Drug Kingpins and Blacklists: Compliance Issues with US Economic Sanctions
| DOI | https://doi.org/10.1108/eb027287 |
| Published date | 01 February 2001 |
| Date | 01 February 2001 |
| Pages | 360-383 |
| Author | Peter L. Fitzgerald |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control — Vol. 4 No. 4
Drug Kingpins and Blacklists:
Compliance Issues with US Economic Sanctions
Peter L. Fitzgerald
PART I: INTRODUCTION
The Foreign Narcotics Kingpin Designation Act was
enacted on 3rd December, 1999, as part of the Intelli-
gence Authorization Act for Fiscal Year 2000.1 The
Kingpin Act calls for the imposition of a series of
US economic and financial sanctions — with a
worldwide reach — on 'foreign narcotics traffickers',
their related 'organisations', and those 'foreign
persons' who support their activities,2 enforced by
penalties ranging up to fines of $10m and imprison-
ment for ten years.3 In passing this legislation,
Congress specifically looked to the example provided
by an earlier set of economic sanctions that prohibited
dealings with Colombian narco-traffickers or entities
which they controlled,4 established by the President
under the International Emergency Economic
Powers Act
(IEEPA)5
and administered by the Treas-
ury Department's Office of Foreign Assets Controls
(OFAC). The controls established by the Kingpin
Act, and the associated Foreign Narcotics Kingpin
Sanctions Regulations (FNKSR),6 accordingly, are
neither a unique nor an isolated programme.
Rather, they represent the latest step in the evolution
of
a
series of distinct, but related, economic sanctions
programmes administered by OFAC.
There have been 27 different OFAC regulatory
sanctions programmes since the Second World
War. Seventeen separate programmes are currently
in effect, 13 of which were established in the last
decade.7 A 1997 study by the National Association
of Manufacturers, which defined 'sanctions' more
broadly than just the OFAC programmes, deter-
mined that there were 70 different sets of US sanc-
tions in place, involving 61 different laws, targeting
35 different destinations, and potentially affecting 42
per cent of the world's population.8 As Thomas
Omestad wrote in his article 'Addicted to Sanctions':
'No other country on Earth opts for sanctions as
often as America. Pick any hot spot on the globe,
and US sanctions . . . which can vary from a
minor cutback in US aid to a crippling embargo
on all trade . . . are in place. The allure of sanctions
is easy to understand: They offer a way of doing
something, short of using military force, about
troublesome issues from human rights issues in
Burma to drift net fishing on the high
seas . . . Whether they work or not, sanctions are
good
politics.'9
All sanctions programmes, however defined or
categorised, seek to influence the behaviour of their
particular targets or subjects by both direct and indir-
ect means. They affect not only what the target of the
sanctions may or may not do, but also what private
parties may do with regard to the sanctioned target.
That is, the behaviour of parties in or related to the
USA who are not themselves the subject of the sanc-
tions becomes circumscribed in an effort to bolster
the governmental policy and bring greater pressure
to bear upon the sanctioned target. The principal
tool used to enlist private businesses and individuals
in aid of the government's various sanctions objec-
tives,
is 'blacklisting'. It is a tool which has become
increasingly important as sanctions programmes
evolved in the post-Second World War era, and
blacklisting of both 'significant foreign narcotics
traffickers' and 'specially designated narcotics
traffickers'10 is central to the operation of the
Kingpin Act
controls.11
The proliferation of different sanctions pro-
grammes and their accompanying blacklists over
the last decade poses a number of issues for those seek-
ing to comply with the government's controls in
good faith. The aim of this paper is to survey these
'compliance' issues. It is an effort to highlight,
without delving into the governmental policies
motivating any particular sanctions programme, the
difficulties facing private parties in meeting the
requirements of OFAC's disparate programmes,
including the Kingpin Act sanctions. The practical
effectiveness of US sanctions largely depends upon
the internal compliance programmes created by busi-
nesses and individuals to regulate their private deal-
ings with sanctioned destinations or those named in
one of the blacklists. If government and business
were to work more closely together to minimise
some of the problems associated with implementing
Journal of Money Laundering Control
Vol.
4, No.
4,
2001, pp. 360-383
Henry Stewart Publications
ISSN 1368-5201
Page 360
Journal of Money Laundering Control — Vol. 4 No. 4 — Fitzgerald
the controls than has historically been the case, the
actual effectiveness of the government's sanctions
programmes could be improved while at the same
time eliminating some of the unnecessary costs to
business which prompt much of the criticism of the
current programmes.
When Congress created the Judicial Review
Commission on Foreign Asset Control under the
Kingpin Act, it directed that the Commission con-
duct a 'review of the current judicial, regulatory,
and administrative authorities' relating to the sanc-
tions and 'evaluate the remedies available to United
States persons' affected by the sanctions.12 As noted
in the conference report on the Kingpin Act, there
was a particular concern that the sanctions pass 'con-
stitutional muster' and that the Commission report
on whether basic due process principles are 'affirmed
and sustained' in OFAC's execution of the
Act.13
In
order to carry out its duties, it is essential that the
Commission consider the Kingpin Act sanctions
against the backdrop of OFAC's other sanctions pro-
grammes.14 While individual sanctions programmes
are typically created by government policy makers
with a narrow focus on a specific objective, the com-
pliance programmes that private parties must craft
must integrate all the various programmes into a
coherent whole in order to manage their business
dealings. Accordingly, the full impact of the require-
ments of any one set of controls, such as the Kingpin
Act sanctions, can only be fully appreciated when
compared to OFAC's other programmes.
The proliferation of ostensibly separate OFAC
sanctions in recent years is, in fact, the single greatest
structural defect in the way in which US economic
sanctions programmes are currently created and
administered. It imposes substantial obstacles for
private parties who try to craft effective compliance
programmes which are not unduly confusing or
complicated. It is also the source of many of the gov-
ernment's own administrative problems, detailed
later in this paper, such as OFAC's practice of inter-
preting the same regulatory language in separate
sanctions programmes differently — a practice
which is so common as to now be specifically noted
in the first provision in any new sanctions pro-
gramme, including the newly issued FNKSR.15 It
also contributes to a multiplicity of terms used to
describe essentially the same function or concept
within various sanctions regimes. For example, the
Kingpin Act employs an entirely new term, 'signifi-
cant foreign narcotics trafficker',16 in conjunction
with an older term borrowed from another sanctions
programme, 'specially designated narcotics
traf-
ficker',17 to identify those parties blacklisted under
the Kingpin Act sanctions. There are more than
half a dozen other terms used similarly to identify
those parties blacklisted under OFAC's various sanc-
tions
programmes.18
Accordingly, this paper will
survey the compliance issues posed by the Kingpin
Act sanctions against the broader context of
OFAC's history with its other programmes.
Part II attempts to set the stage for a better under-
standing of how sanctions reached their current stage
of evolution. It briefly reviews the proliferation of
OFAC sanctions programmes since the Second
World War,19 their accompanying
blacklists,20
and
the extent of their application to US affiliated parties
abroad.21 It highlights the shift away from geogra-
phically focused sanctions targeted at specific coun-
tries to those like the Kingpin Act controls which
are independent of any particular geography.22 It
also highlights a shift in the role of the blacklist.
Blacklisting was initially a secondary tool to augment
and reinforce the primary objective of isolating a
sanctioned country by extending the controls to
reach 'front operations' in third nations. In pro-
grammes like the Kingpin Act sanctions, blacklisting
is simultaneously the primary tool and the sanction
itself — aimed at economically isolating particular
entities and individuals rather than
countries.23
Part II also shows how the practice of creating
separate sanctions programmes for each new policy
objective creates structural impediments to private
parties' ability to formulate compliance plans to
meet the government's requirements. The current
confusing array of regulatory provisions inconsis-
tently applied to accomplish essentially similar regu-
latory functions is a prime example of this type of
impediment. As a point of comparison, a brief discus-
sion of blacklisting by the government's principal
trade control agencies, Commerce's Bureau of
Export Administration (BXA) and State's Office of
Defense Trade Controls (DTC), is also
provided.24
Beyond the question of the basic structure of its
sanctions, OFAC has greatly complicated the compli-
ance task by the manner in which it has administered
its programmes, as detailed in Part III. This includes a
lackadaisical approach to the publication and notice
requirements of the Federal Register and Administra-
tive Procedure Acts, and a variety of issues associated
with the timely issuance and repeal of regulatory
provisions and guidance.25 Perhaps most importantly
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