Last week, the United States Department of the Treasury designated two Lebanese exchange houses under Section 311 of the USA PATRIOT Act as financial institutions of primary money laundering concern. The two exchanges houses that were designated, Kassem Rmeiti & Co. for Exchange and Halawl Exchange Co., are accused of laundering narcotics trafficking proceeds on behalf of Ayman Joumaa, a U.S. designated Foreign Narcotics Trafficking Kingpin, who is believed to have turned to these exchange companies after the U.S. applied sanctions against Lebanese Canadian Bank. According to Treasury, the drug trafficking activities of Joumaa and the laundering activities of these two exchange houses provide financial benefits to Hizbollah, another organization designated for U.S. economic sanctions targeting terrorist activities.

The notice of the designation published by the Financial Crimes Enforcement Network (FinCEN), stated that both exchanges companies were used to launder funds derived from narcotics trafficking, and utilized the same type of scheme used by Lebanese Canadian Bank before their designation; namely, facilitating trade based transactions related to importation of automobiles from U.S. dealers and auction houses. Other activities included taking on large cash deposits, collection of bulk cash currency, issuance of cashier’s checks, and facilitation of cross-border wire transfers on behalf of known and suspected money launderers, drug traffickers, and Hizballah affiliates.

Section 311 of the USA PATRIOT ACT requires special measures to be applied to those designated pursuant to its authority. As part of yesterday’s designations, Treasury imposed the First and Fifth Special Measures under Section 311.Those special measures require reporting of transactions related to the exchange houses and prohibiting the establishment and maintenance of correspondent banking relationships on behalf of a foreign banking institution if such correspondent account is used to process a transaction involving either of the exchange houses respectively.

Currently there are still nine financial institutions and/or countries subject to 311 designations. Although, there is no clearly delineated formal reconsideration process, there is some authority contained in the FinCEN regulations which could allow for the reconsideration of these designations. In particular, 31 C.F.R. 1010.711 and 1010.716(b) provide authorization for persons to submit requests for administrative rulings. Although, FinCEN 311 designations are rarer than those designations made by the Office of Foreign Assets Control (“OFAC”), it does seem that Kassem Rmeiti & Co. for Exchange and Halawl Exchange Co. can request reconsideration of the 311 designation rulings. The question is however, will they indeed elect to seek such reconsideration.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.