as here, we

can conclude that Congress acquiesced in the President’s action, we are not prepared to say that the President lacks the

power to settle such claims.” Id. at 688.

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Executive Order 13438

Executive Order 13438 Coverage

Persons Covered

The executive order does not identify particular persons whose property is to be blocked or

frozen; rather it leaves identification of the particular individuals and entities to the Secretary of

the Treasury, in consultation with the Secretary of State and Secretary of Defense. These

individuals are to fall into three categories provided in the executive order:

(1) Individuals or entities determined “to have committed, or to pose a significant risk, of

committing an act or acts of violence that have the purpose or effect of ... threatening the peace or

stability of Iraq or the Government of Iraq ... or ... undermining the efforts to promote economic

reconstruction and political reform in Iraq or to provide humanitarian assistance to the Iraqi

people....”70

(2) Persons or entities determined “to have materially assisted, sponsored, or provided financial,

material, logistical, or technical support for, or goods or services in support of, such an act or acts

of violence or any person whose property and interests in property are blocked pursuant to this

order....”71

(3) Persons determined “to be owned or controlled by, or to have acted or purported to act for or

on behalf of, directly or indirectly, any person whose property and interests in property are

blocked pursuant to this order....”72

The executive order, moreover, provides that these prohibitions include “the making of any

contribution or provision of funds, goods, or services by, to, or for the benefit of any person

whose property and interests in property are blocked pursuant to this order, and ... the receipt of

any contribution or provision of funds, goods, or services from any such person.”73 There is also a

prohibition covering transactions by a U.S. person, or within the United States with the purpose

of evading the prohibitions of the executive order; attempts to violate any of the prohibitions, and

conspiracy formed to violate the executive order’s prohibition.74

In issuing the executive order, the President made the requisite finding with respect to aid and,

thus, prohibited humanitarian assistance;75 he also made a finding that for effectiveness sake, no

prior notice need be given to those with a constitutional presence in the United States whose

property and interests in property are to be blocked “because of the ability to transfer funds or

other assets instantaneously.”76

70

Exec. Order No. 12438, Section 1(a)(i).

Id., Section 1(a)(ii).

72

Id., Section 1(a)(iii)

73

Id., Section 1(b).

74

Id., Section 2.

75

Id., Section 4. Under 50 U.S.C. § 1702(b)(2), humanitarian aid may be prohibited if the President makes a

determination “that such donations (A) would seriously impair his ability to deal with any national emergency declared

under section 1701 ..., (B) are in response to coercion against the proposed recipient or donor, or (C) are in a situation

where imminent involvement in hostilities is clearly indicated by circumstances.”

76

Id., Section 5.

71

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Executive Order 13438

Objectives

In 2007, Molly Millerwise, who was at that time a spokesperson for the U.S. Department of the

Treasury, reportedly provided certain information concerning the background and objectives of

the executive order, including a statement that appears to indicate that one of the desired effects

of the order is to motivate foreign financial institutions to voluntarily comply with these

prohibitions.77 She also is reported to have indicated that the executive order: (1) is needed to

supplement current sanctions programs because these cover elements of the former Saddam

Hussein regime78 and Al Qaeda,79 but not insurgent groups now active in Iraq; (2) is intended to

apply to “Shia militia groups linked with Iran, Sunni insurgent groups with sanctuary in Syria and

some of the indigenous Iraqi insurgent groups”; (3) will result in blocking of assets of U.S.

residents and citizens “because they’re actively abetting a panoply of insurgent and militia

groups”; (4) will result in a list that Treasury is compiling of entities and individuals covered by

the order that will be ongoing and made public.80

Transactions Covered

The executive order blocks “all property and interests in property” of the three categories of

persons, supra at footnote 25, provided that the property or interests in the property are in the

United States or come within the control of U.S. persons. Although the executive order does not

define “property” or “interests in property,” OFAC regulations define these terms to have a broad

reach. “Interest” when used in connection with property is defined to mean “an interest of any

nature whatsoever, direct or indirect.”81 In defining “property,” the regulations provide a list of

categories, but make it clear that the list is “not by way of limitation.”82

77

Spencer Ackerman, “Treasury: Exec. Order ‘Filling in the Cracks’ of Insurgent Financing,”

http://www.tpmmuckraker.com/archives/003733.php (last visited November 7, 2007).

78

Exec. Order No. 13315 blocks property of the former Iraqi regime, its senior officials and their family members.

79

On September 23, 2001, President Bush issued an executive order blocking property and prohibiting transactions

with persons who commit, threaten to commit, or support terrorism. This executive order was based on the President’s

declaring a national emergency involving the “grave acts of terrorism and threats of terrorism committed by foreign

terrorists ... and the immediate threat of continuing further attacks on the United States. Exec. Order No. 13224, 68 Fed.

Reg. 49,079 (September 25, 2001). “Al Qaida/Islamic Army” heads list of persons and entities initially designated

under this executive order and included in an annex published with it.

80

Spencer Ackerman, “Treasury: Exec. Order ‘Filling in the Cracks’ of Insurgent Financing,”

http://www.tpmmuckraker.com/archives/003733.php, quotes Ms. Millerwise as saying: “Be assured that the individuals

and entities we add to this list are in full faith acting in an aggressive, violent and reckless way in financing the

insurgency,” and as stating that groups making charitable donations to orphans does not seem to be “a valid concern.”

81

31 C.F.R. § 500.312.

82

31 C.F.R. § 500.311. The list is as follows: “money, checks, drafts, bullion, bank deposits, savings accounts, any

debts, indebtedness obligations, notes, debentures, stocks, bonds, coupons, any other financial securities, bankers’

acceptances, mortgages, pledges, liens or other right in the nature of security, warehouse receipts, bills of lading, trust

receipts, bills of sale, any other evidences of title, ownership or indebtedness, powers of attorney, goods, wares,

merchandise, chattels, stocks on hand, ships, goods on ships, real estate mortgages, deeds of trust, vendors’ sales

agreements, land contracts, real estate and any interest therein, leaseholds, ground rents, options, negotiable

instruments, trade acceptances, royalties, book accounts, accounts payable, judgments, patents, trademarks, copyrights,

contracts or licenses affecting or involving patents, trademarks or copyrights, insurance policies, safe deposit boxes and

their contents, annuities, pooling agreements, contracts of any nature whatsoever, services, and any other property, real,

personal, or mixed, tangible or intangible, or interest or interests therein, present, future, or contingent.”

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Executive Order 13438

Implementation

Executive Order 13438 covers essentially five categories of individuals or entities: (1) those

committing acts of violence having the effect of destabilizing Iraq; (2) those committing acts of

violence with the purpose of destabilizing Iraq; (3) those posing a significant risk of committing

such acts of violence; (4) those providing support for such acts of violence, and (5) those

providing support for any person whose property has been blocked pursuant to the executive

order. The executive order also forbids transactions by U.S. persons that evade or have the

purpose of evading the prohibitions of the executive order, attempts to avoid the order, and

conspiracies to violate the order.

The executive order leaves the process of designating specific individuals and entities whose

transactions and property are to be frozen or blocked to the Secretary of the Treasury, in

consultation with the Secretaries of State and Defense.83 A list of designees added to OFAC’s

Special Designated Nationals and Blocked Persons List84 under this executive order was issued

by Treasury on January 9, 2008.85 The Treasury announcement includes a description of the

activities of the designees that have led to the prohibition of transactions between them and any

U.S person and the freezing of any of their assets that are under the jurisdiction of the United

States. There is authority for the issuance of blocking orders prior to OFAC’s listing of persons to

be sanctioned under the executive order.86 The expectation, however, is that ultimately the names

of blocked individuals and entities identified for blocking orders will be publicly disseminated by

being added to OFAC’s Special Designated Nationals and Blocked Persons List.87

The executive order authorizes the Secretary of the Treasury, in consultation with the Secretaries

of State and Defense, to issue regulations.88 Regulations were issued on September 2, 2010.89

They use broad definitions of “property,” and “transfer” to block the transfer of property of any

83

Exec. Order No. 13438, Sec. 1(a).

http://www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf. Names of “blocked persons,” “specially designated

nationals,” and “specially designated terrorists,” with whom U.S. persons may not trade are also published in the

Federal Register and in appendices to 31 C.F.R. “IRAQ3” is the designation given to names added pursuant to

Executive Order 13438.

85

http://www.treasury.gov/press-center/press-releases/Pages/hp759.aspx. “Treasury Designates Individuals, Entity

Fueling Iraqi Insurgency.”

86

OFAC apparently has had a practice of blocking accounts prior to formal designation. After the enactment of the

USA PATRIOT Act, IEEPA permits blocking orders pending investigations. 50 U.S.C. § 1702(a)(1)(B). This authority

was lacking in 1998 when OFAC ordered the freezing of accounts belonging to Salah Idris, owner of the factory

bombed following the terrorist attack on the U.S. Embassies in Kenya and Tanzania. After the filing of a lawsuit

challenging the freeze order, OFAC ordered the accounts unblocked rather than risk having to disclose intelligence

sources. See, Peter L. Fitzgerald, “‘If Property Rights Were Treated Like Human Rights, They Could Never Get Away

With This’: Blacklisting and Due Process in U.S. Economic Sanctions Programs,” 51 Hastings Law Journal 73, 111 113, 134 (1999) (hereinafter, Fitzgerald, Property Rights), citing Vernon Loeb, “A Dirty Business,” Washington Post,

F1 (July 25, 1999); Milt Bearden, “U.S. Should Admit Its Mistake in Sudan Bombing,” Wall Street Journal, A-20 (May

20, 1999); and David S. Cloud, “U.S. Unfreezes Accounts in Suit on Sudan Bombing,” Wall Street Journal A-8 (May

4, 1999).

87

It appears that this has been the case. Subsequent designations occurred on September 23, 2008, 73 Fed. Reg. 54896;

July 16, 2009, 74 Fed. Reg. 34639; and January 5, 2010, 75 Fed. Reg. 518. For the entire list see supra, footnotes 14

and 15.

88

Exec. Order No. 13438, Sec. 6.

89

73 Fed. Reg. 55463 (September 13, 2010). This regulation promulgates 31 C.F.R., Part 576; subsequent references

will be made to the C.F.R. citation.

84

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Executive Order 13438

kind.90 There is one blanket exception: the blocking orders do not apply to property and interests

in property “controlled by the military forces of the United States and their coalition partners

present in Iraq and acting under the command or operational control of the commander of the

United States Central Command.”91 The regulations include extensive bans on trade and financial

transactions,92 authorize certain activities pursuant to a general license,93 and permit other

activities pursuant to a specific license,94 issued upon application to OFAC on a case-by-case

basis. The regulations specify the types of legal services that may be provided pursuant to a

general license but permit reimbursement only on the basis of a specific license.95 The

regulations96 incorporate by reference the recordkeeping and reporting requirements applicable to

all OFAC sanction programs.97

Under the regulations,98 violation of sanctions under Executive Order 13438 are subject to the

penalties applicable under IEEPA. With the enactment of P.L. 110-96,99 civil penalties for IEEPA

violations are defined in terms of the greater of $250,000 or twice the amount of the transaction

on which the penalty is based; criminal penalties are $1 million and 20 years’ imprisonment.100

Included in the regulations are requirements for the issuance of a pre-penalty notice and

procedures for responses and for settlement.101

Reach—Is It Limited to “Foreign” Persons?

Neither the executive order nor the regulations limits potential targets to “foreign” persons, as

some executive orders have done.102 So far, the list of blocked persons under the regulations

90

The regulation blocks “[a]ll property and interests in property that are in the United States, that hereafter come within

the United States, or that are or hereafter come within the possession or control of U.S. persons, including their

overseas branches.” As used in this regulation, “interest” is broadly defined to mean “an interest of any nature

whatsoever, direct or indirect.” 31 C.F.R. § 576.307. “Property” is defined broadly, specifically including “letters of

credit.” 31 C.F.R. § 576.312.

91

31 C.F.R. § 576.511.

92

The regulation declares that the blocked property and interests in property “may not be transferred, paid, exported,

withdrawn, or otherwise dealt in.” 31 C.F.R. § 576.201(a). It specifies that the prohibitions include “[t]he making of

any contribution or provision of funds, goods, or services by, to, or for the benefit of any person whose property and

interests in property are blocked … [and] [t]he receipt of any contribution or provision of funds, goods, or services

from any person whose property and interests in property are blocked….” 31 C.F.R. § 576.201(c).

93

General licenses are available for a transfer of funds or credit by a U.S. financial institution between blocked

accounts in its branches or offices in the United States held in the same name; for normal service charges; for

investment and reinvestment of funds; and for provision of certain legal services. 31 C.F.R. §§ 576.504 - 507. OFAC

has authority to make exclusions relative to any license. 31 C.F.R. § 576.503.

94

Special licenses may be issued to provide emergency medical services in the United States to persons whose property

is blocked. 31 C.F.R. § 576.509.

95

The list of legal services for which a special license may be authorized under the Iraq sanctions, 31 C.F.R. § 576.507,

is more limited than those available under the Global Terrorism Sanctions Regulations, 31 C.F.R. § 594.506.

96

31 C.F.R. § 576.601.

97

31 C.F.R. Part 501, Subpart C.

98

31 C.F.R. § 576.701.

99

121 Stat. 1101, 50 U.S.C. §1705 (2007).

100

The penalties may be adjusted pursuant to 28 U.S.C. § 2461, note (adjustment of civil penalties for inflation); 18

U.S.C. § 3571 (alternative criminal fine based on gain or loss).

101

31 C.F.R. § 576.702.

102

See, e.g., Exec. Order No. 13224 of September 23, 2001, 66 Fed Reg. 4909, Blocking Property and Prohibiting

Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism.

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includes no U.S. person. At the time the executive order was issued, there was some indication

that the primary focus was foreigners. A Treasury Department spokesperson103 said at that time

that the list, when issued,104 would include “Shia militia groups linked with Iran, Sunni insurgent

groups with sanctuary in Syria and some of the indigenous Iraqi insurgent groups.”105 Since

September 11, 2001, the practice seems to have been that foreign terrorists have formed the

preponderance of designees on OFAC’s lists, but blocking orders, seizures, and penalties have

been directed against U.S. persons based on allegations that they have in their possession property

or interests in property which are either legally or beneficially the property of a designated or

blocked person, or that they have been conducting prohibited transactions in blocked property or

with blocked persons.

Prior to the issuance of the regulations, the piggybacking potential of the executive order raised

questions.106 One issue was whether the executive order’s application to anyone who provides

“support” for a designated entity might affect U.S. persons inadvertently involved in some form

of assistance, such as arranging transportation for, selling consumer goods to, or providing

routine legal assistance to an entity which becomes blocked under the executive order. Could

such U.S. persons find themselves designated under the authority of the executive order and

thereby have all of their assets subject to blocking whether or not the assets have any nexus with

the transaction with the blocked entity or with any foreign entity? With respect to those whose

property is to be blocked on the grounds of providing material assistance to those who are

designated as committing or posing a significant risk of committing acts of violence, the scope

covered by the executive order raised an array of questions including: (1) To what extent are

lawyers representing persons and entities on the list subject to the order? (2) To what extent are

donors to various U.S. charities operating internationally subject to the order?

103

Spencer Ackerman, “Treasury: Exec. Order ‘Filling in the Cracks’ of Insurgent Financing,” quoting “Treasury

Department spokeswoman, Molly Millerwise,” TPMMUCKRAKER.COM (July 19, 2007)

http://www.tpmmuckraker.com/archives/003733.php.

104

One commentator has described the OFAC designation process as follows:

According to the Administration, ‘a number of U.S. agencies, including the Treasury, State, Justice,

the FBI and the intelligence community, review open source and confidential information,

including tips and leads, about persons and entities who commit, threaten to commit or support

terrorism.’ A ‘subset of agencies’ is then responsible for developing a file on the entity, which is

then reviewed by a ‘larger group’ before it is forwarded to the National Security Council. The

Security Council ‘convenes a meeting of Deputy Agency heads’ who make a recommendation to

the Secretary of the Treasury, who, in cooperation with the Secretary of State [with respect to

Executive Order 13348, Secretary of Defense] and Attorney General, issues a final designation and

a blocking order. This blocking order is implemented by OFAC, pursuant to the President’s

mandate ... [in the executive order] gives the entity no prior notice that its assets will be frozen.

Upon issuance of the blocking order, the entity is told that its assets have been frozen, its name is

published in the Federal Register, and this information is disseminated to financial institutions.

Nicole Nice-Peterson, Justice for the ‘Designated’: The Process That Is Due to Alleged Financiers of Terrorism, 2005

Georgetown Law Journal 1287, 1394 (2005) (footnotes omitted). (Exec. Order No. 13348, 69 Fed. Reg. 44,885 (July

27, 2004), blocks property of certain persons and prohibits the importation of certain goods from Liberia.)

105

Millerwise statement, see supra, footnote 77. Ms. Millerwise did not foreclose the possibility of listing U.S.

nationals, but indicated that compiling the list would be an exercise in precision, saying, “‘Be assured that individual

and entities we add to this list are in full faith acting in an aggressive, violent and reckless way in financing the

insurgency.... These things are strongly vetted, going layers and layers back. (A group) donating money to orphans

getting swept up in this doesn’t seem to be a valid concern.’”

106

See, Pincus, supra footnote 3, who states that “... the text of the order, if interpreted broadly, could cast a far bigger

net to include not just those who commit violent acts or pose the risk of doing so in Iraq, but also third parties—such as

U.S. citizens in this country—who knowingly or unknowingly aid or encourage such people.”

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There is some clarification of these issues in the licensing sections of the regulations. For

example, one provision of the regulations blocks charitable contributions for blocked persons

unless specifically authorized.107 Another provides general license authority for the provision of

specified legal services to blocked persons and blocks all other types of legal services unless a

special license is obtained.108

An example of how OFAC implements financial transaction and property controls imposed under

executive orders invoking IEEPA is illustrative of the reach of such sanction regulations. The

Global Terrorist Sanctions Program109 implements Executive Order 13224 of September 23,

2001.110 That executive order declared a national emergency with respect to “grave acts of

terrorism and threats of terrorism committed by foreign terrorists.” It contained a list of foreign

terrorist persons and provided authority for administrative designations of various categories of

persons, some of which need not be confined to foreign persons.111 Subsequently, some U.S.

based charitable organizations were listed on OFAC’s terrorist lists.112 Under the Global

Terrorism Regulations, U.S. financial institutions are required to take precautions lest they engage

in prohibited transactions.113 The names of persons whose property is blocked are published both

on OFAC’s website and in the Federal Register.114 The regulations prohibit various transactions,

specify procedures to comply with the prohibitions,115and define applicable terms.116 They also

specify such matters as the nullification of property transfers made in violation of the

regulations,117 report and recordkeeping requirements,118 and penalties and penalty procedures.119

107

31 C.F.R. § 576.409.

31 C.F.R. § 576.507.

109

31 C.F.R. Part 594.

110

66 Fed. Reg. 49,079. In addition to the Global Terrorists Sanctions, OFAC administers two other sanctions

programs: (1) the Terrorist Sanctions Regulations, 31 C.F.R., Part 595, implementing Executive Order 12947 of

January 23, 1995, 60 Fed. Reg. 5,079, which declared a national emergency with respect to “grave acts of violence

committed by foreign terrorists that disrupt the Middle East peace process” and (2) the Foreign Terrorist Organizations

Sanctions Regulations, 31 C.F.R., Part 597, implementing provisions of the Antiterrorism and Effective Death Penalty

Act of 1996, P.L. 104-132, 110 Stat. 1214, 1248 - 1253, 8 U.S.C. § 1189, 18 U.S.C. § 2339B.

111

It authorized designation of (1) “foreign persons determined by the Secretary of State, in consultation with the

Secretary of the Treasury and the Attorney General, to have committed, or to pose a significant risk of committing, acts

of terrorism that threaten, or pose a significant risk of committing, acts of terrorism that threaten the security of U.S.

nationals or the national security, foreign policy or economy of the United States”; (2) “persons determined by the

Secretary of the Treasury, in consultation with the Secretary of State and the Attorney General, to be owned or

controlled by, or to act for or on behalf of” persons designated under the executive order; and (3) with certain provisos,

“persons determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Attorney

General (i) to assist in, sponsor, or provide financial, material, or technological support for, or financial or other

services to or in support of, such acts of terrorism” of persons designated under the executive order, or (ii) “otherwise

associated with” designated persons. Exec. Order. No. 13, 224, section 1, 66 Federal Register 49079 - 49980.

112

See http://www.treasury.gov/resource-center/terrorist-illicit-finance/Pages/protecting-fto.aspx, Designated Charities

and Potential Fundraising Front Organizations for FTOs (listed by affiliation and designation date).

113

Exec. Order 13,224, section 2, like Executive Order 13438, prohibits transactions by U.S. persons in property or

interests in property blocked pursuant to the order; transactions by U.S. persons evading or having the purpose of

evading or attempting to violate the prohibitions of the executive order; and any conspiracy to violate any of the

prohibitions of the executive order.

114

31 C.F.R. § 594.201, note 2 to paragraph (a).

115

31 C.F.R. §§ 594.201 - 594.206.

116

31 C.F.R. §§ 594.311 - 594.315.

117

31 C.F.R. § 594.202.

118

31 C.F.R. § 594.601.

108

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The reach of Executive Order 13438 is not unprecedented. The language is similar to at least one

other order, Executive Order 13219 of June 25, 2001, Blocking Property of Persons Who

Threaten International Stabilization Efforts in the Western Balkans.120 That executive order,

among other things, authorizes property and transaction controls with respect to persons

designated by the Secretary of the Treasury in consultation with the Secretary of State as having

committed or posing “a significant risk of committing, acts of violence that have the purpose or

effect of threatening the peace or diminishing the stability or security of any area or state in the

Western Balkans regime, undermining the authority, efforts or objectives of international

organizations or entities present in the region, or endangering the safety of persons participating

in or providing support to the activities of those international organizations or entities.” Also

covered by Executive Order 13219 are persons determined “to have actively obstructed, or pose a

significant risk of actively obstructing, the Ohrid Framework Agreement of 2001 relating to

Macedonia, United Nations Security Council Resolution 1244 relating to Kosovo or the Dayton

Accords or the Conclusions of the Peace Implementation Conference held in London on

December 8-9, 1995, including the decisions or conclusions of the High Representative, the Peace

Implementation Council or its Steering Board relating to Bosnia and Herzegovina.”121

Given the concern that Executive Order 13438 might place those lawyers who are providing legal

assistance to targets of the freeze orders at risk, it is noteworthy that, on July 9, 2003, OFAC

issued a general license to permit U.S. persons to provide professional legal services relating to

the representation of persons whose property is blocked in matters pending before the

International Criminal Tribunal for the former Yugoslavia.122

Attorney-Client Implications

The potential impact of OFAC regulations on attorney-client relationships has been the focus of

some litigation and commentary in legal journals.123 The one federal case that has dealt with the

issue is American Airways Charters, Inc. v. Regan.124 It held that, under the Cuban sanctions,

OFAC had authority to require a license for payment of legal fees from blocked assets, but not to

“condition the bare formation of an attorney-client relationship on advance government

approval.”125 The holding does not rest on constitutional grounds, but rather on the court’s

analysis of whether preventing a designated entity from obtaining counsel could be said to further

(...continued)

119

31 C.F.R. §§ 594.701 - 594.705.

120

66 Fed. Reg. 3,477, as amended by Executive Order 13304 §§ 3,4, May 28, 2003, 68 Fed. Reg. 32,315.

121

Executive Order 13219, as amended, § 1(B) and (C); 50 U.S.C. § 1701, note.

122

http://www.treasury.gov/resource-center/sanctions/Documents/balkans_gl1.pdf. Office of Foreign Assets Control,

Western Balkans Stabilization Regulations, 31 C.F.R., Part 588, General License No. 1, Legal Representation in

Matters Pending before the International Criminal Tribunal for the Former Yugoslavia (July 9, 2003).

123

Two courts have found OFAC without authority to prevent the mere formation of an attorney-client relationship:

American Airways Charters, Inc. v. Regan, 746 F. 2d 865 (D.C. Cir. 1984); Looper v. Morgan, 1995 U.S. Dist. LEXIS

10241 (S.D. Tex. 1995). Others have found that an attorney’s lack of an OFAC license is not a bar to court jurisdiction;

Comet Enterprises Ltd. v. Air-A-Plane Corp., 128 F. 3d 855 (4th Cir. 1997); Dean Witter Reynolds, Inc. v. Fernandez,

741 F. 2d 355 (11th Cir. 1984); National Oil Corp. v. Libyan Sun Oil Co., 733 F. Supp. 800 (D. Del. 1990). See also Jill

M. Troxel, “Office of Foreign Assets Control Regulations: Making Attorneys Choose Between Compliance and the

Attorney-Client Relationship, 24 Review of Litigation 637 (2005); Michael P. Malloy, “Economic Sanctions and

Retention of Counsel,” 9 Admin. L. J. Am. U. 515 (1995).

124

746 F. 2d 865 (D.C. Cir. 1984).

125

Id., at 866 - 867.

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the purposes for which the particular provision of TWEA on which OFAC relied had been

enacted. By concluding that the basic intent of Congress was to deny an enemy nation use of

economic resources, the court found that access to legal services, without access to any blocked

funds, was not within the coverage contemplated by TWEA. Language in the opinion suggests

that OFAC’s exercise of the power to prevent a designated person from consulting an attorney

might raise due process concerns as tantamount to denying the person the right to a meaningful

challenge of the designation.

Despite the American Airways ruling, OFAC’s regulations continue to include bans on the

provision of legal services. Some of the recent regulations differ both in purpose and scope from

those at issue in American Airways. Whether the differences will be sufficient for courts to find

that OFAC’s reach extends to the formation of lawyer-client relationships with blocked persons is

a question that remains unanswered until a proper case is presented. OFAC’s Global Terrorism

Sanctions Regulations, promulgated after the September 11, 2001 terrorist attacks, differ from the

sanctions at issue in American Airways. They rely on the authority of IEEPA rather than TWEA

and focus on private individuals and entities rather than on a particular foreign nation. Moreover,

they coincide with the changed congressional focus reflected in the post September 11, 2001

IEEPA amendments and the tendency of the courts to uphold OFAC’s authority in the face of

constitutional challenges.126

The legal services provisions of the Iraq regulations are similar to other OFAC regulations which

prohibit the provision of services, including legal services, to designated persons or blocked

entities and require a specific license for all but a limited list of legal services for which a general

license127 is provided in the regulations.128 For reimbursement for any legal services, application

must be made to OFAC for a specific license.129

OFAC’s Global Terrorism Sanctions Regulations, which appear to be the model for the Iraq

regulations, illustrate this framework. Under 31 C.F.R. § 594.406, “U.S. persons130 may not,

except as authorized by or pursuant to this part, provide legal ... services to a person whose

property or interests in property are blocked pursuant to § 594.201(a).”131 Under 31 C.F.R. §

594.506, five types of legal services are authorized “provided that all receipts of payment of

126

Troxel, supra footnote 119, at 662 - 666.

“General license” is defined in 31 C.F.R. § 500.317; licensing procedures are set forth in 31 C.F.R. § 501.801. In

addition to general licenses specified in regulations, general licenses may be issued for sanction programs not yet

codified in regulations.

128

See, e.g., 31 C.F.R. § 594.406, which is the provision of services provision of the Global Terrorism Sanctions

Regulations. It also might be noted that there is always the possibility that OFAC will require documentation or reports

in connection with a general license. Under 31 C.F.R. § 501.801(a), “persons availing themselves of certain general

licenses may be required to file reports and statements in accordance with the instructions specified in those licenses.”

129

31 C.F.R. § 576.507(a). See also, e.g., 31 C.F.R. § 515.212 (Cuba); 31 C.F.R. § 536.506 (Narcotics Trafficking); 31

C.F.R. §537.507 (Burma); 31 C.F.R. § 538.505 (Sudan); 31 C.F.R. 541.507 (Zimbabwe); 31 C.F.R. § 542.507 (Syria);

31 C.F.R. § 545.513 (Taliban); 31 C.F.R. § 560.525 (Iran—general license authorizes a longer list of legal services and

payment of fees and reimbursement of costs for all listed legal services); 31 C.F.R. § 586.509 (Kosovo); 31 C.F.R. §

587.507 (Yugoslavia—Milosevic); 31 C.F.R. § 588.507 (Yugoslavia—Kosovo); 31 C.F.R. § 594.506 (Global

Terrorism); 31 C.F.R. § 595.506 (Terrorism); and 31 C.F.R. § 598.507 (Foreign Narcotics Kingpin).

130

“United States person” is defined for purposes of the Global Terrorism Sanctions Program as “any United States

citizen, permanent resident alien, entity organized under the laws of the United States (including foreign branches), or

any person in the United States.” 31 C.F.R. § 594.404.

131

31 C.F.R. § 201(a) defines those persons whose property has been blocked under the executive orders covering

global terrorism.

127

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professional fees and reimbursement of incurred expenses must be specifically licensed.”132 Other

legal services must be specifically licensed.133 The types of legal services which may be provided

without a specific license are:

(1) Provision of legal advice and counseling on the requirements of and compliance with the

laws of any jurisdiction within the United States, provided that such advice and counseling

are not provided to facilitate transactions in violation of this part;

(2) Representation of persons when named as defendants in or otherwise made parties to

domestic U.S. legal, arbitration, or administrative proceedings;

(3) Initiation and conduct of domestic U.S. legal, arbitration, or administrative proceedings

in defense of property interests subject to U.S. jurisdiction;

(4) Representation of persons before any federal or state agency with respect to the

imposition, administration, or enforcement of U.S. sanctions against such persons; and

(5) Provision of legal services in any other context in which prevailing U.S. law requires

access to legal counsel at public expense.134

The descriptions of legal services permitted under the general license have been criticized as

ambiguous and narrow.135 For example, the first one authorizes providing legal counsel to comply

with U.S. laws. but not to facilitate prohibited transactions without any elaboration on how to

distinguish what is allowed from what may cross the line and subject the lawyer to liability.136

This might mean that any prudent lawyer will decide not to provide any legal services regarding

attempted transactions without securing a specific license. The fact that OFAC’s list is evergrowing with names added frequently also means that lawyers providing legal services to clients

involved in business transactions with designated persons or entities prior to their designation

likely must apply for a specific license to continue the legal services since the general licenses

apply only to legal services provided to or on behalf of blocked persons, not to individuals and

entities involved in transactions with them.137

132

The procedures for specific licenses are detailed in 31 C.F.R. § 801(b).

31 C.F.R. § 594.506(b).

134

31 C.F.R. § 594.506(a)(1) - (5).

135

See, Troxel, supra footnote 119, at 648 - 650.

136

Since the Global Terrorism Sanctions Regulations prohibit “any transaction by any U.S. person or within the United

States on or after the effective date that evades or avoids, has the purpose of evading or avoiding, or attempts to violate

any of the prohibitions set forth.” 31 C.F.R. § 594.205.

137

See, e.g., 31 C.F.R. § 594.506(a) (Global Terrorism Sanctions Regulations). The implications of an OFAC

requirement for a specific license to maintain an existing attorney-client relationship is explored within the context of

representing a defendant before the International Criminal Tribunal for the Former Yugoslavia (ICTY) in Anne Beck

and Sylvia Tonova, “No Legal Representation Without Governmental ‘Interposition,’” 17 Georgetown Journal of Legal

Ethics 597 (2004). Exec. Order No. 13304, 68 Fed. Reg. 32,315 (May 28, 2003), added to the designees under the

Western Balkans Stabilization Regulations (Yugoslavia), names of individuals under indictment by the ICTY.

Responding to an inquiry, OFAC informed the attorneys that their activity was not covered by the general license,

thereby, prompting some of them to seek suspension of the case rather than face the prospect of OFAC penalties.

Subsequently, OFAC revised its position and granted a general license by letter entitled, “31 C.F.R. Part 588 General

License No. 1, authorizing legal representation of ICTY defendants named in the Executive Order.” Although the

general license covered provision of legal services, it did not extend to payment from any source other than the ICTY.

133

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OFAC Administrative Procedures

OFAC regulations specify procedures for imposing and challenging penalties imposed under

TWEA138 and for each of the sanctions programs operating under authority of IEEPA,139

including the Iraq regulations.140 The Iraq regulations address the Pre-Penalty notice and provide

explicit rights to respond, to obtain extensions of the time for response, to representation, and a

right to seek judicial review when a Penalty Notice is finally issued. The explicit rights provided

in connection with TWEA sanctions are: right to receive a prepenalty notice;141 right to provide a

written response to the prepenalty notice;142 right to request a hearing on the record143 before an

administrative law judge for any penalty assessed;144 right to discovery in preparation for the

hearing (subject to various privileges);145 and an opportunity—after the hearing—to file proposed

findings and conclusions of law.146 There is also the possibility of an OFAC review of the

administrative law judge’s conclusion.147

The general OFAC regulations also include an appendix detailing OFAC’s procedures for

enforcement of sanctions as they relate to banking institutions supervised by one of the federal

banking regulators.148 Among its highlights are annexes providing “Risk Matrices,” which

banking institutions may use to evaluate their compliance programs,149 and an outline of “Sound

Banking Institution OFAC Compliance Programs.”150 The enforcement procedures cover such

issues as (1) the effect of voluntary disclosure by an institution with respect to a violation of the

sanctions;151 (2) OFAC’s policy of acting promptly in the face of significant violations, leaving

other apparent violations for inclusion in periodic reviews scheduled according to an institution’s

138

31 C.F.R. §§ 501.701 - 501.747.

Procedures for each sanction program, other than those imposed under the authority of TWEA, are detailed

separately within the regulations applicable to each sanctions program. The procedures applicable to OFAC’s

imposition of penalties under the Global Terrorism Sanctions Regulations are found at 31 C.F.R., Part 594. They

include notice of the potential penalties which may be imposed under the various statutes (IEEPA, the United Nations

Participation Act, and 18 U.S.C. § 1001), and the right to a prepenalty notice. Also specified are: the right to respond to

the prepenalty notice; the right to a written notice imposing a penalty; and the right to be notified that imposition of a

penalty is final agency action, appealable to a federal district court.

140

36 C.F.R. §§ 576.702.

141

31 C.F.R. § 501.706.

142

31 C.F.R. §§ 501.706(b)(2) and 501.707.

143

31 C.F.R. § 501.739.

144

31 C.F.R. 501.711.

145

31 C.F.R. § 501.723.

146

31 C.F.R. § 501.735.

147

31 C.F.R § 501.741. This is not a right, but a request for a review is a prerequisite for federal court review of the

agency’s decision under the federal Administrative Procedure Act, 5 U.S.C. § 500.

148

These are: the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the

National Credit Union Administration, and the Office of Thrift Supervision.

149

31 C.F.R., Part 501, Appendix A, Annex A. Both of the risk matrices are taken from the Federal Financial

Institutions Examination Council’s Bank Secrecy Act Anti-Money Laundering Examination (2005).

150

31 C.F.R., Part 501, Annex B. The major components which OFAC includes in its outline of sound compliance

programs are: identifying high risk business areas; maintaining internal controls; conducting testing; identifying

responsible individuals; and providing appropriate training.

151

31 C.F.R., Part 501, Annex A, I (D).

139

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“risk profile”;152 and (3) OFAC coordination with the banking regulators in determining use of

enforcement tools.153 The civil enforcement tools which OFAC may use against a banking

institution include administrative subpoenas, cease and desist orders, evaluation letters, civil

penalty proceedings, and suspension or revocation of OFAC licenses.154 OFAC may refer

potential criminal violations to the Department of Justice and also pursue civil penalties.155 There

is also a list of factors which OFAC will consider in determining whether to impose any civil

penalties. It includes such factors as the institution’s history of sanctions violations, its

compliance programs, the size of the institution in relation to the number of its violations, and

whether the violations are atypical. Also included are the following considerations: whether there

has been a voluntary disclosure by the institution or an effort to conceal the harm attributable to

the violation; whether the institution has undertaken actions to correct the situation; and OFAC’s

evaluation of the potential deterrent effect of a sanction.156

Challenging Designations

Broad-based challenges to OFAC designations have generally been unavailing. There is, however,

one case, KindHearts for Charitable Humanitarian Development, Inc. v. Geithner,157 in which a

federal district court has found an OFAC blocking order freezing the assets of a United Statesbased charitable organization to be a seizure within the meaning of the Fourth Amendment to the

U.S. Constitution.158 OFAC regulations include provisions which permit particularized

administrative appeals of OFAC designations on limited grounds.

OFAC regulations include provisions governing availability of information,159 procedures to have

funds unblocked on grounds of mistaken identity,160 and procedures for removing names from

OFAC’s lists of designated persons.161 With respect to release of information, the regulation

covers only public information available under the Freedom of Information Act;162 information

which the Privacy Act163 requires to be made available to individuals; OFAC forms; and

information on civil penalties.164 The regulations specify that OFAC must release certain

information on its website with respect to the civil penalties which it has imposed, including the

name and address of the entity penalized; the sanctions program involved; a description of the

152

31 C.F.R., Part 501, Appendix A, II (B).

31 C.F.R., Part 501, Appendix A, II (A).

154

31 C.F.R., Part 501, Appendix A, II (A).

155

31 C.F.R., Part 501, Appendix A, II (C).

156

31 C.F.R., Part 501, Appendix A, IV.

157

647 F. Supp. 2d 857 (N.D. Ohio 2009).

158

The federal district court has also issued an injunction enjoining the Department of the Treasury and OFAC from

designating KindHearts as a Specially Designated Global Terrorist pending the court’s fashioning of a remedy for the

violation of the plaintiff’s constitutional rights. KindHearts for Charitable Humanitarian Development, Inc. v. Geithner,

647 Fed Supp. 2d 857 (N.D. Ohio, 2009).

159

31 C.F.R. § 501.805.

160

31 C.F.R. § 501.806.

161

31 C.F.R. § 501.807.

162

5 U.S.C. § 552.

163

5 U.S.C. § 552a.

164

31 C.F.R. §§ 501.805 (a), (b)and (d).

153

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violation; whether there was voluntary disclosure; and whether there is a settlement or imposition

of penalty. Names of individuals may not be released, and OFAC may choose to disclose more

information than required.165 There is no indication of the extent to which OFAC must or may

disclose any information concerning the evidence relied on for making a designation under a

sanctions program or for blocking transactions and property. Challenges to IEEPA designations

confront the prospect that the evidence on which the government has based its designation is

classified and may be presented to the court ex parte and in camera.166

The OFAC regulations also include general provisions permitting challenges to blocking orders

on the grounds of mistaken identity. Under 31 C.F.R. § 501.806, a person whose funds have been

blocked who believes that there has been mistaken identity may challenge the order by following

the prescribed procedures. These require a written request to OFAC containing various

information about the transaction being blocked and the basis on which the applicant believes the

blocking to have resulted from mistaken identity.

OFAC’s regulations provide procedures to (1) have funds unblocked that have been blocked

through mistaken identity167 and (2) have a designation reconsidered or to assert that changed

circumstances have rendered a designation inapplicable.168 Persons named to one of the terrorist

lists may challenge the designation by presenting arguments or evidence that there is an

insufficient basis for the designation.169 The same officer responsible for making the designation,

OFAC’s director, is responsible for reviewing the challenge to the designation. The regulations

contain no specifications with respect to the review process, such as requirements for a written

record, a hearing on the record, or specified time line for consideration of the challenge to the

designation. Without a full written record, for a federal court challenge to an OFAC designation to

succeed, the plaintiff must convince the court that OFAC’s designation is arbitrary and capricious;

were a full record available, the issue might be whether the designation was based on substantial

evidence in the record.170

In mistaken identity applications, any party to a transaction in which funds have been blocked

may direct a written request to OFAC for the release of the funds. That request must include

various types of specific information and documentation, such as the identity of the requester, the

nature of the transaction and of the applicant’s interest in the transaction, the amount in question,

and why the applicant believes that the transaction has been blocked due to mistaken identity.171

Upon receipt of this information, OFAC may require the applicant to provide more

documentation.172 There have been instances in which listed persons have been able to have their

165

31 C.F.R. § 501.806.

50 U.S.C. § 1702(c) provides that “[i]n any judicial review of a determination made under this section, if the

determination was based on classified information ... such information may be submitted to the reviewing court ex

parte and in camera.”

167

31 C.F.R. § 501.806.

168

31 C.F.R. § 807.

169

31 C.F.R. § 501.807.

170

In its Final Report to Congress, the Judicial Review Commission on Foreign Asset Control, 113-116 (2001),

mentioned this possible consequence of what it had identified as deficiencies in OFAC’s administrative process: lack of

an appeal process, inability to review the record on which OFAC based its decision, lack of a right to a prompt post- or

pre-designation hearing, and lack of requirements for a written record.

171

A list of requirements is contained in 31 C.F.R. §§ 501.806(b) - (d).

172

31 C.F.R. § 806(e) references 31 C.F.R. § 501.602, which authorizes OFAC to require production under oath of

reports and records of any transaction subject to OFAC’s regulations, including “the production of any books of

(continued...)

166

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Executive Order 13438

names removed from OFAC’s lists by showing that OFAC has made a mistake. In 1989, for

example, an OFAC list of specially designated Cuban nationals included the Spanish

government’s tobacco monopoly, Tabacalera; a month later the company was removed from the

list.173

Potential Impact of OFAC Designations

OFAC designations have repercussions both in the United States and in terms of the international

banking system. OFAC has characterized its anti-terrorism economic sanctions programs as a

“wide-ranging assault on international terrorism and its supporters and financiers,” and reported

that these programs have resulted in the blocking, as of December 31, 2009, of almost $20

million in terrorist assets, of which over $11.2 million is that of Al Qaeda.174 The total dollar

amount of terrorist assets which have been blocked does not represent the total effect of the

economic sanctions. When OFAC designates an organization or an individual under its terrorists’

programs, the impact may extend beyond assets frozen by the United States. Not only does the

international banking community have to provide transparency in its transactions with U.S.

financial institutions to prevent them from unknowingly handling prohibited transactions, but the

designation of an international terrorist may inspire international cooperation. OFAC reports that

“banks and other private institutions around the world voluntarily consult OFAC’s [terrorist]

list[s] and routinely report denying access to their institutions.”175

Author Contact Information

(name redacted)

Legislative Attorney

[redacted]@crs.loc.gov, 7-....

(...continued)

account, letters or other papers connected with any such transaction or property, in the custody or control of the persons

required to make such reports.” The regulation also authorizes OFAC to issue subpoenas to require attendance and

testimony of witness and production of documents relating to any matter under investigation.

173

54 Fed. Reg. 49,258, 24,259 (November 29, 1989); 55 Fed. Reg. 2, 644, 2,645 (January 26, 1990).

174

U.S. Department of the Treasury, Office of Foreign Assets Control, Terrorist Assets Report: Calendar Year 2009, at

1 and 8. http://www.treasury.gov/resource-center/sanctions/Documents/tar2009.pdf.

175

Id. at 10.

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