A Lawyer’s Guide to the U.S. Financial Sanctions Related to Lebanon

         I.     Overview

1.    Historical background

George Walker Bush, the former President of the USA, issued on 1/8/2007, Executive Order 13441 in which he determined that the actions of certain persons contribute to political and economic instability in Lebanon and the region and constitute, therefore, an unusual and extraordinary threat to the national security and foreign policy of the United States.

According to Executive Order 13441, the actions are the following:

  1. To undermine Lebanon’s legitimate and democratically elected government or democratic institutions.
  2. To contribute to the deliberate breakdown of the rule of law in Lebanon, including through politically motivated violence and intimidation.
  3. To reassert Syrian control or contribute to Syrian interference in Lebanon.
  4. To infringe upon or undermine Lebanese sovereignty.

What is an Executive Order?

An executive order is a directive from the President of the United States that manages operations of the federal government. It takes the form of a presidential document written, signed, consecutively numbered and published in the Federal Register, the daily journal of the federal government.

Executive orders, like regulations issued by federal agencies, have the force of law, so they are codified under the formal collection of all of the rules and regulations issued by the executive branch and other federal agencies.

However, executive orders are not legislation, so they require no approval from Congress. Nevertheless, Congress may pass a legislation that might make it difficult to carry out the executive order, such as removing funding necessary to execute such executive order.

2.    Involved authorities

In order to implement Executive Order 13441, OFAC issued, on 30/7/2010, the Lebanon Sanctions Regulations (hereinafter referred to as the “Law”). 

What is OFAC?

OFAC is the Office of Foreign Assets Control of the U.S. Department of the Treasury.

It administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.

OFAC acts under Presidential national emergency powers to impose controls on transactions and freeze assets under U.S. jurisdiction.

3.    Exclusions

The scope of this article does not encompass any financial (or non-financial) sanctions imposed by any other U.S. or non-U.S. authorities including, but not limited to, the E.U. and the U.N.

The scope of this article does not encompass specifically the Hizballah International Financing Prevention Act, which was made Public Law on 12/12/2015. The aforementioned act and its implications on Lebanon will be the subject of a separate article.

What is the Hizballah International Financing Prevention Act?

This bill was introduced to the U.S. Congress on 13/05/2015 and became Public Law on 18/12/2015. It states that it shall be U.S. policy to:

  1. Prevent Hizballah’s global logistics and financial network from operating in order to curtail funding of its domestic and international activities.
  2. Utilize diplomatic, legislative, and executive avenues to combat Hizballah’s criminal activities in order to block that organisation’s ability to fund its global terrorist activities.

This bill was amended by the Hizballah International Financing Prevention Act of 2015 which imposed specified sanctions on:

  1. Foreign persons that knowingly assist in or provide support for fund raising or recruitment activities for Hizballah.
  2. Agencies of foreign governments that provide Hizballah with financial support, arms, or other assistance.
  3. Hizballah, including by reason of Hizballah’s significant transnational activities.

       II.     Scope of application

1.    Prohibited transactions

A.   Transactions involving blocked properties

The Law allows the Secretary of the Treasury to designate persons (individual or entity, defined as any partnership, association, trust, joint venture, corporation, group, subgroup, or other organisation) according to specific criteria (listed below) and, accordingly, to block all property and interests in property of such persons that are in the United States.

What is considered Property/Interests in Property?

According to the Law, the terms property and interests in property include, but are not limited to, “money, checks, drafts, bullion, bank deposits, savings accounts, debts, indebtedness, obligations, notes, guarantees, debentures, stocks, bonds, coupons, any other financial instruments, bankers acceptances, mortgages, pledges, liens or other rights in the nature of security, warehouse receipts, bills of lading, trust receipts, bills of sale, any other evidences of title, ownership or indebtedness, letters of credit and any documents relating to any rights or obligations thereunder, powers of attorney, goods, wares, merchandise, chattels, stocks on hand, ships, goods on ships, real estate mortgages, deeds of trust, vendors’ sales agreements, land contracts, leaseholds, ground rents, real estate and any other interest therein, options, negotiable instruments, trade acceptances, royalties, book accounts, accounts payable, judgments, patents, trademarks or copyrights, insurance policies, safe deposit boxes and their contents, annuities, pooling agreements, services of any nature whatsoever, contracts of any nature whatsoever, and any other property, real, personal, or mixed, tangible or intangible, or interest or interests therein, present, future, or contingent”.

Blocking means that such property/interests in property may not be transferred, paid, exported, withdrawn or dealt in. It also covers making of, or receiving, any contribution or provision of funds, goods, or services by, to, from, or for the benefit of any person whose property and interests in property are blocked.

The designation criteria are the following:

  • Any person who have taken actions, including acts of violence, that have the purpose or effect of undermining Lebanon’s democratic processes or institutions, contributing to the breakdown of the rule of law in Lebanon, supporting the reassertion of Syrian control or otherwise contributing to Syrian interference in Lebanon, or infringing upon or undermining Lebanese sovereignty;
  • Any person who have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the activities described above, including acts of violence, or any person whose property and interests in property are blocked;
  • Any person who is a spouse or dependent child of any person whose property/interests in property are blocked; or
  • Any person owned or controlled by, or acting or purporting to act for or on behalf of, directly or indirectly, any person whose property/interests in property are blocked.

The names of designated persons are published in the Federal Register and incorporated into OFAC’s Specially Designated Nationals and Blocked Persons List, referred to as “SDN List”.

What is OFAC’s SDN List?

OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. Such individuals and companies are called “Specially Designated Nationals” or “SDNs.” Their assets are blocked and U.S. persons are generally prohibited from dealing with them.

Before making a listing, OFAC investigators carry out an investigation based on information from many sources, including relevant United States government agencies, foreign governments, U.N. experts and press.  The findings and conclusions of that investigation are then documented in a formal memorandum that sets out the evidence supporting a determination that the person meets one or more of the criteria.  Proposed listing actions are generally subjected to review by other U.S. agencies before OFAC’s final determination is made.

Listing on the SDN List is not irreversible. Each year, OFAC removes hundreds of individuals and entities from the SDN List.  Each removal is based on a review by OFAC.

B.   Exempted transactions

The Law creates three types of actions that are exempted from the prohibitions mentioned above:

  • Personal communications.

The prohibitions do not apply to any postal, telegraphic, telephonic, or other personal communication that does not involve the transfer of anything of value.

  • Information or informational materials.

The prohibitions do not apply to the importation/exportation from/to any country of any information or informational materials, regardless of format or medium of transmission. Information or informational materials includes, but is not limited to, publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and news wire feeds, but does not include payment of advances for information or informational materials not yet created and completed, provision of services to market, produce or co-produce, create, or assist in the creation of information or informational materials and, materials imported from persons whose property and interests in property are blocked.

  • Travel

The prohibitions do not apply to transactions incident to travel to or from any country, including importation of accompanied baggage for personal use, maintenance within any country including payment of living expenses and acquisition of goods or services for personal use, and arrangement or facilitation of such travel including nonscheduled air, sea, or land voyages.

2.    Sanctions of violations

A.   Transfers violating the Law

  • Any transfer that is in violation of any provision of the Law or of any related regulation that involves any blocked property or interest in property is considered null and void and may not be the basis for the assertion or recognition of any interest in or right, remedy, power, or privilege with respect to such property or property interests.
  • Unless otherwise provided, an authorization issued by OFAC before, during, or after a transfer shall validate such transfer or make it enforceable.
  • Unless licensed pursuant to the Law, any attachment, judgment, decree, execution, or other judicial process is null and void with respect to any property in which exists an interest of a person whose property and interests in property are blocked.
  • Transfers of property that otherwise would be null and void or unenforceable by virtue of the provisions of the Law are not deemed to be null and void or unenforceable as to any person with whom such property is or was held or maintained (and as to such person only) in cases in which such person is able to establish, to the satisfaction of OFAC, each of the following:
  1. Such transfer did not represent a willful violation of the provisions of the Law by the person with whom such property is or was held or maintained (and as to such person only);
  2. The person with whom such property is or was held or maintained did not have reasonable cause to know or suspect, in view of all the facts and circumstances known or available to such person, that such transfer required an authorization issued pursuant to the Law and was not so licensed or authorized, or, if an authorization did purport to cover the transfer, that such authorization had been obtained by misrepresentation of a third party or withholding of material facts or was otherwise fraudulently obtained; and
  3. The person with whom such property is or was held or maintained filed with OFAC a report setting forth in full the circumstances relating to such transfer promptly upon discovery that 1) such transfer was in violation of the provisions of the Law or any regulation, ruling, instruction, license, or other directive or authorization issued pursuant to the Law and 2) such transfer was not licensed or authorized by OFAC; or 3) if a license did purport to cover the transfer, such license had been obtained by misrepresentation of a third party or withholding of material facts or was otherwise fraudulently obtained.

B.   Funds held in accounts

Any U.S. person holding funds, such as currency, bank deposits, or liquidated financial obligations is required by the Law to hold or place such funds in a blocked interest-bearing account located in the United States (but may not be invested in instruments the maturity of which exceeds 180 days), provided the funds are earning interest at rates that are “commercially reasonable”, which is translated as the rate currently offered to other depositors on deposits or instruments of comparable size and maturity.

Funds referred to above may not be held, invested, or reinvested in a manner that provides immediate financial or economic benefit or access to any person whose property and interests in property are blocked pursuant to the Law, nor may their holder cooperate in or facilitate the pledging or other attempted use as collateral of blocked funds or other assets.

C.    Imposition procedures

Before imposing any penalty, OFAC issues a written “Pre-Penalty Notice” informing the alleged violator of OFAC’s intent to impose a monetary penalty if it has reason to believe that there has been a violation of any provision of the Law or a violation of the provisions of any license, ruling, regulation, order, direction, or instruction issued by or pursuant to the direction or authorization of the Secretary of the Treasury.

The alleged violator has the right to respond to a Pre-Penalty Notice by making a written presentation to OFAC’s Civil Penalties Division within thirty days, extendable at the discretion of OFAC.

If no settlement is agreed between the alleged violator and OFAC, and consequently, if OFAC considers that a civil monetary penalty is appropriate, it may issue a “Penalty Notice” to the alleged violator containing a determination of the violation and the imposition of the monetary penalty. In this case, the alleged violator has the right to seek judicial review of that action in a Federal district court.

If the alleged violator does not seek judicial review of OFAC’s decision and does not pay the imposed penalty, the matter may be referred by OFAC for administrative collection measures by the U.S. Department of the Treasury or referred to the U.S. Department of Justice for appropriate action to recover the penalty in a civil suit in a Federal district court.

D.   Penalties

Civil and criminal penalties imposed pursuant to the Law are mainly based on section 206 of the U.S. International Emergency Economic Powers Act, which is also applicable to violations of the provisions of any license, ruling, regulation, order, directive, or instruction issued by the direction or authorization of the Secretary of the Treasury pursuant to the Law.

  • Civil penalties

A civil penalty may be imposed on any person who commits an unlawful act in an amount not to exceed the greater of /289238/USD or an amount that is twice the amount of the transaction that is the basis of the violation with respect to which the penalty is imposed.

  • Criminal penalties

A person who wilfully commits, wilfully attempts to commit, or wilfully conspires to commit, or aids or abets in the commission of, an unlawful act shall, upon conviction, be fined not more than /1000000/USD or, if a natural person, may be imprisoned for not more than 20 years, or both.

Another U.S. Code section (18) is also mentioned by the Law as applicable in cases involving false statements or entries, specifically with regards to persons who, knowingly and willfully, falsify, conceal, or cover up by any trick, scheme, or device a material fact, or make any materially false, fictitious, or fraudulent statement or representation or makes or uses any false writing or document knowing that it contains any materially false, fictitious, or fraudulent statement or entry. Such persons may be fined, imprisoned for not more than 5 years or, if the offense involves international or domestic terrorism, imprisoned for not more than 8 years, or both.

     III.     Limits of application

1.    Licenses

A license is an authorization from OFAC to engage in a transaction that otherwise would be prohibited. There are two types of licenses: general licenses and specific licenses. Persons engaging in transactions pursuant to general or specific licenses must make sure that all conditions of the licenses are strictly observed.

A.   General licenses

A general license authorizes a particular type of transaction for a class of persons without the need to apply for a license.

General licenses are issued by OFAC authorizing, under appropriate terms and conditions, certain types of transactions which are subject to the prohibitions contained in the Law.

Persons availing themselves of certain general licenses may be required by OFAC to file reports and statements in accordance with the instructions specified in those licenses. Failure to file such reports or statements will nullify the authority of the general license.

B.   Specific licenses

A specific license is a written document issued by OFAC to a particular person or entity, authorizing a particular transaction in response to a written license application.

Transactions subject to the prohibitions contained in the Law, which are not authorized by general license may be effected only under specific licenses. Any person having an interest in a transaction or proposed transaction may file an application for a license authorizing such transaction. The applicant must supply all information specified by relevant instructions and must fully disclose the names of all parties who are concerned with or interested in the proposed transaction.

An application for a specific license may be rejected and, if granted, it may be amended, modified or revoked at any time. However, the denial of a license does not preclude the reopening of an application or the filing of a further application. The applicant or any other party in interest may at any time request explanation of the reasons for a denial by correspondence or personal interview.

OFAC does not grant applications for specific licenses authorizing transactions to which the provisions of an outstanding general license are applicable.

2.    Unblocking funds and reconsideration requests

When a transaction results in the blocking of funds at a financial institution pursuant to the applicable regulations of the Law and a party to the transaction believes the funds have been blocked due to mistaken identity, that party may seek to have such funds unblocked pursuant to specific administrative procedures.

On another hand, any person may seek administrative reconsideration of his, her or its designation or that of a vessel as blocked, or assert that the circumstances resulting in the designation no longer apply, and therefore seek to have the designation canceled pursuant to specific administrative procedures. If the designation is canceled, it results in a delisting from the SDN List.

3.    Authorizations

A.   Legal services

The Law authorizes the provision of the following legal services to or on behalf of persons whose property and interests in property are blocked, provided that all receipts of payment of professional fees and reimbursement of incurred expenses are specifically licensed:

  • Provision of legal advice and counseling on the requirements of and compliance with the laws of the United States or any jurisdiction within the United States, provided that such advice and counseling are not provided to facilitate transactions in violation of the Law;
  • Representation of persons named as defendants in or otherwise made parties to domestic U.S. legal, arbitration, or administrative proceedings;
  • Initiation and conduct of domestic U.S. legal, arbitration, or administrative proceedings in defense of property interests subject to U.S. jurisdiction;
  • Representation of persons before any Federal or State agency with respect to the imposition, administration, or enforcement of U.S. sanctions against such persons; and
  • Provision of legal services in any other context in which prevailing U.S. law requires access to legal counsel at public expense.

The provision of any other legal services to persons whose property and interests in property are blocked, not otherwise authorized in the Law, requires the issuance of a specific license by OFAC.

In addition, entry into a settlement agreement or the enforcement of any judgment, arbitral award, decree, or other order through execution, or other judicial process purporting to transfer or alter or affect property or interests in a blocked property is prohibited unless licensed pursuant to the Law.

The payment of legal fees from blocked funds may be licensed by OFAC at a rate not exceeding /125/USD per hour, up to a cap set for each stage of the administrative proceedings or litigation. With respect to applications submitted by a designated blocked party, the policy incorporates fee caps per proceeding and limits the amount of licensable fees to /14000/USD. In extraordinary cases, such as cases involving lengthy or complex proceedings (which may include cases lasting more than a year or with multiple parties whose designation or blocking resulted from a substantially similar administrative record or set of facts), the maximum fees allowed could be doubled. These overall monetary caps are calculated based on two attorneys per case, but a blocked party may choose to apportion the maximum allotments between a greater or smaller number of legal representatives.

In addition to legal fees, certain legal costs of a designated blocked party may be licensed for payment from blocked funds, up to a cap of /15000/USD. This cap applies to costs incurred by all attorneys during the course of administrative proceedings and litigation.

B.   Medical services

The Law authorizes the provision of nonscheduled emergency medical services, in the United States, to persons whose property and interests in property are blocked, provided that all receipt of payment for such medical services must be specifically licensed.

 

Source: Office of Foreign Assets Control of the US Department of the Treasury.

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