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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Seeking Help in Expediting an OFAC SDN Reconsideration?

Removing a Specially Designated National (“SDN”) designation imposed by the United States Department of the Treasury’s Office of Foreign Assets Control can be a very difficult process. Often times when contesting such a designation it takes months, and sometimes even years, for OFAC to respond to the a petition for reconsideration, and even then they only ask more questions which could have or should have been asked earlier. In order to expedite the process of seeking an OFAC SDN reconsideration follow these three key rules:

1. Submit early: The OFAC SDN reconsideration process is long and in almost all cases takes at least a few years to resolve. As such, as soon as the circumstances warrant a reconsideration of the designation a reconsideration should be submitted. In some cases this may be upon designation if the designation was made in error, or in cases of changed circumstances, the reconsideration should be made once connections with other designated parties are severed or the conduct engaged in has ceased.

2. Provide official documentation: Although OFAC often relies upon newspaper reports, it doesn’t mean that you should. Any type of official and/or legal documentation showing ownership and assets should be provided to OFAC to show that there is no criminal background of the party requesting reconsideration and there is no shared assets or ownership by other SDNs. Any documentation can be helpful, but official and legal documentation are the most compelling to OFAC.

3. Lean on home countries to assist: OFAC has limited resources and personnel to handle reconsiderations. As such, responding to requests becomes a matter of priority, and priority is generally dicatated by who needs to be responded to. As such, a request for reconsideration is going to receive less attention coming from a private individual with no follow up by that party’s home country, then it would if the home country was requesting information on the reconsideration through diplomatic channels. Thus, once a request for reconsideration is submitted, it is useful to have officials from the designated party’s home country or their embassy communicate with OFAC regarding the reconsideration.

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 Makes New Designations Pursuant to Somalia Sanctions

Today the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated six (6) individuals they believe to be engaged in fueling violence and instability in Somalia. These individuals included two Eritrean government officials, Tewolde Negash and Taeme Goitom; a Sudanese al-Shabaab foreign fighter, Suhayl Salim Muhammad `Abd-el-Rahman (aka Abu-Faris), and three Kenyan al-Shabaab supporters, Abubaker Shariff Ahmed, Omar Awadh Omar and Aboud Rogo Mohammed. The aforementioned individuals are all alleged to have different roles, however, the allegations all have one overarching theme and that is their support of al-Shabaab and al-Qaeda and for activities aimed at the disruption of the Transitional Federal Government in Somalia.

Today’s designations were all made pursuant to Executive Order 13536 which imposed sanctions on those parties engaged in activities threatening the peace, stability, and security of Somolia. As a result of these designations, U.S. persons are prohibited from engaging in transactions with any of the designated parties and any assets owned by the designated parties which are under U.S. jurisdiction have been blocked. Executive Order 13536 is implemented through the President’s authority under the International Emergency Economic Powers Act (IEEPA). Designations made pursuant to IEEPA are much more difficult to remove than those made under the Foreign Narcotics Kingpin Designation Act (Kingpin Act), which is the underlying authority for a much more fluid sanctions program where designated parties come off and on to the list all the time. That said, there is an advantage when dealing with IEEPA based designations as opposed to Kingpin Act based designations, because disclosure of the evidence used in IEEPA designations is permitted under Freedom of Information Act (FOIA), whereas the Kingpin Act doesn’t permit disclosure under FOIA.

The Somalia designations have caused quite a bit of problems for non-governmental organizations (NGOs) providing humanitarian relief in the impoverished country. The reason for this is that it becomes difficult for NGOs, already operating on limited resources, and in high risk areas, to completely avoid those high profile individuals and organizations which have been designated. Any transactions done knowingly or unknowingly with such parties will lead to liability for the NGOs for sanctions violations. As more Somalia designations are made, the higher risk of sanctions violations the NGOs face in Somalia. As such, NGOs have more to worry about in Somalia than just helping alleviate human suffering.

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 Designates One New Kingpin; Removals Nearly Two Dozen Others

Lost in all the hype surrounding the passive ING Bank settlement yesterday, was that the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued one new designation under the Foreign Narcotics Kingpin Designation Act (Kingpin Act) and released nearly two dozen SDNs from the Specially Designated Nationals List (SDN List) pursuant to anti-narcotics trafficking sanctions. The individual who was designated, Francisco Antonio Colorado Cessa, was also indicted by a federal grand jury in the Western District of Texas for involvement in a money laundering scheme on behalf of Las Zetas that involved purchasing, breeding, training, and racing American quarter horses in the United States. The indictment was returned on May 30, 2012; however, it was not unsealed until yesterday. The indictment also charges 14 other individuals for involvement in the conspiracy.

OFAC does not always rely on the returning of an indictment to designate a party under one of the sanctions programs they administer. Moreover, there are different burdens of proof for indictments, criminal convictions and OFAC designations. For an indictment to be returned the grand jury only must find that there is probable cause to charge the party or parties being investigated by the grand jury. As most people know, for a criminal conviction the charges have to be proven by the government beyond a reasonable doubt. However, for an OFAC designation, OFAC only needs a reasonable cause to believe that the party they seek to designate is involved in some activity for which one of their sanctions programs permits designation.

There have been a large number of removals from the OFAC SDN List this year. However, the overwhelming majority of those removals have been related to counter narcotics trafficking. This may be because the majority of designations are made pursuant to OFAC’s counter narcotics trafficking sanctions, or because the Office of Global Targeting’s focus is placed more firmly upon those types of designations. An additional consideration, however, could be the fact that many of those designated find themselves also charged with narcotics and money laundering criminal violations in the U.S. and may cooperate with the government in exchange not only to reduce their potential sentence but also to have their names removed from the OFAC SDN List. This is a tactic that has previously been utilized by a few criminal defense attorneys with some modicum of success.

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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Game of Lists: OFAC SDN List vs. BIS Lists

A lot of time folks dealing with import-export compliance issues get confused by the lists; namely, the List of Specially Designated Nationals and Blocked Persons (SDN List) administered by the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Proscribed Persons Lists administered by the Bureau of Industry and Security at the U.S. Department of Commerce which is comprised of the Entity List and the Denied Person’s List. The following should offer some insight into the differences between these lists and why you need to know about all of them if you are planning to import or export internationally.

The OFAC SDN List is a list of over 6,000 persons and entities that have been blocked pursuant to any number of U.S. economic sanctions programs. What this means is that the assets of any person, be it an individual or an entity, appearing on this list which is subject to U.S. jurisdiction is to immediately be blocked and U.S. persons are prohibited in engaging in almost all types of transactions with them. This list is updated frequently and also includes individuals, entities, vessels, and banks all over the world who are owned, controlled by, or acting on behalf of targeted governments or groups.

On the other hand, the two BIS Lists are quite different. For example, the BIS Entity List imposes upon foreign persons license requirements supplemental to those found elsewhere in the Export Administration Regulations (EAR). The export, reexport, or transfer of an item to a party on this list without a license required by the Entity List is a violation of the EAR.

The BIS Denied Persons List differs even from the Entity List because it can target both U.S. and foreign persons, and imposes strict licensing requirements which typically come with a presumption of denial. Parties are added to this list by issuance of a Temporary or Permanent Denial Order, and the export, reexport, or transfer of an item to a party on this list constitutes a violation of the EAR.

Despite their differences, these lists have one thing in common: an administrative reconsideration process. While those processes differ, there at least is a way to be removed from these lists if one was so inclined and willing to undergo the process.

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 Designates Syria International Islamic Bank

Despite maintaining their own OFAC compliance program, Syria International Islamic Bank winds up on the OFAC SDN List

The United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) has added Syria International Islamic Bank (SIIB) to their list of Specially Designated Nationals (SDN) pursuant to the Non-Proliferation of Weapons of Mass Destruction (NPWMD) sanctions program. As a result all assets of SIIB under U.S. jurisdiction are blocked and U.S. persons are prohibited from engaging in transactions with the bank. It is not clear if the designation was made by OFAC or by the State Department. Both have authority to designate individuals and entities under the NPWMD sanctions. Typically, if OFAC is behind the designation they will issue a press release through the Department of the Treasury’s website. There was no such press release from them, so I am assuming this designation came from the Department of State.

SIIB is the largest privately owned financial institution in Syria and is 49% owned by Qatari nationals, of which 30% is owned by the Qatar International Islamic Bank. The remaining 51% of the bank was sold in an initial public offering to over 15,000 subscribers. It will be interesting to see if any of these private parties are willing to push the bank to seek a reconsideration of its SDN designation since the bank will undoubtedly suffer a loss in business as a result of the designation.

What is perhaps more interesting though, is that SIIB publishes their Anti-Money Laundering (AML) procedures on their website, and believe it or not, SIIB’s AML policy requires checks against the OFAC List. According to this policy:

“It is the policy of the Bank that all Money Transmission transactions performed by the customer of the Bank are checked against the FIU & UN & OFAC lists. If a customer appears as a hit on the UN or OFAC list it is the policy of the Bank to review the transaction to determine if in fact the customer is not listed on OFAC or UN Lists but has the same name. It is the Policy of the Bank that if a transaction was done for money transmission activity, a send transaction, and the sender is listed on the FIU UN & OFAC, the assets are immediately frozen.”

It’s strange to see an entity which is not required to abide by OFAC regulations, maintain an OFAC compliance program, and yet, still find themselves on the OFAC SDN List. Clearly, their compliance department is going to have fits over this 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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OFAC SDNT/SDNTK Removals: OFAC Compliance for Foreign Counsel?

Yesterday, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) removed a number of individuals and entities from the OFAC List of Specially Designated Nationals and Blocked Persons, commonly referred to as the OFAC SDN List, who had be designated as Specially Designated Narcotics Traffickers and Specially Designated Narcotics Trafficking Kingpins. Among these individuals was one of my clients, to remain unnamed, whose designation provides an important lesson on OFAC SDN designations and reconsiderations for lawyers in foreign countries. A brief overview of this individual’s case will help you understand what I mean.

My client was an attorney assisting in the formation of corporate entities in the country which he practiced law. In that country, attorneys forming corporations for their clients and performing other duties on behalf of that corporation are required to have a power of attorney over that corporation on record with the authorities of that country. My client was only involved in the initial formation of a number of entities that were later linked to money laundering operations on behalf of drug traffickers. My client’s services to these entities ended shortly after their initial formation and there was no further contact with them for many years prior to their designation. However, since my client was still on record as having a power of attorney for them, OFAC thought that my client was providing material assistance to these entities and therefore also designated my client. As a result, my client spent nearly four and a half years on the OFAC SDN List and nearly two years pursuing a reconsideration. In the end, through rescission of the powers of attorney for these companies and the provision of numerous documents, my client was removed.

I think there is an important lesson here for lawyers in foreign countries. Often times, counsel publicly sign their names, file documents, and makes other representations on behalf of their clients. However, how much do you really know about your clients? Sure, the big firms in the U.S. are pretty thorough in vetting clients before they take them on, but what about solo practitioners and firms in other countries? Should they also be worried about OFAC compliance?

Well given the case of my client, surely they should. Foreign counsel in countries with a high number of nationals designated pursuant to OFAC administered sanctions programs should carefully screen potential clients and current clients to ensure they aren’t engaged in business with someone who is involved in sanctionable activity. My reason for saying this is because it is clear that OFAC will consider the that a certain level of provision of legal services to an such parties as a basis for designation. Therefore, foreign counsel would be wise to avoid the severe consequences of an OFAC designation and screen their clients carefully.

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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