OFAC Makes Large Scale Designation Under the Kingpin Act

Today, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the designation of two individuals and a number of entities under the Foreign Narcotics Kingpin Designation Act (Kingpin Act). The two individuals designated, Christina Stetanel Castellanos Chacon and Maria Corina Saenz Lehnhoff, were Guatemalan nationals who are believed by OFAC to be engaged in the laundering of narcotics trafficking proceeds on behalf of Marllory Chacon Rossell. In addition to these two individuals were twenty-four (24) entities designated including a hotel, a construction company, an import-export company, a clothing store, and a household goods store. It is believed by OFAC that all of these companies were used as fronts for laundering proceeds of illegal narcotics sales.

Under the Kingpin Act there are two types of designations: Tier I designations and Tier II designations. Tier I designations are made by the President on or about June 1st of every year and identifies those individuals who are believed to be significant foreign narcotics traffickers. The Tier II designations are made by OFAC and identify those parties believed to be providing materials support or assistance to the Tier I kingpins. Tier II designations can be made at any time of the year and are made frequently.

It is interesting to note that there have been cases where Tier I Kingpin designations were placed upon individuals who were considered U.S. persons, particularly U.S. permanent legal residents. This presents an issue of whether or not a party can be designated as a significant foreign narcotics trafficker if they are actually not a foreign person. The case law on the issue is pretty much non-existent and from what I have seen and heard OFAC has not found such arguments compelling when considering a reconsideration of the designation. That said, it would be interesting to see how a court would deal with an OFAC Kingpin with U.S. person status contesting their designation as a significant foreign narcotics trafficker on the basis that they are not a foreign person. We may see this argument employed sooner or later and I think it’s an important question that needs to be settled by the courts.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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Are OFAC Sanctions Against Zimbabwe Pushing Diamonds Traders Further Underground?

For sometime many Zimbabweans have called for the West to lift sanctions against Zimbabwe, because of the belief that the sanctions are undermining the Zimbabwe diamond industry. According to recent reports Zimbabwe’s mining companies, particularly those nationally owned companies, have aggressively been seeking avenues to trade without being subjected to U. S. and E.U sanctions.

The United States has for sometime imposed sanctions against those involved in the Zimbabwean diamond trade. Some inside of Zimbabwe, however, believe that accountability will only occur in a sanctions-free environment, where the dictates of the market rule. These pundits believe that once a company has been designated by the United States Department of the Treasury Office of Assets Control (OFAC) they are more likely to find illegal or black market avenues to trade their products (in this case diamonds) then they would be otherwise. Therefore, once such entities are operating outside of traditional and open avenues there is no way to hold them accountable for their actions.

These sanctions have been and are increasingly being enforced. For example, recently $2-million deposited in South African-owned Stanbic Bank was blocked pursuant to the OFAC administered Zimbabwe Sanctions Regulations. In addition, the accounts of two Zimbabwean entities previously designated by OFAC as Specially Designated Nationals, Zimbabwe Mining Development Corporation (ZMDC) and Mineral Marketing Corporation of Zimbabwe (MMCZ), have been blocked by OFAC.

It was recently reported that a letter written by ZMDC chairman Godwills Masimirembwa to Zimbabwe Mines Minister Obert Mpofu, dated February 7 and marked “private and confidential”, reveals that the Zimbabwe government is now experiencing problems in receiving its diamond revenue. The letter, dated February 7, 2011, states that it has been difficult for Zimbabwe to “move, transfer and receive” its diamonds proceeds due to U.S. sanctions.

The real reason for this of course, is because in the global economy, most financial transactions eventually are routed through New York. Once a transaction involving a party blocked by OFAC touches a U.S. bank, that transaction is blocked. As such, any such transactions being routed through New York will eventually be blocked thereby making the financial transactions necessary for international trade nearly impossible. As such it is easy to believe that these OFAC measures are wreaking havoc on Zimbabwe’s diamond sales and payment system.

As I have written previously, foreign banks who are not necessarily under U.S. jurisdiction have also gotten into the act. For example, British-owned Standard Chartered Bank in Harare recently refused to process financial transactions involving ZMDC and China Uranium Corporation, citing ZMDC’s status as an entity on the OFAC SDN List.

Although it might seem incredibly difficult to do, ZMDC and/or MMCZ should embark upon a reconsideration process to remove their designation or at least obtain licensing for certain transactions. Implementation of an OFAC compliance program and greater transparency into their dealings might dissolve some of the U.S. government’s suspicions and allow for a slight loosening of the sanctions impacting them. Of course in a case of magnitude it might take years and lots of attorneys fees to accomplish the task, some of the African pundits do raise a valid point that OFAC sanctions could be pushing these diamond traders to pursue more trade in the black market.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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OFAC SDN List Removals; OFAC SDN List Designations

Earlier this week the United States Department of the Treasury Office of Foreign Assets Control (OFAC) made a number of removals from the OFAC SDN List, or the Specially Designated Nationals List. However, at the same time that OFAC was removing parties they were also designating new SDNs under both the Foreign Narcotics Kingpin Designation Act and the Iranian Human Rights Abuses Sanctions Regulations.

The newly designated Iranian SDNs were Mohammed Reza Naqdi, commander of Iran’s Basij force and Abbas Jafari Dolatabadi, Iran’s Prosecutor General. Both of the individuals are alleged to have been responsible for or complicit in serious human rights violations in Iran following the June 2009 election unrest.

The remaining designations were targeted against the alleged cocaine suppliers of the Sinaloa Cartel. These designations focused on Colombian national Jorge Milton Cifuentes Villa (a.k.a. Elkin de Jesus Lopez Salazar) and over 70 individuals and entities in Cifuentes Villa’s organization.

It is believed that the Sinaloa Cartel is headed by Joaquin Guzman Loera (El Chapo). Guzman Loera and the Sinaloa Cartel were previously designated by OFAC. This past November, both Cifuentes Villa and Guzman Loera, were indicted on drug trafficking and money laundering charges in the U.S. District Court for the Southern District of Florida.

According to OFAC, Cifuentes Villa owns or controls 15 companies operating in Colombia, Mexico, and Ecuador that are involved in a variety of economic sectors. Amongst these companies are Linea Aerea Pueblos Amazonicos S.A.S., a recently-created airline operating in eastern Colombia, Red Mundial Inmobiliaria, S.A. de C.V., a real estate company located near Mexico City, and Gestores del Ecuador Gestorum S.A., a consulting company located in Quito, Ecuador.

Since June of 2000 over 1,000 individuals and entities linked to drug kingpins named by the President and the Department of the Treasury have been designated pursuant to the Kingpin Act.

Penalties for violations of the Kingpin Act are severe and range from civil penalties of up to $1.075 million per violation to criminal penalties. Such penalties for corporate officers may include up to 30 years in prison and fines up to $5 million.

Due to the breadth of the sanctions, a number of these individuals may have been designated for merely assisting Mr. Cifuentes Villa. Such assistance could be as innocuous as owning shares in a company owned by him. In such cases, these designated parties would be considered as Tier II kingpins. The designation has the same effect, but is made in a different manner with consultation from different agencies than in the case of a Tier I designation. Having an attorney who knows the difference between the various types of Kingpin designations could be very useful for contesting an OFAC Kingpin designation.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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