Getting People Off the Sanctions List: A Process that Doesn’t Support the Policy

Individually-targeted “smart sanctions”—not to be confused with country-wide sanctions, such as trade or arms embargoes—are garnering increased attention as a potentially powerful tool in the anticorruption toolkit, particularly in the United States. Such sanctions typically prohibit persons or entities on the list of those under sanction (known in the U.S. as the Specially Designated and Blocked Person (SDN) list) from accessing the sanctioning country’s financial system. They can also impose travel bans and/or prohibit third parties subject to the sanctioning country’s jurisdiction from doing business with the targeted individuals. These individually-targeted sanctions, particularly the asset freezes, are a powerful instrument, and may be an especially effective deterrent in the context of venal crimes like corruption, given that those motivated principally by greed might also be more sensitive to severe financial penalties. (According to a 2016 study by the US State Department, a sanctioned or associated company loses, on average, over half of its asset value and one-third of its employees and operating revenues.) While the United States had previously used individually-targeted asset freezes to punish individuals responsible for acts of public corruption in places like Venezuela (pursuant to Executive Order (EO) 13692), Syria (pursuant to EO 13460), and Zimbabwe (pursuant to EO 13469), the 2016 Global Magnitsky Act (GMA) has made individually-targeted asset freezes a more prominent piece of the US anticorruption arsenal. Pursuant to this Act, last December President Trump authorized sanctions against 15 individuals and 37 entities for human rights abuses and acts of grand corruption; in June, the Office of Foreign Asset Control (OFAC) added two more entities and five more individuals to the list.

In the months since OFAC released the first tranche of GMA names, there has been extensive discussion about how civil society organizations (CSOs) can add more names to the Global Magnitsky list. Former Deputy Assistant Secretary of State Rob Berschinski, for example, is spearheading efforts through Human Rights First to coordinate CSOs endeavouring to submit names for consideration, while the Helsinki Commission organized a special “how-to” event for CSOs to help them be more effective in lobbying to add names to the list.

Yet for all this attention on how to get names on to the GMA list, little ink has been spilled addressing the question of how sanctioned individuals might get off that list. It’s not surprising that CSOs would not devote their scarce resources to getting individuals who have engaged in acts of grand corruption off of a sanctions list. Yet the de-listing issue is important—even in contexts where it’s unlikely that a name would be added to the list erroneously. The main reason has to do with incentives. As the US Treasury Department acknowledges, the “ultimate goal with sanctions is not to punish, but to bring about a positive change in behavior of illicit actors.” And it is the prospect of getting off the sanctions list that can encourage bad actors to change their behavior and/or to cooperate with the US government investigations into wrongdoing.

Formally, the de-listing process is relatively straightforward. Sanctioned individuals have two routes to petition for de-listing. First, they can follow OFAC’s administrative process: The sanctioned individual first writes to OFAC explaining why they should be delisted; OFAC typically sends the petitioning individual a questionnaire and, upon receiving a response, compares the petitioner’s responses with the evidence collected across multiple agencies before deciding whether to take the petitioner off the sanctions list. Alternatively, petitioners can file a lawsuit challenging their designation. (In contrast with other government agencies, OFAC does not require petitioners to exhaust the administrative process before filing a suit.) In practice, OFAC’s SDN list is subject to frequent revision. For example, from 2014-2017 more than 1,500 names were removed from the list. Yet in the specific context of those sanctioned under the GMA or similar provisions targeting grand corruption, the de-listing process remains inadequate if the goal is to change behavior. There are two reasons for this:

  • First, sanctioned individuals do not always know why they have been sanctioned. Sometimes the evidence supporting an individual designation may be classified and therefore unreviewable by the person seeking to challenge it. In Al Haramain Islamic Found. Inc. v. U.S. Dep’t of Treasury, for example, a non-profit in Oregon received no information regarding the basis for its designation pursuant to EO 13224 for over four years because the information supporting the designation was classified. In other instances, the individual might just have wait a significant period of time before receiving that information. In KindHearts for Humanitarian Dev., Inc. v. Geithner, a humanitarian organization based in Ohio did not receive information on its designation pursuant to EO 13224 for 15 months, despite multiple requests for information. While an individual sanctioned for acts of grand corruption pursuant to the GMA might reasonably assume that the government has evidence of some sort of corruption or human rights abuse, the target might not have any specifics of the allegations, making it difficult to refute those allegations or to effectively demonstrate changed behavior. OFAC still has no rule regarding what information should be given to designees or the timeframe in which it will respond to external queries. While the government may have good reasons to protect classified information underpinning a designation, the government should still tell sanctioned individuals what explicit steps would facilitate their delisting. In cases where individuals have been sanctioned for acts of grand corruption, the US government could make clear that delisting requires resignation from office, payment of restitution to victims, and/or sharing information with the US government information about larger criminal networks.
  • Second, even when the US government does formally remove individual from the sanctions list, this does not automatically mean that the individual’s financial freedom is fully restored. Just as the government depends on US financial institutions to enforce its sanctions policy (for example, by blocking transactions with persons on the SDN list and by freezing the accounts of those designated), the government also depends on financial institutions to effectuate a de-listing, whether by specifically opening accounts for de-listed individuals or permitting transactions to/from them. However, banks typically rely on third parties to verify whether prospective clients are on the SDN list or not, and in many cases individuals whose names have been formally de-listed still appear on these cross checks, leading banks to reject their applications. But it’s not just a technical glitch that’s driving banks to avoid individuals who have ever appeared on a sanctions list, even if they’ve been de-listed: Many banks are hesitant to resume business with de-listed persons given the possibility that they might be re-designated in the future—a not uncommon occurrence. Foreign banks may be even more conservative than US banks. As one OFAC advisor explained, Colombian banks generally refuse to deal with de-listed persons, regardless of whether that individual has succeeded in opening a US bank account. For this reason, OFAC sanctions are casually referred to as “muerte civil:” civil death.

I don’t expect many people will lose sleep after learning that individuals responsible for human rights abuse or grand corruption have a hard time getting off of sanctions lists. These are not sympathetic figures. But, as the U.S. Treasury itself has acknowledged, the point of sanctions is not only to deter wrongdoing, but also to encourage those who are engaged in ongoing crimes to change their behavior. That won’t happen unless the government and the civil society community take seriously the problems with the current system for lifting targeted sanctions on individuals.

5 thoughts on “Getting People Off the Sanctions List: A Process that Doesn’t Support the Policy

  1. Hilary, thanks for this great post. With regard to your first point, do we have any sense to what extent information about why an individual or entity has been sanctioned might be disseminated informally or non-publicly? Given the sensitive nature of these designations, I can understand if the answer to that is “no,” and the two cases you cite suggest that such behind the scenes conversations are not happening. But I can also imagine a situation in which a sanctioned party uses “back channels” to learn how to get off the SDN list. Whether or not this is proper is a separate question, but is there any evidence that you’ve come across that this is happening? Second, do you have an opinion on what kinds of policy responses might effectively address the problems you outline in point two? I agree that the sanctions regime as currently structured doesn’t seem to effectively reward remedial behavior, and I’m curious to hear your thoughts on what we might do about that. Thanks!

  2. Fascinating post! Two questions: 1) How much evidence out there suggests that sanctioned people and entities change their behavior? In other words – of that 1,500, do we have any idea how many are errors and how many are (for the time being) reformed? 2) Just as a logistical question, when an individual is sanctioned, are his/her associated entities such as charities or foundations also sanctioned? How far-reaching can that be? I’m imagining a scenario in which an organization may be unaware of a board member’s or funder’s activities. If so, what are the options for getting off the list? Can they just disassociate themselves by stopping taking money from the person, or by firing them if the person is in a leadership position?

    • hey Natalie,

      As to your first question, it’s hard to tell. There are lot of reasons why individuals are taken off a sanctions list (some purely political) and so it’d be hard to gauge what percentage have “changed” so to speak. That said, my impression at the moment is that there is a general resistance to removing individuals – period. Sometimes persons on the US sanctions list are actually re-sanctioned under different authorities regardless of whether they’ve engaged in more bad acts. As to your second question, it’s complicated. OFAC has a general rule about direct and indirect control. For example, if you’re on the SDN list and you own 50% of company A, that company is also blocked. That company would also be blocked if you had “indirect” control of it. That said, there are some cases where a company owned by a sanctioned individual might be given a specific license to continuing operating pursuant to a pre-determined restructuring of some sort.

  3. Thank you for making me think about this! I absolutely agree with your point that not focusing on de-listing can partly defy the purpose of sanctioning!
    I think that it is important to also note that the courts in both cases you are quoting (Al Haramain Islamic Found. Inc. v. U.S. Dep’t of Treasury and in KindHearts for Humanitarian Dev., Inc. v. Geithner) clearly shaped a rule that OFAC should, as a general rule, provide an unclassified summary of the classified evidence to the entity under investigation. I think it diminishes the risk of abuse of power of OFAC at least to some extent. Of course, courts also noted that in some cases such a summary may not be available if the subject matter itself is confidential, but that should at least reduce the cases where individuals receive no explanation from OFAC whatsoever. While this is not really a policy response, but I think it partly answers the question Jason Kohn poses here above.
    Also, I think that the problem you discuss regarding how the private vendors providing sanction screening services implement de-listing points to an even bigger problem that I’ve been thinking about for a while. From my experience, most of such third parties do not disclose the actual lists of keywords they have and use for sanction screening or how such lists change daily. I think that this way, they are trying to protect their business, since the institutions that had purchased such services, could otherwise easily share the lists of keywords with other institutions that had not paid for that. However, that also means there is almost no accountability of these private vendors when it comes to timely implementing the changes in international sanctions lists – including de-listing. As a result, institutions relying on the third parties in sanction screening may, in fact, not only delay de-listing, but also delay listing itself. Institutions that are subject to AML and counter-terrorist financing requirements really struggle in finding effective ways for sanction screening. It is very complex to implement IT solutions for institutions in-house that would allow uploading names of sanctioned individuals (and related keywords) directly from the source because the format of how international sanctions lists or changes to them are published differs depending on the issuing institution (and some of them are, inexplicably, really hard to find online at all). It seems that the only way for many institutions willing to comply with sanction screening requirements (including timely de-listing) is to rely on third parties – but like I said, there is very little accountability currently in the market. There are several big players providing the service (and by the way, it is a rather expensive service!), but there are challenges with most of them in practice… I am kind of expecting for a scandal to explode where it will turn out that a sanctioned individual was able to to perform financial transactions (or vice versa in the case of de-listing) in some institution just because the external private vendor made an error in the keywords list…

  4. Thanks for this post, Hilary. A difficult situation, indeed, if you or an organization you have been involved with have been given a “muerte civil” sentence–and you aren’t sure what you (or the organization) did and how you (or the organization) can get off the list. One related question came to mind as I read this post. You mentioned that it is possible for a person or organization to be placed on the GMA list, then removed from the GMA list, and then re-added to the GMA list. Is there any sort of increasing difficulty for getting removed from the GMA list a second/third/fourth (and so forth) time? As you noted, the ultimate goal is to “bring about a positive change in behavior of illicit actors”–but each time an individual or organization is re-added to the GMA list, I think it is fair to assume that the chances of realizing a sustainable positive change in behavior is less likely.

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