OFAC OFAC

National emergency creep threatens OFAC’s good standing

OFAC’s expansion and misuse of the “significant transnational criminal organizations” designation jeopardizes international respect and judicial deference for important national security sanctions programs, write Steven Pelak, Jason Prince and Jeremy Paner.

he U.S. Department of Treasury’s effectively in those pursuits, OFAC democratic institutions, degrading the Office of Foreign Assets Control must carefully and wisely exercise its rule of law, and undermining T (“OFAC”) serves a vital and authorities within statutory and economic markets,” and “facilitat[ing] important role in U.S. national security constitutional limitations. When and aggravat[ing] violent civil and furthering our country’s foreign OFAC utilizes a national security conflicts.” Section 3(e) of E.O. 13581 policy interests, particularly when it Executive Order to address a set of defines the term “significant comes to dealing with Iran and factual circumstances for which that transnational criminal organization” deterring acts of international Executive Order was not specifically as: terrorism. Under the authorities granted by the International OFAC must carefully “a group of persons, such as those Emergency Economic Powers Act and wisely exercise its listed in the Annex to this order , that (“IEEPA”) to deal with an “unusual includes one or more foreign persons; and extraordinary threat . . . to the authorities within that engages in an ongoing pattern of national security, foreign policy or statutory and serious criminal activity involving the economy of the United States,” 1 the jurisdictions of at least two foreign President has empowered OFAC to constitutional states; and that threatens the national employ various national security limitations. security, foreign policy, or economy sanctions programs to designate of the United States.” 4 individuals and entities or to prohibit and explicitly intended, OFAC violates unlicensed transactions with them as IEEPA, runs the risk of losing the In turn, the Annex to E.O. 13581 part of our nation’s efforts to restrain international community’s respect for listed four organizations which were to and deter Iran’s support of terrorists, U.S. economic sanctions, and serve as the specified kind of proliferation of weapons of mass jeopardizes the judicial deference organization to be designated pursuant destruction (“WMD”), and schemes to traditionally afforded to OFAC’s to the President’s finding of a national defeat U.S. economic sanctions. 2 exercise of its IEEPA authorities. We emergency and Executive Order: Los Iran and its agents have murdered, note a recent example to highlight this Zetas (Mexican/Central American taken hostage, and tortured U.S. potential risk of harm to U.S. national drug cartel), the Yakuza (Japanese citizens and U.S. Government security and foreign policy. mafia), the Brothers’ Circle (Eurasian employees for nearly 40 years mafia), and the Camorra (Italian running. 3 Such actions compel our The Ajily Group designation mafia). All four of those crime Republic to respond through economic In July 2017, OFAC designated the syndicates have, through repeated acts sanctions, among other means of Ajily Software Procurement Group of violence, coercion, and public national power, to disrupt, deter, and (“Ajily Group”), based in Iran, as a corruption, gained influence and cabin in the Iranian government’s “significant transnational criminal control in various aspects of civil support for international terrorists, organization” (“significant TCO”) society and civil governments, efforts to injure and destabilize U.S. under E.O. 13581. OFAC also according to publicly issued criminal allies, human rights abuses, and derivatively designated two Iranian complaints, indictments, and charging proliferation of WMD. In its role to nationals and an Iranian company for documents. implement and administer those directly or indirectly acting or The President’s finding of a economic sanctions, OFAC should and purporting to act for or on behalf of the national emergency in relation to must continue vigorously to identify Ajily Group. significant TCOs was issued in Iranian individuals and entities for Six years prior in July 2011, conjunction with, and further designation pursuant to its IEEPA President Obama issued E.O. 13581 to explained by, the White authorities and thereby contribute to block the property of violent House/National Security Council’s our nation’s efforts in response to transnational drug cartels and gangs, July 2011 issuance of the “Strategy to Iranian support for international which were “becoming increasingly Combat Transnational Organized terrorism and acts of barbarity against entrenched in the operations of foreign Crime: Addressing Converging Threats U.S. citizens across the globe. governments and the international to National Security” (the “National To safeguard its ability to act financial system, thereby weakening Security Strategy Report”). In setting

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forth a definition of the transnational Executive Order, the term “such as” for any other purpose. ”8 For instance, criminal organizations which were the means “of the specified kind.” 6 The OFAC may not expand the definition of subject of the President’s declaration judiciary has interpreted the term a “significant TCO” beyond the scope of a national emergency, the National “such as” to provide or impose a of the President’s previously declared Security Strategy Report explained restrictive scope to the relevant listing national emergency to exercise IEEPA that the subject transnational criminal of items in a congressional statute or authorities over an alleged “significant organizations share the following administrative regulation. 7 TCO” to gain bargaining leverage over characteristics: “ As the administrative agency an indicted person for the U.S. charged with implementation of the Department of Justice (“DOJ”) in “l In at least part of their activities July 2011 Executive Order, OFAC may criminal plea negotiations or to obtain they commit violence or other acts reasonably designate as a significant cooperation from unindicted persons which are likely to intimidate, or TCO an organization that is smaller in suspected of criminal fraud to identify make actual or implicit threats to size or impact or that is embedded other alleged criminal co-conspirators. do so. within civil society or government to a To do so would empower OFAC with l They exploit differences between lesser degree than international the authority, in effect, to declare a countries to further their objectives, criminal organizations such as Los “national emergency,” something enriching their organization, Zetas, the Yakuza, the Brothers’ Circle, which Congress restricted solely to the expanding its power, and/or and the Camorra. Yet, OFAC may not President of the United States. 9 avoiding detection/apprehension. In IEEPA, Congress further l They attempt to gain influence in The Ajily Group is instructed the Executive Branch that it government, politics, and could not use emergency authorities commerce through corrupt as well alleged to operate from reviewed and justified to deal with one as legitimate means. Iran and to have sold national emergency to attack a l They have economic gain as their separate or different unusual and primary goal, not only from some of the stolen extraordinary threat to the national patently illegal activities but also software programs, security, foreign policy, and economy from investment in legitimate of the United States: businesses; and which may be used in l They attempt to insulate their the design of rockets “Any exercise of such authorities to leadership and membership from and GPS-guided deal with any new threat shall be based detection, sanction, and/or on a new declaration of national prosecution through their weaponry, to Iranian emergency which must be with respect organizational structure.” 5 military and to such threat.” 10 In summary, as defined in E.O. government entities. In short, neither the President nor 13581 and further explained in the July OFAC may use one national 2011 National Security Strategy emergency to justify the blocking of a Report, significant TCOs “such as” Los expand the definition of a significant foreign national’s property simply Zetas, the Yakuza, the Brothers’ Circle, TCO and invoke national security because the President or OFAC and the Camorra use violence, authorities under the July 2011 believes that the foreign national extortion, and corruption to seize Executive Order against persons presents an unusual and extraordinary segments of government or civil whose alleged international criminal threat to national security, foreign society and create a vacuum and abuse activity is not of the specified kind of, policy, or the economy unless that of power devoid of the rule of law and or similar in nature to, the activity of threat falls squarely within the scope governmental legitimacy, thereby organizations “such as” Los Zetas, the of a previously proclaimed and defined posing an unusual and extraordinary Yakuza, the Brothers’ Circle, and the national emergency (which is notified threat to the national security, foreign Camorra. to the Congress and the People) and is policy, and economy of the United thereby within OFAC’s authorization States. In relation to these types of Emergency creep control under IEEPA to act. As the U.S. “significant TCOs,” the President Under IEEPA, Congress prohibited Attorney General has stated recently, found such an unusual and such national emergency creep and Executive action, without proper extraordinary threat warranting the expansion by OFAC, requiring the statutory authority, amounts to “an exercise of the emergency and President – and the President alone – open-ended circumvention” of the powerful authorities of IEEPA. in each instance to declare a new and laws and thus “an unconstitutional By the plain terms of the President’s expanded national emergency which exercise of authority by the Executive July 2011 Executive Order, the must be submitted to, discussed with, Branch.” 11 definition of a significant TCO is and reviewed by Congress. Specifically, dependent upon a finding by OFAC Congress directed that the emergency Threat to OFAC’s good standing that the organization at issue must be authorities of IEEPA “may only be Based on OFAC’s publicly released “such as” Los Zetas, the Yakuza, the exercised to deal with an unusual and information about the Ajily Group’s Brothers’ Circle, and the Camorra. extraordinary threat with respect to activities as well as the criminal Whether used in a congressional which a national emergency has been indictment returned publicly in the statute, federal regulation, or declared . . . and may not be exercised U.S. District Court for the District of

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Vermont, it is alleged that the Ajily the effectiveness of its actions and to a consistent and uniform Group “uses hackers to steal openly acknowledges the important application of the rule of law, the engineering software programs from role of international cooperation in its federal judiciary may not only reject the United States and other western designation process: “When examining OFAC’s unlawful and unconstitutional countries.” 12 The Ajily Group is alleged individuals or organizations for action in the first instance but may also to operate from Iran and to have sold potential designation, the United be more inclined to find that OFAC has some of the stolen software programs, acted in an unlawful or arbitrary and which may be used in the design of OFAC’s apparent capricious manner in the next rockets and GPS-guided weaponry, to instance. 17 In other words, OFAC’s Iranian military and government expansion and misuse of reservoir of respect and judicial entities. At least from the publicly the significant TCO deference may run dry or at least run available allegations, there is no low if OFAC veers from a consistent indication that Ajily Group engages in designation against the and uniform application of Executive criminal conduct that is akin to or Ajily Group may Orders even against national security “such as” that of the drug cartels and adversaries which warrant sanction violent mafias like Los Zetas, the jeopardize OFAC’s own under other IEEPA-based sanctions Yakuza, the Brothers’ Circle, and the legitimacy and good programs. Camorra, each of which includes standing for several In fact, when OFAC abuses its leaders and members who have been designation authority under IEEPA, charged, indicted, and convicted in the reasons. OFAC increases the risk of the United States or abroad of committing judiciary imposing a requirement that acts of violence, extortion, and States works in conjunction with the agency obtain a warrant as a corruption to sabotage and control authorities from several other nations, prerequisite for future IEEPA civil government and civil society. and with international organizations, designations and blocking actions. 18 Although the designation of the such as the European Union and the Even courts otherwise disposed to Ajily Group based on information United Nations.” 15 In 2016, a U.S. defer to OFAC’s actions in the national released by OFAC and the associated Treasury Department official security arena may be persuaded that indictment appears appropriate under commented that successful sanctions the Fourth Amendment warrant one or more other national security require that the United States “deploy requirement must be imposed over sanctions programs, 13 OFAC’s multilateral, not unilateral, sanctions OFAC blocking actions to guard apparent expansion and misuse of the whenever possible,” and “work closely against OFAC’s unlawful expansion of significant TCO designation against with [its] foreign partners, and with the Executive’s emergency the Ajily Group may jeopardize OFAC’s the private sector, to implement authorities. 19 own legitimacy and good standing for sanctions effectively.” 16 The Furthermore, the federal judiciary several reasons. continuation of effective multilateral may become more willing to look First, foreign financial institutions sanctions regimes may be jeopardized behind the curtain and examine and other international actors may if foreign allies of the United States whether federal prosecutors are using conclude that OFAC fails to apply have reason to doubt OFAC’s OFAC and its national emergency evenly and uniformly the standards set willingness to interpret consistently authorities as a stalking horse to forth in the President’s Executive and uniformly the bounds of the accomplish what they could not do, or Orders, thereby disregarding the rule President’s designation criteria as set did not want to do, as a matter of of law and resulting in a loss of forth in Executive Orders. policy or law. 20 At base, the judiciary international respect for U.S. Furthermore, maintenance of may begin to strike down criminal law economic sanctions. Consequently, international respect for the U.S. enforcement and OFAC action where OFAC may lose the benefit of what its designation process should be of the “coordinated action” by two leadership has referred to as “a paramount concern to the Executive government agencies amounted to decisive ‘force multiplier’” – i.e., the Branch based on our leadership role “impermissible gamesmanship” which fact that “non-U.S. international within the U.N. Security Council. The resulted in a “single integrated effort financial institutions frequently U.N. Security Council Committees by [the Government] to circumvent the implement [OFAC’s] targeted which oversee sanctions measures Constitution,” the forfeiture laws, or sanctions voluntarily, even when they imposed by the U.N. Security Council any other legal restrictions imposed by are under no legal obligation from make listing decisions by consensus, Congress upon the Executive. 21 their host countries to do so.” 14 but they generally rely upon expertise Third, even if the federal judiciary As importantly, the perception that and leadership from the United States. declines to rein in OFAC’s OFAC acts in an arbitrary and This is due in no small part to the unauthorized expansion of national capricious manner may diminish the continued good standing of OFAC, emergency authorizations, Congress agency’s credibility with the European particularly in the eyes of allied may enter the fray by limiting the Union and United Nations, both of nations. judicial deference granted to OFAC’s which provide critical partnerships in Second, when OFAC in one interpretation of federal law, including implementing sanctions targeting instance impermissibly expands a in the national security and IEEPA terrorism financing and weapons previously issued Presidential context. 22 In the past, the Executive proliferation. OFAC partners with the Executive Order and fails to apply Branch has argued against a warrant international community to increase carefully an Executive Order according requirement or prior judicial review of

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individual national security/foreign activities), or another national indictment by grand jury, or criminal policy designations, in part, by making emergency Executive Order. conviction. If doubt exists regarding statements under oath to Congress and Nevertheless, based on OFAC and the that observation and the possible risk the judiciary of the “extensive legal U.S. Government’s publicly alleged of OFAC designation or the implicit or review” and “extensive investigation” explicit threat of such designation of IEEPA designations and the careful [W]hen OFAC abuses its raised in plea negotiations by the DOJ interagency consideration and designation authority to gain a more favorable guilty plea, evaluation to ensure that designations fine, or forfeiture, one need only take a meet “the strategic national security under IEEPA, OFAC moment to review past press releases and foreign policy goals of the United increases the risk of the of the DOJ in instances of criminal States.” 23 Such Executive Branch prosecutions of major international assurances and representations ring judiciary imposing a financial institutions and electronics hollow where individual designations requirement that the companies over the past several years. disregard the particular definitions agency obtain a Those DOJ press releases set forth and limitations of Executive Orders recitals of facts involving willful and issued under the emergency warrant as a repeated acts of serious international authorities Congress has granted prerequisite for future criminal fraud and conspiracies with pursuant to IEEPA. Furthermore, the governments of Iran, Syria, and Congress may act upon the IEEPA designations and Sudan that would fit OFAC’s definition recommendations made in January blocking actions. – but not the July 2011 Executive 2001 by the congressionally Order’s definition – of a significant established Judicial Review transnational criminal organization. Commission on Foreign Asset Control facts in relation to the Ajily Group, one When an administrative agency which was chaired by former Deputy is left with a significant doubt adopts such unbridled discretion and Attorney General Larry Thompson and regarding the current legal its sanctions and designations allow it which wisely recommended that justification for OFAC’s designation of to put a company out of business in a Congress enact legislation to establish the Ajily Group as a “significant TCO” heartbeat and to deny effectively an a system of administrative review with under the President’s July 2011 E.O. individual’s access to employment, strict time schedules, neutral arbiters, 13581. insurance, and banking services in a and a meaningful, on-the-record If OFAC continues its expansive modern economy without notice and review of OFAC designations and application of the significant TCO without the right to confront and actions. 24 designation beyond the scope of the cross-examine evidence and President’s July 2011 Executive Order allegations in a public forum, injustice Clear thinking required and the bounds of IEEPA, then an sadly follows. Considering what OFAC stands to lose, international business or financial one would expect that, particularly in institution accused by OFAC of fraud, the context of significant TCOs, OFAC money laundering, willful violation of and government officials should act the Arms Export Control Act, willful carefully to apply uniformly and violation of the Foreign Corrupt Steven W. Pelak and Jason E. consistently the standards of Executive Practices Act, willful violation of Prince are partners in the Orders and federal law. Of course, IEEPA, and other similar serious Washington, DC office of none of the above speaks to whether criminal offenses involving Holland and Hart, where there may be other appropriate means international financial transactions or Jeremy P. Paner is of counsel. for OFAC to sanction the Ajily Group the international shipment of goods or [email protected] under E.O. 13382 (WMD services may run the risk of being proliferation), E.O. 13608 (designation branded by OFAC with the label of a [email protected] of Iranian sanctions evaders), E.O. significant transnational criminal [email protected] 13757 (malicious cyber-enabled organization, without notice,

This article is reprinted from the November 2017 issue of WorldECR , the journal of export controls and sanctions. www.worldecr.com

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“specific set of circumstances” by which and remand OFAC action because the daughter and bring indicted Links and notes the President initially acted to find a administrative record did not clearly mother/defendant to the criminal 1 50 U.S.C. § 1701(a). national emergency and “for no other explain OFAC’s consideration of certain bargaining table), purpose”). potentially exculpatory evidence; and http://www.insightcrime.org/news- 2 See, e.g., Executive Order (“E.O.”) 13382 noting that de novo review may be analysis/the-guatemalan-trafficker-who-c (designation of WMD proliferators and 9 50 U.S.C. § 1701(a) (“. . . if the President appropriate where an agency’s fact onfessed-dea. supporters); E.O. 13553 (designation of declares a national emergency . . .”). finding procedures are “severely 21 Iranian human rights abusers); E.O. 10 See United States v. Gorman , 859 F.3d 50 U.S.C. § 1701(b). defective”); Ramaprakash v. F.A.A. , 346 13608 (prohibition of transactions with 706, 719 (9th Cir. 2017) (affirming district 11 F.3d 1121, 1124, 1125 (D.C. Cir. 2003) Iranian sanctions evaders). September 4, 2017 Letter by U.S. Attorney court’s suppression of evidence, General to Acting Secretary of U.S. (finding that under the APA “agency dismissal of forfeiture action, and award 3 See, e.g., Bank Markazi v. Peterson , __ Department of Homeland Security, action is arbitrary and capricious if it of attorney fees against the U.S. U.S. __, 136 S. Ct. 1310, 1319 n.5 (2016) https://www.dhs.gov/news/2017/09/05 departs from agency precedent without Government; and concluding that “[a]n (listing a number of the long list of civil /rescission-deferred-action-childhood- explanation” and that an “agency’s failure illegal police venture cannot be made judgments against Iran for its support and arrivals-daca. to come to grips with conflicting legal simply by dividing it into two sponsorship of acts of terrorism). precedent constitutes an inexcusable 12 U.S. Department of the Treasury Press coordinated stops” or governmental 4 departure from the essential requirement E.O. 13581 (emphasis added). Release, “Treasury Targets Persons actions. See also Leonard v. Texas , __ of reasoned decision making”) (citation U.S. __, 137 S. Ct. 847, 848 (2017) 5 NSC, Strategy to Combat Transnational Supporting Iranian Military and Iran’s and internal quotation marks omitted). Organized Crime: Definition, Islamic Revolutionary Guard Corps” (July (Thomas, J., concurring in denial of 18 https://obamawhitehouse.archives.gov/a 18, 2017), See, e.g., Al Haramain Islamic Found., certiorari) (noting the important question dministration/eop/nsc/transnational- https://www.treasury.gov/press- Inc. v. U.S. Dep’t of the Treasury , 686 F.3d whether modern forfeiture practice “can crime/definition. center/press-releases/Pages/sm0125.as 965, 994 (9th Cir. 2012) (“We therefore be squared with the Due Process Clause” px. hold that OFAC violated AHIF-Oregon’s and observing that situations in which 6 Merriam-Webster’s Dictionary Online , Fourth Amendment right to be free of property may be seized with limited 13 retrieved October 8, 2017, from For instance, OFAC’s own July 18, 2017 unreasonable seizures” by blocking its judicial oversight by government actors https://www.merriam- press release announcing the designation assets indefinitely without obtaining a “has led to egregious and well-chronicled webster.com/dictionary/such%20as); of the Ajily Group noted that the Ajily warrant); KindHearts for Charitable abuses”). Black’s Law Dictionary (5th ed.) (“‘Such’ Group “also procured specialized Humanitarian Development, Inc. v. 22 See Separation of Powers Restoration Act represents the object as already software for Malek Ashtar University of Geither , 647 F. Supp. 2d 857 (N.D. Ohio particularized in terms which are not Technology” which was previously of 2017, S. 1577, 115th Congress (2017- 2009) (holding that OFAC’s blocking of 2018) (introducing to the Senate Judiciary mentioned”). designated in 2012 under the WMD the plaintiff’s assets pending Proliferation Executive Order, E.O. 13382. Committee on July 18, 2017 a proposal to 7 See, e.g., Maracich v. Spears , __ U.S. __, investigation violated its Fourth amend section 706 of the Administrative 14 133 S. Ct. 2191, 2202 (2013) (restricting See Prepared Testimony by Daniel Glaser Amendment right to be free of Procedure Act to significantly repeal the scope of a statutory provision in light and Adam Szubin Before a House Foreign unreasonable seizure). Chevron deference). of illustrative examples presented in the Affairs Joint Subcommittee Hearing, 19 Kadi v. Geithner , 42 F.Supp.3d 1, 37 23 See Final Report to Congress of the statutory provision); Lawler Mfg. Co., Inc. “Isolating Proliferators and Sponsors of (D.D.C. 2012) (upholding OFAC action but v. Bradley Corp. , 280 F. App’x 951, 954- Terror: The Use of Sanctions and the Judicial Review Commission on Foreign noting the finding by other courts that Asset Control (Chairman Larry D. 955, 2008 WL 2185990 (Fed. Cir. 2008) International Financial System to Change OFAC’s blocking actions were “seizures” (finding that the term “such as” is Regime Behavior” (2007), Thompson), at 11 n.35, 47-48 n.225, and under the Fourth Amendment and noting Appendix E at 9 (January 2001) (noting intended to reference “items similar to https://archive.org/details/gov.gpo.fdsys. that “[t]his Court, as well, has expressed what are recited rather than indicating CHRG-110jhrg34715. the DOJ’s written representations and some reluctance to find that, testimony that any person to be that the recited items are just examples 15 U.S. Department of the Treasury, categorically, blocking orders could never of what is covered”); Carlyle Compressor designated as a “significant foreign Frequently Asked Questions, be ‘seizures’ under the Fourth narcotics trafficker” should be under Co. v. Occupational Safety & Health Designations, Amendment”). Review Comm’n , 683 F.2d 673, 676 (2d public indictment for significant narcotics- https://www.treasury.gov/resource- 20 Cir. 1982) (interpreting the term “such See U.S. v. Marllory Chacon Rossell , No. related criminal offenses so designated center/faqs/Sanctions/Pages/designatio 11-Cr.-20582, April 22, 2015 Defendant’s only after “extensive legal review”), as” to restrict the scope of a federal ns.aspx regulation to things similar to those Objections and Corrections to the http://apps.americanbar.org/dch/commit 16 enumerated following the term “such as” April 15, 2016 Remarks by Acting Under Presentence Report, at 9 (defense tee.cfm?com=IC716000 (Amer. Bar and rejecting the U.S. Labor Secretary Adam Szubin at the Center for a memorandum noting the apparent use by Assoc. webpage); Affidavit of OFAC Department’s contrary, expansive New American Security, OFAC of its designation authority to Director Adam J. Szubin, at ¶ 31-33 (May interpretation of its own regulation). https://www.treasury.gov/press- sanction without evidence of criminal 22, 2009), filed in Kadi v. Geithner , No. center/press-releases/Pages/jl0425.asp involvement a teenage daughter of a 09-CV-00108 (Doc.No.12-4). 8 50 U.S.C. 1701(b) (emphasis added); see x. criminal defendant/mother); “The 24 Final Report to Congress of the Judicial also H.R. Rep. No. 95-459 at 10 Guatemalan Trafficker Who Confessed to 17 See, e.g., Epsilon Electronics, Inc. v. Review Commission on Foreign Asset (1977)(expressing Congress’s intent that the DEA,” republished at InSight Crime OFAC , 857 F.3d 913, 919, 928-29 (D.C. Control , supra, at 129. the Executive would only use emergency (March 30, 2015) (noting seriatim OFAC Cir. 2017) (applying arbitrary and authorities under IEEPA to address the sanctions used to designate uncharged capricious standard to partially reverse

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