U.S. Treasury Department Imposes New Terrorist Financing Sanctions

On September 10, President Donald Trump issued an Executive Order (Executive Order) directed at modernizing sanctions to combat terrorism.  The Executive Order amends Section 1 of Executive Order 13224, which President George W. Bush issued on September 24, 2001 to establish sanctions with regard to persons who commit, threaten to commit, or support terrorism.

The Section 1 revisions block property and interests in property and prohibit transactions with respect to the following categories of individuals and entities:

• Subsection (a)(i): Specific persons listed in the Annex to the Executive Order (see below);
• Subsection (a)(ii): Foreign persons determined by the Secretary of State, in consultation with the Secretary of the Treasury, the Attorney General, and the Secretary of Homeland Security:

“(A)  to have committed or have attempted to commit, to pose a significant risk of committing, or to have participated in training to commit acts of terrorism that threaten the security of United States nationals or the national security, foreign policy, or economy of the United States; or

“(B)  to be a leader of an entity:

“(1)  listed in the Annex to this order; or

“(2)  whose property and interests in property are blocked pursuant to a determination by the Secretary of State pursuant to this order”;

• Subsection (a)(iii): Persons determined by the Secretary of the Treasury, in consultation with the Secretary of State, the Secretary of Homeland Security, and the Attorney General:

“(A)  to be owned, controlled, or directed by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to this order;

“(B)  to own or control, directly or indirectly, any person whose property and interests in property are blocked pursuant to this order;

“(C)  to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, an act of terrorism as defined in section 3(d) of this order, or any person whose property and interests in property are blocked pursuant to this order;

“(D)  to have participated in training related to terrorism provided by any person whose property and interests in property are blocked pursuant to this order;

“(E)  to be a leader or official of an entity whose property and interests in property are blocked pursuant to:

“(1)  a determination by the Secretary of the Treasury pursuant to this order; or

“(2)  subsection (a)(iv) of this section; or

“(F)  to have attempted or conspired to engage in any of the activities described in subsections (a)(iii)(A) through (E) of this section.”

• Subsection (a)(iv): “Persons whose property and interests in property were blocked pursuant to Executive Order 12947, as amended, on or after January 23, 1995, and remained blocked immediately prior to the effective date of this order.”

In addition, subsection (b) authorizes the Secretary of the Treasury

“to prohibit the opening, and prohibit or impose strict conditions on the maintaining, in the United States, of a correspondent account or payable-through account of any foreign financial institution that the Secretary of the Treasury, in consultation with the Secretary of State, has determined, on or after the effective date of this order, has knowingly conducted or facilitated any significant transaction on behalf of any person whose property and interests in property are blocked pursuant to this order.”

Pursuant to the updated Executive Order 13224, on September 10 the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated what the Treasury Department described as “a series of terrorist leaders, facilitators, and entities affiliated with terror groups.”  Those designated persons include “entities affiliated with HAMAS, the Islamic State of Iraq and Syria (ISIS), al-Qa’ida, and the Islamic Revolutionary Guard Corps Qods-Force (IRGC-QF).”  The Treasury Department release announcing the OFAC action listed those persons by name, and included a link showing the addition of those persons to the Specially Designated nationals (SDN) list.

The Treasury Department release also described how the amended Executive Order 13224 gives new tools to the U.S. Government “to better identify and designate perpetrators of terrorism worldwide”:

• “Contains new designation criteria that allows the U.S. Government to more efficiently target leaders or officials of terrorists groups as well as individuals who participate in terrorist training;
• “Provides for secondary sanctions against foreign financial institutions that have knowingly conducted or facilitated significant financial transactions on behalf of any person sanctioned pursuant to E.O. 13224;
• “Authorizes Treasury to prohibit a foreign financial institution that has knowingly conducted or facilitated a significant transaction with any Specially Designated Global Terrorist (SDGT) from opening or maintaining a correspondent or payable-through account in the United States;
• “Consolidates U.S. counterterrorism authorities under a single sanctions program by eliminating E.O. 12947 and combining that authority’s goal of defending the Middle East Peace Process with E.O. 13224’s global remit and expanded authorities.”

The Treasury Department further emphasized that “all property and interests in property of these targets that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC,” and that “all SDGTs are now subject to secondary sanctions.”

Note: The Executive Order and OFAC action represent a significant expansion of terrorism sanctions; indeed, they reflect what the Treasury Department termed “some of the furthest reaching designations of terrorists and their supporters in the past 15 years.”  Accordingly, sanctions teams in companies and financial institutions should closely read the Executive Order and the Treasury release, and act immediately to begin blocking the specific individuals and entities whom the Treasury Department listed.  Global financial institutions in particular should take note of the language addressing the application of secondary sanctions to SDGTs.