Tightening the screws: The economic war against terrorism.

• Author: Fitzgerald, Peter L.

SHORT OF the actual use of force, economic sanctions are among the U.S. government's most powerful tools in the war on terrorism. They seek to deprive terrorist organizations of the financial wherewithal to support and conduct operations such as the September 11 attacks on Washington and New York. Well before those events, however, the U.S. government had targeted Osama bin Laden and his Al-Qaeda organization with financial sanctions as part of three separate anti-terrorist programs established since the mid-1990s. This pre-existing anti-terrorist sanctions framework has now been bolstered by a new Presidential Executive Order on Terrorism, as well as by UN Security Council Resolution 1373 calling for similar sanctions by other nations. These new measures add another layer to an already complex system of financial regulations with relevance to U.S. diplomacy.

The government's anti-terrorist sanctions are neither isolated nor unique regulatory programs. Rather, they are but a small part of 21 similar, yet ostensibly separate, economic sanctions programs currently administered by the Treasury Department's Office of Foreign Assets Control (OFAC). The Terrorist Sanctions Regulations, promulgated in 1996, require "U.S. persons" (i.e., U.S. citizens or residents wherever they may be located, and U.S. business entities including their overseas branches) to block or "freeze" the assets of those who threaten the Middle East peace process, and they prohibit unlicensed transactions with such parties. Presidential Executive Order No. 13,224 of September 2001 then expanded the controls to cover global terrorism. The Foreign Terrorist Organizations Sanctions Regulations, published in 1997, criminalize the provision of support or resources to foreign terrorist organizations designated by the Secretary of State. Additionally, a broad range of U.S.-affiliated financial institution s and businesses providing financial services are required to block funds in which terrorist organizations or their agents have an interest. Bin Laden and Al-Qaeda are among the targets of both programs.

Moreover, unlicensed financial dealings with the governments of states that have been designated by the Secretary of State as supporters of terrorism pursuant to the Export Administration Act--Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria--are criminalized under OFAC's Terrorism List Governments Sanctions Regulations issued in 1996. The Treasury Department also maintains separate stand-alone economic sanctions programs targeted at each of these countries, with the exception of Syria. Among its other country-specific sanctions programs, OFAC prohibits unlicensed dealings with Afghanistan and requires that U.S. persons block any assets in which the Taliban has an interest under the Taliban (Afghanistan) Sanctions Regulations. (1)

The obvious question, then, is if these financial controls have been in place since as far back as 1996, why have they not worked better at preventing terrorism? Moreover, how can we have any confidence that new sanctions will accomplish what the old controls evidently failed to achieve?

AMONG THE key structural and institutional impediments to more effective sanctions are the relatively meager resources devoted to supporting these programs. OFAC is a small office, with a staff of roughly one hundred and a budget of less than $20 million--although it recently received a further $6.5 million to operate the new interagency Foreign Terrorist Asset Tracking Center. With these resources OFAC currently manages the staffing, licensing, compliance, and enforcement aspects of more than a score of sanctions programs. OFAC is easily overwhelmed when either the Congress or the Executive Branch imposes new sanctions programs, or a change in policy direction occurs. Additionally, as policymakers tend to look at sanctions programs individually rather than as part of a whole set of controls, some changes in policy direction call for a disproportionate use of OFAC's resources. For example, in 1994 when Congress mandated that "family remittances" to Cuba must be individually licensed, OFAC was required to dra w down sharply the resources devoted to other programs. There is general agreement among those who deal with these sanctions programs on a practical level, both within government and in the regulated community, that insufficient resources are being allocated to administer properly the increasing number of programs OFAC is asked to manage.

However, achieving more practical and effective sanctions will take more than simply coming up with additional personnel or funding. A change in how OFAC employs its resources, and in the agency's basic regulatory approach, is also necessary. As the institutional successor to the World War II-era Office of the Alien Property Custodian, OFAC has labored in relative isolation from both other government agencies and the regulated community. The Director of OFAC has publicly declared that his office is a law enforcement agency engaged in...