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
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
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
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
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.
1. A fact sheet released with the EO provides
additional background on these four organizations.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In order to provide an overview for busy in-house counsel and compliance professionals, we summarize below some of the most important international anti-corruption developments in the past month with links to primary resources.
On December 18, US President Barack Obama signed into law the Ukraine Freedom Support Act (UFSA), which either imposes, or gives the President the authority to impose, a range of additional sanctions targeting the energy and defense sectors of the Russian Federation.
On December 30, 2014, the U.S. Department of Commerce, Bureau of Industry and Security issued its first-ever published guidance on the Short Supply Controls, the regulations that limit the export of crude oil out of the United States.
On December 17, 2014, President Obama announced a "new course" in the United States' relationship with Cuba, including the re-establishment of diplomatic ties and the beginning of a roll-back in sanctions.