Drug Kingpins and Blacklists: Compliance Issues with US Economic Sanctions: Part 3
| DOI | https://doi.org/10.1108/eb027303 |
| Date | 01 April 2001 |
| Published date | 01 April 2001 |
| Pages | 162-182 |
| Author | Peter L. Fitzgerald |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control — Vol. 5 No. 2
Drug Kingpins and Blacklists: Compliance Issues
with US Economic Sanctions: Part 3
Peter L. Fitzgerald
This paper is the third of three instalments of 'Drug
Kingpins and Blacklists', and continues from part two,
which was published in the Journal of Money Launder-
ing Control, Volume 5, Number 1 and part one, which
was published in Volume 4, Number 4.
PART IV: THE LEGAL MORASS449
Those parties who do become caught up in the sanc-
tions and are blacklisted face a daunting situation.
Their property and accounts are often blocked, and
dealings with US parties, and frequently their over-
seas affiliates as well, are essentially cut off with
little or no warning by virtue of decisions made by
a relatively small and obscure office within the
Treasury Department. US as well as foreign parties
can be blacklisted, and these restrictions can even
extend to a firm's employees. The practical conse-
quence of being touched by one of the Office of
Foreign Assets Controls (OFAC) economic sanctions
programmes may be the economic equivalent of
capital punishment. By virtue of the restrictions,
the blacklisted business may cease to exist as a
viable entity.
Moreover, OFAC's actions appear characterised
by a lack of sensitivity or concern for the impact of
its blacklisting decisions upon third parties who
may be caught up in some larger programme
aimed at a particular foreign policy target or
objective. Similarly, the interests of those who are
endeavouring to comply in good faith with the
complex requirements of the multitude of OFAC
sanctions programmes also become subordinated to
the larger political objective.
While in all regulatory control schemes 'the devil
is in the detail', OFAC often appears surprisingly
uninterested in those details. It frequently evidences
little interest in promptly defining the precise scope
of a given sanctions programme, for lifting outdated
controls, or even in providing proper notice of its
actions. It also lacks detailed procedures for redressing
mistakes or considering challenges to its actions, and
has even avoided appointing an Administrative
Law Judge (ALJ) to comply with those procedures
which Congress mandated it must establish.
The historical accident of the relative obscurity in
which OFAC laboured for so many years combines
with the increased political utility of economic
sanctions in the post-Cold War era to create a trade
control agency which exercises tremendous discre-
tion with unprecedented freedom from judicial or
congressional oversight. Indeed, the general approach
utilised in administering its programmes starts from
the assumption that all business should stop until
OFAC can be consulted and declares that it can pro-
ceed, on a case by case basis, but this begs the question
of just what business transactions are in fact affected
and need to be stopped. This presents a variety of
serious issues which are not easily resolved without
taking a broad view of the problems.
Practical obstacles to individual
challenges to OFAC controls
Challenging OFAC's actions in any given case is
difficult because of both practical and legal obstacles.
On a practical level, OFAC's historically lackadaisical
administrative
practices,450
combined with its broad
authority under TWEA and IEEPA451 and the defer-
ence courts show to foreign policy measures,
452
can
intimidate those who are subject to OFAC's controls.
In order to challenge a particular decision, the stakes
would have to be sufficiently large to offset the fear of
upsetting future dealings with an agency vested with
a tremendous amount of authority and subject to
relatively little oversight. Accordingly, it often
takes something like being placed on the blacklist
itself,
which threatens the ongoing viability of a busi-
ness,
before a party is inclined to initiate action
against OFAC. Those who are not themselves black-
listed but only subject to restrictions on their dealings
with other blacklisted parties may be unwilling to
institute a formal challenge to OFAC's authority or
actions, even if the restrictions affect a major custo-
mer, as their other business dealings will likely con-
tinue. Moreover, most of the parties who do find
themselves blacklisted will be foreign individuals
and entities, and therefore arguably less inclined to
Journal of Money Laundering Control
Vol.
5,
No.
2,
2001,
pp.
162-182
Henry Stewart Publications
ISSN 1368-5201
Page 162
Drug Kingpins
and
Blacklists
bring a challenge in the USA even if they have the
legal ability to do
so.453
Thus, it is primarily when
US parties are blacklisted that the harm is serious
enough that a challenge will be brought.454 This is
most likely to occur when a new sanctions pro-
gramme is created, or an existing sanctions pro-
gramme is significantly expanded. There are
admittedly, however, relatively few such cases
when compared to the thousands of foreign indivi-
duals and entities who are themselves named in
OFAC's blacklists.
Additionally, OFAC's penchant for using unpub-
lished general licences and notices to detail or
amend its controls455 contrary to the rulemaking
requirements of the Administrative Procedure Act
(APA),456 and its reliance upon numerous informal
means of distribution for making its materials
available457 in contravention of both the Federal
Register Act458 and the
APA,459
are the type of
legal deficiencies which are easily remedied when
challenged. While part of the legislative purpose
behind passage of the APA460 was to 'avoid the
inherently arbitrary nature of unpublished ad hoc
determinations',461 several cases brought before the
courts have been rendered moot, at least in part, by
proper publication of the appropriate provisions
during the course of the litigation.462 Moreover,
OFAC's failure to properly publish its rules and
blacklists would not provide a defence for a failure
to comply by those who have actual notice of their
contents.463 This creates the anomalous situation
where those who take steps to try and comply with
OFAC's controls by striving to stay informed are
placed at a disadvantage relative to those who
remain ignorant, whether by choice or happen-
stance.464 Lastly, those who are trying to comply in
good faith with OFAC's requirements are also
perhaps reluctant to complain too much about the
formalities of the APA and the Federal Register
Act, fearing that the result might be that the various
'unofficial' means of distribution OFAC has
employed for its materials in recent years will
cease to be used, but without any compensating
improvement in the use of the Federal
Register.465
Legal obstacles to individual challenges
to OFAC controls
Broad legal challenges to the Executive branch's
authority to impose or implement its economic
sanctions programmes typically fail for a variety of
reasons. Sanctions necessarily involve the application
of foreign policy and national security concerns
intertwined with political issues. Accordingly,
challenges to the political judgments underlying the
various sanctions programmes may well raise non-
justiciable 'political questions' which are entirely
beyond the courts'
competence,466
such as those relat-
ing to the recognition accorded to foreign govern-
ments or state
succession.467
'The federal courts', it
is said, 'cannot decide cases on the basis of political
theories that incorporate no statutory, constitutional
or common-law
basis'.468
Challenges that do raise justiciable questions may
similarly fail because of the great deference the
courts afford to the Executive and Legislative
branches in the conduct of foreign policy. 'Matters
relating to the conduct of foreign relations', the
Supreme Court has stated, 'are so exclusively
entrusted to the political branches of government as
to be largely immune from judicial inquiry or inter-
ference'.469 Moreover, given the very broad grants
provided by Congress to the Executive branch in
both TWEA470 and IEEPA471 — and in more specific
sanctions legislation such as the Kingpin Act472 — the
President's authority to impose and implement
sanctions is 'supported by the strongest of presump-
tions and the widest latitude of judicial interpretation,
and the burden of persuasion would rest heavily upon
any who might attack
it'.473
Virtually all of the cases
directly challenging the President's authority to
impose sanctions474 or to blacklist various parties475
have failed due to this combination of deference
and the concomitant heavy 'burden of persuasion'.
A variety of related challenges to specific OFAC
regulations or actions as being beyond the agency's
statutory powers similarly failed. These include, for
example, cases addressing import restrictions on
publications and other materials from embargoed
destinations as an infringement of First Amendment
rights;476 restrictions on charitable contributions to
sanctioned entities as implicating the free exercise of
religion;477 the impact of sanctions as affecting
access to the
courts478
and the execution of judicial
processes;479 travel restrictions as infringements of
both the First and Fifth amendment
rights;480
and
the act of blocking or freezing assets as a com-
pensatable 'takings' of property under the Fifth
Amendment.481
As an example, IPT, an established New York
company blacklisted because of its Yugoslav share-
holders, lost its challenge to its own sudden blacklist-
ing — a challenge asserting that the blacklisting
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