A few days ago I wrote about the fact that banks around the world have been refusing to process transactions that would be prohibited by a U.S. economic sanctions program, regardless of whether the United States Department of the Treasury Office of Foreign Assets Control (“OFAC”) had issued a specific license authorization to permit the transaction to proceed. I speculated on this new development and the impact it would have on OFAC’s licensing program and any residual intelligence gathering which OFAC was able to carry out through its licensing program.

Reports I have recently heard from clients and potential clients around the world is that foreign banks, in addition to refusing to services transactions authorized by specific license, are now also freezing the accounts and assets of individuals who have been placed on the Specially Designated Nationals (“SDN”) List. Traditionally, U.S. banks have frozen the accounts and assets under U.S. jurisdiction belonging to individuals and entities placed on the SDN List. However, foreign banks are now joining in on these activities and the situation is becoming very problematic for foreign nationals who have been designated as SDNs.

First, there is the obvious conclusion that if this trend continues and banks all over the world refuse to deal with SDNs and/or freeze their accounts and assets, then an OFAC designation essentially becomes a death penalty. How can individuals pay for basic human needs in such an environment? This becomes particularly true in light of the fact that SDN removal cases take years and years to complete. How is a designated party supposed to survive during that time period?

Second, if the party wishes to contest the designation process how will they pay for attorneys fees? It would be irrational to believe that all SDNs have enough wealthy friends and families to loan them money to pay for attorneys to contest their designation. While it is true that OFAC allows for the release of blocked funds to parties seeking to hire counsel to contest their designations, any lawyer practicing in this field can tell you that the limits placed upon how much money can be released for such payments is so paltry that most lawyers avoid such cases all together.

Developments over the past several weeks certainly look dire. It will be interesting to see what, if any, reaction OFAC has to the actions of these foreign banks. Will guidance be provided to them? Will OFAC raise the limit on the amount of money to be released for the hiring of counsel in SDN removal cases? There are a number of options that could potentially alleviate the harm being caused by the international banking community, however, the question is: will OFAC ever address the issue and if so, how long will it take?

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.