Technical compliance
least USD 10 000 apply to legal entities breaching §2339C(a), and of USD 50 000 or at least twice the amount of which the FIs was required to retain possession of for breaches of §2339B(a)(2):
§2339C(f), §2339B(b). Wilfully undertaking financial transactions with SDGTs is punishable by imprisonment for up to 20 years and criminal fines of up to USD 1 000 000, or both: 50 USC
§1705(c). Civil penalties up to USD 250 000 or an amount that is twice the amount of the transaction that is the basis of the violation (whichever is greater) can also be imposed: 50 USC §1705(b).
Criterion 5.7 - Both natural and legal persons can be prosecuted for the TF offenses: §§2339A, 2339B and 2339C; 50 USC §1705, s.3 E.O. 13224. In addition to any other criminal, civil, or administrative liability, specific civil penalty provisions apply to legal entities situated in the U.S. or organized pursuant to U.S. law if a person responsible for the management or control of that legal person has, in that capacity, committed the offense of providing/collection funds, or attempting or conspiring to do so: USC §2339C(f).
Criterion 5.8 - Attempting or conspiring to commit the TF offenses is criminalised: 18 USC
§§2339A(a), 2339B(a)(1), 2339C(a)(2), and 50 USC §1705(a). Anyone found aiding and abetting, counselling, commanding, inducing, or procuring the commission of a crime can be prosecuted and punished as a principal: 18 USC §2.
Criterion 5.9 - Sections 2339A, 2339B, and 2339C are predicates for ML: 18 USC §1956(c)(7)(D).
Violations of 50 USC §1705 are not, but this would be an issue only in limited circumstances.
Criterion 5.10 - The TF offenses apply, regardless of whether the person alleged to have committed the offense is in the same or different country from the one in which the terrorist(s)/terrorist organization(s) is located or the terrorist act(s) occurred/will occur: §2339A (unlimited jurisdiction to prosecute), §2339B (applicable to anyone within the U.S. or subject to its jurisdiction),
§§2339B(a)(1) & (d) (extra-territorial Federal jurisdiction allows U.S. offenders, non-U.S. offenders and persons who have never been in the U.S. to be prosecuted for crimes committed). The 2339C(a) offense applies extra-territorially and includes “found-in” jurisdiction, extending the jurisdictional reach to anyone later brought into the U.S. to face charges, regardless of where the initial crime took place: 2339C(b)(2)(B). Any U.S. person or any person within the U.S. may be liable under E.O. 13224:
50 USC §1705.
Weighting and Conclusion:
All of the 10 criteria are met.
Recommendation 5 is rated compliant.
Recommendation 6 - Targeted financial sanctions related to terrorism and terrorist financing
In its 3rd MER, the U.S. was rated largely compliant as targeted financial sanctions (TFS) were not implemented against all persons/entities designated pursuant to United Nations Security Council Resolution (UNSCR) 1267(1999). The framework has not substantively changed since then.
Criterion 6.1 - For designations under UNSCRs 1267/1989 and 1988:
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a) The Department of State is the competent authority responsible for proposing designations to the UN via the U.S. Mission to the UN.
b) Potential targets for designation are identified using a range of classified and open sources. The lead agency (Treasury or State), in consultation with the non-lead agency and DOJ, compiles an administrative record of classified and unclassified information supporting the designation, based on the criteria in the relevant UNSCRs.
c) The evidentiary standard of proof applied to a designation proposal is a “reason to believe” and legal review of the designation process is under the “arbitrary and capricious” standard of the: Administrative Procedure Act. The decision is not conditional on the existence of a criminal proceeding.
d) Submissions are made using the UN standard forms and procedures for listing filled out in coordination with the agency that developed the domestic designation evidentiary information.
e) Submissions include the basis for the designation, with supporting unclassified information, and as much identification information on the target as possible. The U.S.
usually allows its status as a designating state to be made known.
Criterion 6.2 - For designations under UNSCR 1373:
a) The Secretaries of the Treasury (Sec/Treasury), State (Sec/State), Homeland Security and the Attorney General consult on all designations. The Sec/Treasury is the lead for designating foreign/domestic persons owned, controlled by, acting on behalf of, associated with, assisting or supporting terrorist acts or designated persons: SDGTs: 31 CFR 594.316 & E.O. 13224; 31 CFR 594.310.. The Sec/State is the lead for designating: foreign persons who have committed (or pose a significant risk of committing) terrorist acts threatening U.S. security, its nationals, foreign policy or economy; and FTOs78.
b) The U.S. has clear State or Treasury-led mechanisms and dedicated resources for identifying targets for designation.
c) When a third country requests the U.S. to take freezing action, Treasury (or State) prepares an administrative record (evidentiary) to support a U.S. designation under E.O. 13224.
d) The same standard of proof applies as is described in c.6.1(c) (“reason to believe basis”).
e) When requesting another country to give effect to freezing mechanisms, the U.S. provides an unclassified statement of the case, including the basis for the designation and identifiers associated with the target itself and additional information when possible.
Criterion 6.3 - The President is authorized to collect identifying information on individuals and entities meeting the designation criteria: IEEPA, National Emergencies Act. These powers are delegated to the Sec/Treasury and Sec/State for the designation of specially designated terrorists (SDTs) and SDGTs. The Sec/State is also authorized to collect information to designate organizations
78Immigration and Nationality Act, s.201, codified as amended at 8 USC §1189. All current FTOs have also been designated as SDGTs pursuant to E.O. 13224.
TECHNICAL COMPLIANCE
as FTOs: 8 USC §1189(a). Ex parte action may be taken if the applicable law/regulation does not explicitly state that a person/entity must be present and no prior notice of a designation is needed:1 E.O. 13224, s.10.
Criterion 6.4 - Domestic designations pursuant to UNSCR 1373 implement TFS without delay by taking immediate legal effect: E.O. 13224. UN designations pursuant to 1267/1989 and 1988 are generally implemented without delay from the moment of UN designation, even though the domestic designation process may take a number of months. This is because of a unique feature of the U.S.
context: as a P5 member of the Security Council, the U.S. always receives pre-notification of proposed UN designations and almost always completes its designation process prior to UN listing. The U.S.
has not implemented TFS against all persons/entities designated by the UN and on a few occasions has not implemented designations without delay (see analysis under IO.10). The USG reports however that since 2010, 88% of its domestic designations of UN-designated entities have been made without delay within a matter of hours of UN designation).
Criterion 6.5 - OFAC administers three sanctions programs for terrorists and terrorist organizations:
(i) the Terrorism Sanctions Regulations (31 CFR Part 595 implements E.O. 12947 on foreign terrorist disruptions of the Middle East peace process); (ii) the Global Terrorism Sanctions Regulations (31 CFR Part 594 implements E.O. 13224 on grave acts/threats of terrorism by foreign terrorists); and (iii) the Foreign Terrorist Organizations Sanctions Regulations (31 CFR Part 597).
a) All U.S. persons (natural and legal), including citizens and lawful permanent residents in the U.S, all U.S. companies and their branches worldwide, and foreign entities and individuals with respect to their activities in the U.S. are required to freeze without delay or prior notice the funds or other assets of designated persons/entities.
b) Freezing79 actions pursuant to E.O. 13224 extend to all property and “interests in property”80 in line with the criteria set out under c.6.5(b).
c) All U.S. persons81 are prohibited from dealing with, and providing services to/by/for the benefit of, persons (natural and legal) and entities designated pursuant E.O. 13224 and E.O. 12947 unless first authorized by OFAC82.
d) OFAC has mechanisms in place to communicate designations (and any changes to the lists) to FIs and DNFBPs including publication of the Specially Designated Nationals (SDN) and Blocked Persons List and in the Federal Register via a bulletin to the Clearing House Interbank Payment System (CHIPS) member banks and multiple e-mail notification lists. The Federal Reserve Bank of New York resends an electronic bulletin of all designations to the more than 10 000 institutions connected to its Fedwire system.
79 “Blocking” is the term for the freezing of assets used in Executive Orders and OFAC regulations.
80 Meaning an interest of any nature whatsoever, direct or indirect, in whole or in part: 31 CFR 594.306. Under OFAC’s “50 Percent Rule,” any entity owned 50% or more in the aggregate by one or more blocked individuals or entities is also considered blocked, regardless of whether that entity is listed on OFAC’s SDN List.
81 Including permanent resident aliens or any person in the U.S: 31 CFR 594.315.
82 31CFR Part 594 implements E.O. 13224, 31 CFR Part 595 implements E.O. 12947.
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Technical compliance
e) Anyone freezing/rejecting a funds transfer must report to OFAC within 10 business days: 31 CFR 501.603. Upon receipt, these reports are examined to ensure that appropriate action was taken.
f) The rights of innocent third parties are protected: see c.4.3 above.
Criterion 6.6 - There are mechanisms for de-listing and unfreezing the funds/other assets of persons/entities which do not, or no longer, meet the designation criteria:
a) For 1267/1989 or 1988, persons submitting a de-listing request are directed to the relevant UN Sanctions Committee website for information on the de-listing procedure. The U.S. will notify the relevant Committee and provide supporting material if it believes that a person/entity no longer meets the UN designation criteria.
b) For 1373, procedures for de-listing and unfreezing the funds/other assets of persons/entities no longer meeting the designation criteria are publicly outlined in 31 CFR 501.807.
c) For 1373, the U.S. has public procedures to allow, upon request, review of the designation decision before a court: 31 CFR 501.807, Administrative Procedure Act, and U.S. Constitution.
d) For 1988, if OFAC or the State Department determines that a person/entity will be de-listed domestically (based on the procedures above), the U.S. will contact the relevant UN authority to facilitate a review of the UN designation pursuant to the procedures set out in UNSCR 1730.
e) For 1267/1989, if OFAC or the State Department determines that a person/entity will be de-listed domestically, it will contact the relevant UN authority and Ombudsperson Committee to facilitate a review of the UN designation pursuant to the procedures in UNSCRs 1904, 1989 and 2083. If the U.S. believes the person/entity should remain designated, it will share with the Ombudsperson information regarding the designated person/entity.
f) There are procedures to request the unfreezing of funds believed to have been frozen in error due to mistaken identity: 31 CFR 501.806.
g) The mechanisms in c.6.5(d) are used to communicate de-listing/un-freezing actions.
Criterion 6.7 - OFAC can license or authorize access to frozen property/accounts to the extent necessary for basic or extraordinary expenses (humanitarian grounds) or to transfer non-frozen assets into the U.S. which prevents them from being frozen upon receipt by a U.S. person.
Weighting and Conclusion:
The U.S. has applied TFS to most but not all persons pursuant to UNSCRs 1267/1988/1989, and on a few occasions has not implemented TFS without delay (c.6.4). This is a minor deficiency because: the U.S. has implemented TFS without delay against 88% of the persons/entities designated by the UN since 2010. TFS have been applied to all UN Taliban designations since 2006, and the Taliban was designated as an entity which, in principle, captures anyone associated with it.
Recommendation 6 is rated largely compliant.
TECHNICAL COMPLIANCE
Recommendation 7 – Targeted financial sanctions related to Proliferation This is a new Recommendation which was not assessed in the 3rd MER report.
Criterion 7.1 - OFAC implements proliferation-related TFS programs without delay in the same way as described in c.6.4, under Executive Orders on combating the proliferation WMD. The U.S., as a P5 member of the Security Council, always receives pre-notification of proposed UN designations and, therefore, is able to postpone the UN process if necessary until its own domestic designation is in place83. The only deficiency is that the U.S. has not implemented TFS against all of the persons/entities designated by the UN pursuant to UNSCRs 1718 and 1737 (see IO.11).
Criterion 7.2 - OFAC is responsible for implementing and enforcing TFS as follows:
a) TFS apply to: all U.S. natural/legal persons and permanent resident aliens regardless of where they are located, all persons/entities within the U.S., and all U.S. incorporated entities and their foreign branches. Certain programs also require foreign subsidiaries owned or controlled by U.S. persons and foreign persons in possession of U.S.-origin goods to comply.
b) Freezing84 actions pursuant to E.O. 13382 and E.O. 13551 extend to all property and
“interests in property” (meaning an interest of any nature whatsoever, direct or indirect, in whole or in part) that come (or thereafter come) within the U.S., or within the possession or control of U.S. persons, which includes most products/services provided by FIs located in the U.S. or organized under its laws, including their overseas branches: 31 CFR 544.305; 31 CFR 544.308; 31 CFR 510.307. A person/entity’s property and interests in property are also frozen if they are owned, directly or indirectly, 50% or more by one or more designated persons/entities, regardless of whether the entity itself is on OFAC’s SDN List.
c) Payments, transfers, exportations, withdrawals, or other dealings may not be made or effected with respect to frozen property or frozen accounts except pursuant to an authorization or license from OFAC expressly authorizing such action: 31 CFR 544.201. For DPRK, with certain exceptions, U.S. persons are prohibited from transferring, paying, exporting, withdrawing, or otherwise dealing in the property and interests in property of an person/entity named in the Annex to E.O. 13551 or designated pursuant to the North Korea Sanctions Regulations: 31 CFR 510.
d) The process for communicating designations described in c.6.5(d) is used.
e) Anyone holding frozen funds or property is required to report to OFAC within 10 business days, and submit an Annual Report of Blocked Property detailing the aggregate value of the property being held under each sanctions program: 31 CFR 501.603. FIs that reject a funds transfer where the funds are not blocked under the provisions of this chapter, but where processing the transfer would nonetheless violate, or facilitate an underlying transaction that is prohibited under other sanctions programs must report the rejected transaction to OFAC within 10 business days
83 Executive Order 13382 (E.O. 13382); 31 CFR Part 544; 31 CFR 510; Executive Order 13551 (E.O. 13551).
84 “Blocking” is the term for the freezing of assets used in Executive Orders and OFAC regulations.
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f) The rights of bona fide third parties are protected: see c.6.6(f) & 6.6(b).
Criterion 7.3 - OFAC administers and enforces compliance with TFS and issues guidelines for their enforcement: Appendix A to 31 CFR 501. The State and Federal financial regulatory agencies monitor the FIs/DNFBPs under their supervision for compliance with proliferation-related TFS: see R.26 and R.28. Civil, administrative and criminal sanctions apply for failing to comply with sanctions programs85. Penalties range from USD 250 000 fine for natural persons to USD 1 million for legal persons. Imprisonment ranges from 5 to 20 yrs. Penalties are considered proportionate and dissuasive.
Criterion 7.4 - The U.S. has publicly known procedures to submit de-listing requests to OFAC for domestically designated persons/entities that, in the U.S. view, no longer meet the designation criteria (31 CFR 501.807). Such procedures mirror those for c.6.6, in line with the UN obligations. If OFAC determines that a person/entity will be de-listed domestically, it will contact the Focal Point. If the U.S. believes the person/entity should remain listed by the UN, the U.S. may share with the Focal Point information (possibly even classified information) to support the continued designation.
a) Persons/entities not (or no longer) meeting the designation criteria may be de-listed and their funds/other assets unfrozen: 31 CFR 501.807. The OFAC website has links that allow de-listing petitioners to directly contact the staff responsible for reviewing petitions.
b) Publicly known procedures exist to unfreeze funds/assets of persons with the same/similar name as designated persons/entities or those inadvertently affected by a freezing mechanism: see sub-criteria 7.2(f) & 6.6(f).
c) OFAC has authority to license certain transactions that otherwise would be prohibited due to sanctions, when doing so would “further U.S. foreign policy: 31 CFR 501.801. These procedures are publicly available and in line with the procedures set out in UNSCRs 1718 and 1737.
d) De-listings and unfreezings are communicated through the same channels used to communicate the initial sanctions obligations: see c.7.2(d) & 6.5(d).
Criterion 7.5 - The U.S. has mechanisms to handle contracts, agreements or obligations that arose prior to the date on which accounts became subject to TFS: a) any U.S. person holding such funds shall hold or place them in a blocked interest-bearing account86 located in the U.S.; and b) OFAC may authorize release of certain frozen funds or economic resources in accordance with criterion 7.5 and relevant UNSCRs under the licensing procedures described c.7.4(c).
85OFAC Reporting, Procedures and Penalties Regulations 31 CFR 501.701, WMD Trade Control Regulations 31 CFR 539.701, and WMD Proliferators Sanctions Regulations 31 CFR 544.701.
86 Meaning an account blocked: i) in a federally insured U.S. bank, thrift institution, or credit union, provided the funds are earning interest at rates that are commercially reasonable; or ii) with a broker or dealer registered with the SEC under the Securities Exchange Act of 1934, provided the funds are invested in a money market fund or in U.S. Treasury bills: 15 USC 78a et seq.: 31 CFR 544.203.
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Technical compliance
Weighting and Conclusion:
The U.S. has applied TFS without delay to most but not all persons designated by the UN pursuant to UNSCRs 1718 and 1737. This is a minor deficiency as the U.S. has implemented 90% (138 of the154) of the UN DPRK-related and Iran-related listings without delay (within a matter of hours).
Recommendation 7 is rated largely compliant.