Authority and Process of Office of Foreign Assets Control to Release Frozen Charitable Funds
by Kay Guinane, 11/6/2006
Contents: Introduction I. Statutory Authority and Executive Order 13224 II. Terrorism Sanctions Regulations III. Process for Unblocking Frozen Funds IV. General Information on Frozen Funds V. Examples Introduction The power of the federal government to release "blocked" assets seized from entities designated as Foreign Terrorist Organizations for Specially Designated Nationals derives from the same statutory framework as the power to freeze and seize assets. These statutes — International Emergency Economic Powers Act (IEEPA) as amended by the Patriot Act, and the Anti-Terrorism and Effective Death Penalty Act of 1996 — authorize the President to promulgate regulations governing implementation of these powers. Regulations implementing the sanctions programs authorized by statute are found in the Code of Federal Regulations. (See Title 31 CFR Parts 501, 595 and 597.) The regulations give the Office of Foreign Assets Control (OFAC), an agency within Treasury, power to grant licenses authorizing otherwise prohibited transactions, including transfers of funds for charitable purposes. Implementing regulations empower the Department of Treasury (Treasury) to allow transactions that would otherwise be blocked. General licenses specify conditions under which any party may enter into transactions with a designated entity or country subject to sanctions. These transactions include humanitarian assistance and religious activities. Specific licenses only apply to the party making the license application, and can be used to unblock frozen funds. In all cases OFAC maintains control over the licensee's activities through its reporting requirements and discretionary power to amend or cancel the license. I. Statutory Authority and Executive Order 13224 Charities are among entities subject to asset seizure under Patriot Act amendments to IEEPA, which gives the President discretion to declare an emergency for "any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States." See 50 U.S.C. 1701 (2003). Section 302 of the Anti-Terrorism and Effective Death Penalty Act of 1996 allows the Secretary of State to designate Foreign Terrorist Organizations (FTOs), and makes it a crime for U.S. persons to provide an FTO with material support. U.S. financial institutions are required to block funds of designated organizations and persons. President Bush used these powers on Sept. 24, 2001, declaring an emergency with respect to the "grave acts of terrorism and threats of terrorism...and the continuing and immediate threat of further attacks on the United States . . . " granting the Treasury Department (among other powers) the ability to freeze the assets of all persons the Secretary of the Treasury determined ". .. to assist in, sponsor, or provide financial, material, or technological support for. . .such acts of (foreign) terrorism or those persons listed in the Annex to this order...or to be otherwise associated with those persons listed in the Annex to this order." Executive Order No. 13224, 66 Fed. Reg. 49079 (2001), at Sec. 1(d)(i), (ii). The Annex to the Order named 27 persons and organizations. Currently over 430 entities are listed, including six U.S. based charities. The Dept. of State introduction to EO 13224 states its purpose is to provide "a means by which to disrupt the financial support network for terrorists and terrorist organizations...that commit, or pose a significant risk of committing, acts of terrorism...the Order authorizes the U.S. government to block the assets of individuals and entities that provide support, services, or assistance to, or otherwise associate with, terrorists and terrorist organizations designated under the Order, as well as their subsidiaries, front organizations, agents, and associates." (http://www.state.gov/s/ct/rls/fs/2002/16181.htm) Under the statutes the Secretary of State, Secretary of Treasury and Attorney General consult and designate people and entities that they determine are "owned or controlled by, or act for or on behalf of" a listed person or entity, or provide them with material assistance, technological support or other services, or are "otherwise associated with" them. Once the designation is made OFAC takes action to block the assets. Notice of designation is published in the Federal Register, the person or entity is added to OFAC's list of Specially Designated Global Terrorists and the designation remains in effect until the EO lapses or is otherwise terminated. See 50 U.S.C. APP. 5(B), 22 U.S.C. 2370(A), 22 U.S.C. 6001 The threshold for asset seizure is low. Under the Patriot Act revisions to IEEPA, the Treasury Department can freeze an organization's assets pending an investigation into possible associations with a designated terrorist group. See Patriot Act at Section 106 (adding the words "block during the pendency of an investigation" after the word "investigate" in IEEPA, 50 U.S.C. 1702(a)(1)(B)( 2000)). 50 U.S.C. 1702 now reads in relevant part: "At the times and to the extent specified in section 202 [50 USCS 1701], the President may, under such regulations as he may prescribe, by means of instructions, licenses, or otherwise...block during the pendency of an investigation...any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to. . . or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States. . ." II. Terrorism Sanctions Regulations Regulations implementing the sanctions programs authorized by statute are found in the Code of Federal Regulations. Title 31 CFR Part 595 contains rules on Terrorism Sanctions under IEEPA. These rules apply unless otherwise specified in 31 CFR Part 597, Foreign Terrorist Organization Sanctions Regulations. Both refer to 31 CFR Part 501, which provides a process that authorizes otherwise blocked transactions by giving OFAC power to grant two types of licenses:
- General license— authorizes otherwise prohibited transactions under appropriate terms and conditions. See 31 CFR 501.801(a).
- Specific license — authorizes successful applicant to engage in transactions otherwise prohibited and not authorized by a general license. See 31 CFR 501.801(b).
- Assistance projects for critical food, health, or welfare aid that is distributed from Palestinian Authority-run facilities such as schools, hospitals and clinics.
- In-kind donation of medicines, medical supplies and medical devices to hospitals, clinics or other health care facilities owned or operated by the Ministry of Health.
- Donated medical services in the West Bank and Gaza involving the Ministry of Health.
- Goods and services related to disease eradication.
- Dealings with universities and other educational institutions in the West Bank and Gaza.
- Goods and services relating to education, including teaching, in the West Bank and Gaza.
- Provision to and receipt from the Palestinian Authority of informational materials.
- Small-scale water projects in the West Bank and Gaza, for the benefit of municipalities not controlled by a Hamas mayor and/or a Hamas majority in the municipal council.
- a compelling case exists that there is no practical means to achieve the desired humanitarian goal outside of the proposed transactions with the Palestinian Authority;
- the activities are designed to benefit directly persons in the West Bank and Gaza under circumstances in which, notwithstanding the practical need to involve the Palestinian Authority, the activities will not be subject to the control of the Palestinian Authority other than for routine administrative approvals;
- the activities will not provide any significant material benefit, including technical advisory assistance, to the Palestinian Authority.