The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has implemented the President’s prior revision of the definition of “significant transnational criminal organization” (significant TCO) by eliminating a key clause that restricted the definition’s scope to largescale criminal syndicate organizations such as The Brothers’ Circle, Camorra, Yakuza, and Los Zetas. Although this revision has not yet generated much published commentary within the sanctions compliance community, it may eventually prove to be a significant development. Indeed, OFAC appears to have vastly expanded the universe of entities that may fall within the definition’s reach to include legitimate companies and organizations accused of criminal wrongdoing involving multiple countries.
Pursuant to the International Emergency Economic Powers Act, the President declared a national emergency with respect to significant TCOs by Executive Order (E.O.) 13581 on July 24, 2011, and OFAC subsequently implemented that E.O. through the Transnational Criminal Organizations Sanctions Regulations (TCOSR, 31 C.F.R. Part 590). OFAC’s July 23, 2019 amendments to the TCOSR implement the President’s E.O. 13863 of March 15, 2019 (“Taking Additional Steps to Address the National Emergency with respect to Significant Transnational Criminal Organizations”) by redefining “significant transnational criminal organization” to mean:
“a group of persons that includes one or more foreign persons; that engages in or facilitates an ongoing pattern of serious criminal activity involving the jurisdictions of at least two foreign states, or one foreign state and the United States; and that threatens the national security, foreign policy, or economy of the United States.”
Previously, that definition was limited by the phrase “such as those listed in the Annex to this order,” which made clear that the significant TCO designation applied only to notorious international criminal organizations “such as” the four listed in the Annex to E.O. 13581 – i.e., The Brothers’ Circle, Camorra, Yakuza, and Los Zetas.
Although seemingly minor on its face, the now-excluded phrase imposed a real limitation on the U.S. Government’s power to designate entities as significant TCOs, and the implications of this phrase’s removal may be substantial. Without the limiting phrase, legitimate businesses and organizations accused of international criminal wrongdoing may find themselves threatened with designation as a significant TCO on the Specially Designated Nationals and Blocked Persons List (SDN List) – and the risk of sanctions, asset or property seizures, and business shutdown that comes with it – if the U.S. Government believes that the entity’s alleged wrongdoing “threatens the national security, foreign policy, or economy of the United States.”
The ongoing “opioid crisis” has reached a scale that many believe presents a substantial threat to the national economy and security of the United States. Might the U.S. Government use the new definition to designate as significant TCOs certain foreign pharmaceutical companies involved in the allegedly illegal manufacture and dissemination of opioids? At the very least, the new definition greatly increases the leverage of federal prosecutors, who may now – in concert with OFAC – threaten to designate an entity as a significant TCO on the SDN List unless the entity agrees to admit to certain crimes or forfeit certain assets.
In our view, the revised significant TCO definition is too broadly worded, untethered from effective limitation, and subject to potential misuse by federal prosecutors and OFAC acting in coordination. The new definition also reflects a growing reliance by U.S. law enforcement authorities on OFAC’s designation process – which is not subject to judicial oversight, pre-action review, or other hallmarks of due process – to undertake traditional law enforcement action outside of the usual criminal process. The definition permits the Executive Branch to label an individual or business entity as a “criminal” without the benefit of a grand jury indictment or a public forum to rebut the charge. Allowing the Executive Branch that prerogative has long been fought against by a free People and found to be a denial of due process by the U.S. Supreme Court. The prior wise and prudential limitation by reference to groups “such as” Los Zetas and the Italian Mafia, which have faced prior indictments, limited the opportunity for Executive Branch officers to evade the “burden” of indictment and resulting criminal process and to impugn their opponents with the label of “criminal” while providing no public judicial forum to “clear” one’s name. We expressed our concerns about OFAC’s prior expansion and misuse of the significant TCO designation in a November 2017 WorldECR article.
In the Federal Register notice that accompanied the revised significant TCO definition’s release, OFAC expressed its intent to provide “additional interpretative and definitional guidance” on this subject. Until then, entities accused of criminal wrongdoing that crosses international borders should be prepared to face the specter of coordinated action by federal prosecutors and OFAC and the use of the significant TCO designation as an additional tool by which the U.S. Government may seek to achieve its law enforcement aims.