Powerful U.S. Senators probe OFAC’s anti-terror effectiveness

Powerful U.S. Senators probe OFAC’s anti-terror effectiveness
02/01/2004

The Chairman and Ranking Minority Member of the U.S. Senate Finance Committee have sent a critical, probing letter to the director of OFAC that appears to be the first step in the first ever deep congressional investigation of the crucial agency’s effecti

The Chairman and Ranking Minority Member of the U.S. Senate Finance Committee, the body that oversees the operations of the Treasury Department, have sent a critical, probing letter to the Treasury’s Director of the Office of Foreign Assets Control that appears to be the first step in the first ever deep congressional investigation of the crucial agency’s effectiveness in detecting and blocking terrorist funds and the people who raise and harbor them.

A nine-page letter of December 22 by Senators Charles E. Grassley, the chairman, and Max Baucus, the ranking member, to Richard Newcomb, the longtime director of OFAC, requires the agency to respond by February 20. A long list of questions from the lawmakers leave no part of OFAC’s operations untouched.

The letter, which was obtained by Money Laundering Alert, cites a number of problems in OFAC’s performance, including poor record-keeping and the agency’s ability to impose and enforce sanctions in a timely or complete fashion.

Citing an article in the October 2003 issue of Money Laundering Alert, Grassley and Baucus pointed out OFAC’s failure to block the assets of individuals identified as terrorists and terrorist financiers by the United Nations and other international agencies. Another news organization had reported that the UN and European Union ordered their members to block the assets of suspected al Qaeda members and associates of Osama bin Laden in early 2001, but OFAC did not do so until one month after 9/11.

Not a bank regulator

The senators, who will likely hold hearings after OFAC responds, criticize the agency’s reliance on financial institutions’ “self-confessions” and banking regulatory examinations to detect violations of its regulations. Because OFAC is not considered a “bank regulator,” it does not have the authority to monitor transactions at financial institutions to ensure compliance. A 2002 report by Treasury’s Inspector General recommended that OFAC request this authority, but the agency has not done so.

OFAC rules cover terrorists, drug lords

OFAC became more visible after the terrorist attacks of 9/11. The regulations OFAC administers require all U.S. financial institutions and persons to block the assets and refuse the transactions of “designated” terrorists, narcotics traffickers and the nationals of countries with whom the U.S. has no diplomatic relations. The names of individuals “designated” come almost exclusively from law enforcement and intelligence agencies.

Penalties now made public

In April 2003, as a form of violations deterrent, OFAC began to publicize its penalties, which can be large. Included in the first subjects of penalties OFAC announced then were the New York Yankees, Wal-Mart, Playboy Enterprises and several well-known financial institutions and law firms. In nearly all of those cases, the penalized activity dealt with doing business in Cuba or another country designated by OFAC for diplomatic reasons.

Could be the first ever

If Grassley pursues hearings that explore the questions he and Baucus posed, it will be the first thorough congressional oversight investigation OFAC has ever encountered.