Part 1: International legal developments (Sub‐group 1: Critical review of terrorist‐related legislation and the monitoring of new legislation)
| Date | 01 July 2003 |
| DOI | https://doi.org/10.1108/13685200310809545 |
| Published date | 01 July 2003 |
| Pages | 201-216 |
| Subject Matter | Accounting & finance |
Part 1
International Legal Developments
Sub-group 1: Critical review of terrorist-related legislation and the
monitoring of new legislation
INTRODUCTION
A new international regime for regulating terrorist
®nancing has emerged for commercial and ®nancial
enterprises that operate in a transnational context,
or conduct transactions involving foreign enterprises
or individuals suspected of terrorist activity. Indeed,
terrorist ®nancing has become a major development
in international ®nancial regulation and poses an
issue of regulatory concern for banks and ®nancial
institutions that operate on a transnational basis.
THE US RESPONSE
The aftermath of 11th September, 2001
Ð Executive Order 13224
President Bush issued Executive Order 13224 entitled
`Blocking Property and Prohibiting Transactions
with Persons who Commit, Threaten To Commit,
Or Support Terrorism.' This Executive Order
expanded the list of designated terrorist
organisations to include over 30 individuals and
organisations that have allegedly committed, or
been involved in, acts of terrorism.
1
All persons sub-
ject to US jurisdiction are required to block or freeze
any assets being held on behalf of such persons and to
notify the US Treasury Department's Oce of
Foreign Assets Control (OFAC) accordingly. The
Order also prohibits all foreign third parties from
assisting or providing material support for, or asso-
ciating with, designated terrorists. The Order
observes that the global reach of terrorist ®nancing
made it necessary to impose extraterritorial ®nancial
sanctions against all `foreign persons that support or
otherwise associate with these foreign terrorists'.
2
Section 3(d) of the Order provides a broad de®ni-
tion of terrorism:
`an activity that Ð
(i) involves a violent act or an act dangerous to
human life, property, or infrastructure; and
(ii) appears to be intended Ð
(A) to intimidate or coerce a civilian
population; or
(B) to in¯uence the policy of a government by
intimidation or coercion; or
(C) to aect the conduct of a government by
mass destruction, assassination, kidnap-
ping, or hostage taking.'
Such a broad de®nition of terrorism could reasonably
be interpreted to apply to the activities of some states
in recent years which have relied on `violent acts' or
`acts dangerous to human life, property or infrastruc-
ture' to accomplish state objectives that necessarily
involved the coercion of a civilian population or
sought `to in¯uence the policy of a government by
intimidation or coercion'.
3
Section 1 of the Order blocks inde®nitely any obli-
gation to perform a contract entered into before the
eective date of the Order with a designated terrorist
entity or person listed in the Order, and requires all
property or interests in property to be blocked of
such designated persons that are located in the USA
or that hereafter come within the USA, or that
come within the possession or control of a US
person. The Secretary of the Treasury, in consulta-
tion with the Secretary of State and the Attorney
General, has authority to determine which `foreign
persons' have committed or pose a signi®cant threat
of committing `acts of terrorism that threaten the
security of US nationals or the national security, for-
eign policy, or economy of the United States'.
4
Moreover, the Secretary of the Treasury may make
determinations that certain foreign persons in third
countries are `owned or controlled by', or `act for
or on behalf of ' foreign persons designated by the
USA to be terrorists.
5
Moreover, s. 1(d) of the
Order expressly creates extraterritorial third party
liability by authorising the Secretary of the Treasury,
after consulting with other US Government ocials
and with `foreign authorities, if any', to designate
foreign persons who `assist in, sponsor, or provide
Page 201
Journal of Money Laundering Control Ð Vol. 6 No. 3
Journalof Money Laundering Control
Vol.6, No. 3, 2003, pp. 201± 216
HenryStewart Publications
ISSN1368-5201
®nancial, material, or technological support for, or
®nancial or other services to or in support of, such
acts of terrorism or those persons listed' to be terror-
ists. All US trade, commerce or transactions with
such third party persons would be prohibited unless
a licence is obtained from OFAC, and they would
be subject to civil and criminal sanctions under US
law if they have a constitutional presence in the USA.
The Order also prohibits any transaction or dealing
by US persons, or by foreign persons within the
USA, in property or interests in property blocked
pursuant to this Order, including but not limited to
`the making or receiving of any contribution of
funds, goods, or services to or for the bene®t of
those persons listed' as terrorists in the Order.
6
This
provision prohibits the right of US persons to make
contributions of any type or to perform any type of
service on behalf of a listed terrorist or a person or
entity operating in a foreign country which the
USA has decreed to be owned or controlled by a
listed terrorist. Moreover, any eort by a US
person (or by a non-US person within the USA) to
undertake a transaction to restructure the ownership
or control of property or a business entity in order
to evade or avoid restrictions under the Order is pro-
hibited and may attract both civil and criminal liabi-
lity not only for ®nancial institutions or companies
holding property on behalf of listed terrorists but
also for the professionals advising such transactions.
7
Moreover, any conspiracy formed to violate the
Order is prohibited and has extraterritorial eect
through the Federal Conspiracy statute.
8
Section 6 states the importance of US cooperation
with foreign governments in implementing the
Order by providing that the Secretary of State and
the Secretary of the Treasury and other government
agencies `shall make all relevant eorts to cooperate
and coordinate with other countries' and may
invoke existing bilateral and multilateral agreements
and arrangements to achieve the objectives of the
Order. This would include the prevention or sup-
pression of acts of terrorism, and the denial of ®nan-
cing and ®nancial services to terrorists and terrorist
organisations, and the sharing of intelligence regard-
ing funding activities in support of terrorist groups. It
should be noted that the principle of `cooperation and
coordination' in s. 6 appears to be mandatory only to
the extent that US Government ocials may deter-
mine what eorts at cooperation and coordination
are `relevant eorts' to achieve the objectives of the
Order. Essentially, the US Government will not be
precluded from acting unilaterally whenever it
perceives that it is necessary to do so.
The Order departs slightly from other US sanc-
tions programmes by de®ning the term `United
States person' to mean any US citizen, permanent
resident alien, or entity organised under the laws of
the USA (including foreign branches), or any
person in the USA. In an extraterritorial sense, this
is a less sweeping de®nition than those adopted
under the Cuban and North Korean Sanctions Pro-
grammes that de®ne US person more broadly to
include any foreign person deemed by the US Gov-
ernment to be controlled by a US citizen, resident
or US business entity. Under these programmes, a
US person could be de®ned as a company incorpo-
rated under the laws of a foreign state whose shares
are subject to signi®cant US ownership or control.
9
The Executive Order is a signi®cant extension of
extraterritorial third party liability for foreign
banks, companies and individuals who conduct, facil-
itate or assist transactions involving US-designated
terrorist organisations. OFAC is expected in the
near future to issue regulations that describe in
more detail how the Order will be applied and
enforced.
The Patriot Act Ð International Money
Laundering Abatement and Anti-
Terrorist Financing Act of 2001
Title III of the Patriot Act is entitled the International
Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001. Title III contains the key pro-
visions that apply to US and foreign banks and ®nan-
cial institutions. It amends, inter alia, certain
provisions of the Bank Secrecy Act of 1970 and the
Money Laundering Control Act of 1986. The Bank
Secrecy Act has enhanced transparency for US ®nan-
cial institutions by preventing them from keeping
opaque records and requiring them to maintain stan-
dardised transaction records and to report large cur-
rency transactions and suspicious transactions. Some
of its provisions apply not only to ®nancial institu-
tions but also require any individual to report the
movement of more than $10,000 in currency into
and out of the country. The Money Laundering Con-
trol Act creates the criminal oence of laundering the
proceeds of crime and allows the criminal and civil
forfeiture of the proceeds or property derived from
crime. Moreover, Title III contains, among other
provisions, authority to take targeted action against
countries, institutions, transactions, or types of
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The Funding of Terror
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