Criminal prosecution in sheep's clothing: the punitive effects of OFAC freezing sanctions.

• Author: Ortblad, Vanessa
• Position: Office Foreign Assets Control

1. INTRODUCTION

   The first response to the September 11, 2001 terrorist attacks on New York and Washington D.C. (9/11) was the financial war on terror. On September 23, 2001, President Bush exercised his authority pursuant to the International Emergency Economic Powers Act (IEEPA) (1) to issue Executive Order 13,224 (2) in which he declared a national emergency and drastically expanded his abilities to freeze assets in order to cut off funding that would support terrorist activity. The Bush Administration used its expanded powers liberally to achieve quick results in its war on terror. While it is not uncommon to hear criticism of the United States' war against terrorism in Afghanistan or Iraq, the United States' financial war on terror has not received much scrutiny. A lack of oversight in the financial war has resulted in the government freezing assets of individuals and entities with minimal supporting evidence, without notice, and without due process.

   Prior to 9/11, the IEEPA gave the President authority to designate a person or entity he considered a national security threat, freeze their assets, and block transactions between them and U.S. persons. (3) Executive Order 13,224 and later the USA PATRIOT Act expanded Presidential powers such that the executive branch can freeze assets of persons or entities that supported or otherwise associated with terrorists; the executive branch can submit classified evidence in camera and ex parte; and the executive branch can block assets during the pendency of an investigation. (4) The effects of this expansion of power have been unfairly punitive.

   This is not to say that freezing assets is not effective against terrorist funding. This tool can be very effective because it can be quickly deployed without warning. Furthermore, the administration views asset freezing as a preventive measure rather than a punitive measure. (5) Richard Newcomb, OFAC's Director, has stated that "[e]conomic sanctions are intended to deprive the target of the use of its assets and deny the target access to the U.S. financial system and the benefits of trade, transactions and services involving U.S. markets." (6) Once OFAC freezes an entity's or individual's assets, they are no longer accessible for use for any purpose, terrorist or otherwise. In effect, the freezing of assets is immediately punitive to the designated person, entity, or individual or individuals employed by the sanctioned entity.

   The punitive effects would not be so controversial if every entity or individual that OFAC sanctioned had demonstrably been shown to be a terrorist or terrorist entity or to be otherwise intentionally financing a terrorist group. However, OFAC has frozen the assets of at least one entity that was later deemed to have no direct link to any terrorist group, a finding made in a monograph on terrorist financing prepared by the staff of the National Commission on Terrorist Attacks Upon the United States (hereinafter 9/11 Commission Financing Monograph). (7) Furthermore, as of this writing the United States has failed to convict any of the individuals targeted in post-9/11 freezing actions of actually financing terrorism. On October 24, 2007, the government's latest criminal prosecution against the largest Islamic charity in the United States, the Holy Land Foundation, resulted in a mistrial. (8) Remarkably, the government's goals may not include winning trials. In response to the Holy Land Foundation trial outcome, former United States Attorney for the Eastern District of Texas Matthew D. Orwig said, "I think the government won when it froze the assets and shut down the organization." (9) Mr. Orwig may be right about the irrelevance of a trial verdict because of the difficulty in reversing an OFAC designation and asset-freeze.

   Although a designee may appeal his case by writing to OFAC, he has no access to the information OFAC has used as a basis for freezing and, therefore, no ability to rebut this evidence. (10) Moreover, if a designee appeals his case in court, OFAC's actions are afforded extremely high deference under both the Administrative Procedure Act (APA) and executive decision-making procedures regarding foreign policy and national security. (11) Furthermore, any evidence the prosecution may have is only presented ex parte and in camera. (12) Any semblance of a fair trial in this instance appears to be illusory.

   What is most troubling about OFAC's power is that it may freeze an entity's assets with extremely little evidence. OFAC may freeze an entity's or individual's assets even when the supposed financier is merely under investigation for potentially financing terrorists. (13) When an individual or entity is under investigation, this means that OFAC does not have enough evidence to designate an entity or individual as a financier of terrorism. Nevertheless, OFAC may freeze assets based on suspicion alone. (14)

   This Comment will focus on the evidentiary standard OFAC uses in freezing assets. Although OFAC does not publish its evidentiary standard, the standard may be inferred through several recent cases. This Comment will discuss: (1) the implications of using a minimal evidentiary standard in OFAC's freezing process, through several case studies; (2) the punitive effects of the freezing process on individuals whose assets have been frozen or who are collaterally affected; and (3) the effectiveness of the freezing process as a whole. The Comment argues that OFAC lacks adequate evidentiary criteria for establishing that an individual or entity should be sanctioned, and proposes that this failure can be remedied through implementation by Congress of a clear evidentiary standard and of reporting requirements.

2. BACKGROUND OF OFAC's STATUTORY AND ADMINISTRATIVE AUTHORITY

   OFAC is a subdivision of the Treasury Department tasked with administering and enforcing economic and trade sanctions based on U.S. foreign policy and national security goals. OFAC directs its activities against targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction. (15) OFAC derives its authority to freeze assets from general presidential power and specific legislation. (16) IEEPA grants the President the authority to freeze the assets of an individual or organization designated a national security threat which had its source in whole or in substantial part outside the United States only if the government had declared a national emergency. (17)

   Under IEEPA, once the President designates an individual or entity a threat, he must report it within ten days to OFAC. OFAC then places the individual or organization on its Specially Designated Terrorist List and informs banks or other financial institutions to freeze any assets they may hold on behalf of this individual or organization. (18) A bank's refusal to comply may result in criminal or civil penalties. (19) Although Congress originally enacted IEEPA to limit the President's power during peacetime, the President's decisions have undergone little scrutiny from the courts. (20)

   After the 1998 East Africa bombings, the Clinton Administration added Osama bin Laden and several of his associates to OFAC's Specially Designated Terrorist List. (21) However, prior to the 1990s OFAC had only frozen funds associated with Libya and Cuba, and had just begun to transition toward the handling of non-state activities. (22) This may explain why OFAC froze few funds related to non-state actor terrorism prior to 9/11. (23) The 9/11 Commission Financing Monograph observed that this restraint might be attributed to OFAC's reluctance to rely on shaky classified intelligence, (24) but it may also have been a result of the fact that al Qaeda money flowed through an informal network of hawalas (25) and Islamic institutions, which were not linked to the traditional U.S. financial system. (26)

   In 1999, the President placed the Taliban on the Specially Designated Terrorist List. (27) The Taliban, which then headed Afghanistan's official government, proved an easy target for OFAC to penalize; OFAC blocked more than $34 million in Taliban assets held in U.S. banks. (28) Ironically, under the pre-9/11 Bush Administration, former Secretary of the Treasury Paul O'Neill attempted to quash the National Security Council's proposed terrorist asset tracking center, announcing that he would reduce the U.S. regulatory regime and depend on international cooperation to stem illicit money flows. (29)

   Of course, 9/11 produced the opposite result, due to the enactment of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act). (30) The USA PATRIOT Act expanded several executive powers under IEEPA. (31) The USA PATRIOT Act amended IEEPA to allow the executive branch to submit classified evidence in camera and ex parte in court proceedings against alleged financiers of terrorism; to allow OFAC to block assets during the pendency, rather than after the conclusion, of an investigation; and to allow the President to confiscate any property subject to the jurisdiction of the United States of any foreign person, organization, or country he determines planned, authorized, aided, or engaged in terrorist hostilities or attacks against the United States. (32)

   Although keeping all of these amendments in mind is important in order to appreciate the extreme expansion of executive power that took place, this Comment will focus on the civil liberties implications and effectiveness of the second amendment, which expanded OFAC's ability to freeze assets before a complete investigation of an individual's or organization's involvement in terrorist financing. The Comment will then propose several steps that may be taken so as to mitigate the government's infringement on civil liberties, including imposing a minimum evidentiary standard that...