A federal court ruled earlier this month that the U.S. Department of Treasury’s Office of Assets Control’s (“OFAC”) freezing of assets belonging to a charitable institution was unconstitutional and that Congress must fix the law to require that a warrant be garnered before taking such action. Moreover, the court found OFAC’s failure to provide notice of the basis for freezing its assets violated the Constitution by precluding the charity from being able to respond meaningfully.

This ruling derives from a lawsuit filed by the American Civil Liberties Union, the ACLU of Ohio and several attorneys on behalf of KindHearts for Charitable Humanitarian Development, Inc., an Ohio-based charity. OFAC froze KindHearts’ assets several years ago without a warrant, notice or a hearing. Their reasoning was based on the initiation of an OFAC investigation into whether the charity should be designated as a “specially designated global terrorist” (SDGT).

Although KindHearts has never been fully designated an SDGT, it has been effectively shut down since OFAC initiated its investigation and blocked its assets nearly four years ago. As such, the charity has no access to its own property.

The court has held that going forward OFAC must obtain a warrant based on probable cause before seizing an organization’s assets. In regards to the Kindhearts matter, the court held that the government would have to demonstrate that it had probable cause at the time it froze KindHearts’ assets.

Furthermore, the court ruled that OFAC violated the Fifth Amendment’s guarantee of due process when it did not provide KindHearts notice of the charges against it or an opportunity to respond. These violations are to be remedied by declassification or adequate summarization of the classified evidence against KindHearts; or by allowing KindHearts’ counsel to review such evidence pursuant to protective order.

I initially thought this ruling was groundbreaking, however, on further thought the probable cause standard is so low that I do not believe OFAC will have a difficult time satisfying that burden when applying for a warrant to freeze an entity’s assets. Thus, while I am glad to see that the courts are attempting to curb OFAC’s wide range of discretionary power, I believe OFAC will be able to overcome these new found requirements.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC litigation. If you have any questions please contact him at 202-280-6370 at 202-351-6161 or ferrari@ferrari-legal.com.