On January 12, 2012, the Treasury Department's Office of Foreign Assets Control ("OFAC") published a final rule promulgating the Transnational Criminal Organizations Sanctions Regulations ("TCOSR").  The new Part 590 to Title 31 of the Code of Federal Regulations establishing the regulations implements Executive Order ("EO") 13581, "Blocking Property of Transnational Criminal Organizations" of July 25, 2011, discussed in detail in our previous advisory.

The TCOSR is a "blocking regime" that freezes the property or interests in property of designated transnational criminal organizations ("TCO"s).  The regulations block and prohibit the transfer, payment, withdrawal or dealing in of all property and interests in property that enter the United States or come within the possession or control of U.S. persons.  As an initial matter, the following TCOs have been designated: 

  • The Yakuza
  • The Camorra
  • The Brothers' Circle and
  • Los Zetas (also designated as Foreign Narcotics Kingpins under 31 C.F.R. Part XXX)1

The regulations also block the property of any person determined by the Secretary of the Treasury, after consultation with the Secretary of State:

  • To be a foreign person that constitutes a significant TCO
  • To have materially assisted or supported any designated TCO
  • To be owned or controlled by, or purported to act for or on behalf of, directly or indirectly, any designated TCO

As the fact sheet accompanying the July EO observes, "[t]errorists and insurgents increasingly are turning to crime and criminal networks for funding and logistics."  In light of this connection, the EO and OFAC's new regulations can be viewed as an important complement to blocking regimes already in place targeting narcotics kingpins and terrorist organizations.

Notably, these regulations lack certain features of other blocking programs, such as particular interpretations and licensing policies, as well as information on penalties and reports and records.  While it is not yet clear how OFAC will supplement the final rule in the future, this new regime in its current state contains certain provisions that are worthy of note.

First, the final rule includes a section (§ 509.406) explicitly stating that a blocked person has an interest in all property and interests in property of an entity in which it owns, directly or indirectly, a 50 percent or greater interest.  The property and interests in property of that subsidiary entity are blocked regardless of whether it is specifically designated by OFAC or included on the SDN list.  This section continues OFAC's recent trend of including provisions in sanctions programs to implement its 50 percent rule, as described in official guidance.  Although not stated in the regulation, OFAC guidance also advises U.S. persons to act with caution when dealing with entities owned 50 percent or less by SDNs where significant control over the entity may be held by the SDN.  Given the opaque nature of the currently designated TCOs and their frequent involvement in seemingly legitimate business enterprises, this provision may warrant considerable due diligence where potential TCO involvement is suspected.

Second, the rule authorizes OFAC to block property and interests of property of a person during the pendency of an investigation.  The names of persons blocked during the pendency of an investigation will be published on the SDN list with the identifier "[BPI-TCO]."  This note highlights OFAC's policy of preemptively blocking the property of certain persons.

Third, while the final rule does not mention charitable contributions, the Executive Order prohibits charitable contributions by, to, or for the benefit of blocked parties.

Fourth, while the regulations do not include a general facilitation prohibition, included in some sanctions regimes, they do prohibit any individual holding blocked property from holding, investing or reinvesting that property "in a manner that provides immediate financial or economic benefit or access" to any SDN and from "cooperat[ing] or facilitat[ing] the pledging or other attempted use as collateral of blocked funds or other assets." Part 590.203(h).

OFAC has published these regulations in abbreviated form, in order to provide immediate guidance to the public on this sanctions program.  However, the agency intends to supplement this final rule with a more comprehensive set of regulations.  These may include further interpretive and definitional guidance, as well as general licenses and statements of licensing policy. 

Footnotes

1. A fact sheet released with the EO provides additional background on these four organizations.

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