By Kini, Satish M.; Heifetz, Stephen R.
American Banker , Vol. 166, No. 18
The U.S. government appears intent on making the "blacklisting" of individuals and business entities a central feature in its fight against money laundering and related financial crimes. Even the Clinton administration's measures to combat foreign corruption involved targeting a certain group of individuals -- in this case, senior foreign political figures, their immediate families, and close associates.
The federal government's blacklisting efforts are generally designed to achieve laudable goals: stopping American financial markets from being used by foreign individuals and firms as a repository of ill-gotten gains. These efforts also make for good politics, particularly because their targets are almost uniformly foreign persons and entities that cannot vote in American elections.
But good politics (and even laudable ends) do not necessarily equate with wise policies and laws. Indeed, the government's blacklisting approach raises significant concerns. Foremost among them, in each of the recent blacklisting efforts neither the targeted entity nor any U.S. institution that does business with that entity is afforded an opportunity to contest or even see the evidence on which the blacklisting rests. In addition, the blacklisting efforts impose substantial costs -- not only on the targeted entities but also on the U.S. institutions that conduct legitimate business with the blacklisted persons and firms.
The recently enacted Foreign Narcotics Kingpin Designation Act provides a vivid example of how the blacklisting process works and the concerns that it raises. The Drug Kingpin Act, as it is commonly known, requires an annual listing by the U.S. Treasury Department's Office of Foreign Assets Control of "significant foreign narcotics traffickers." In the past year, 12 individuals were blacklisted pursuant to the act.
No public evidentiary proceedings are required for a foreign person to be added to this list, and the blacklisting triggers a freeze of all of the putative trafficker's property interests in the United States or within the control of a U.S. resident. Anyone assisting a putative trafficker is subject to the same freeze of property interests, and all transactions with a putative trafficker are prohibited. Violations of the law are punishable by severe civil penalties of up to $1 million and criminal penalties, for willful violations, of up to 30 years imprisonment and $5 million, or $10 million in the case of a corporate entity.
Similarly, the International Counter Money Laundering Act may be revived in the new Congress. The legislation would allow the Treasury Department to blacklist one or more foreign financial institutions that the agency determines to be of "primary money laundering concern." Under the bill, Treasury would have broad discretionary authority to impose an array of reporting and record-keeping requirements on transactions in which U.S. financial institutions conduct business with blacklisted foreign financial firms. In addition, Treasury would have the power to prohibit blacklisted foreign institutions from opening correspondent and payable-through accounts with U.S. banks.
In neither the Drug Kingpin Act nor the proposed International Counter Money Laundering Act is the blacklisted foreign entity or any U.S. entity doing business with it provided an opportunity to review the evidence on which the blacklisting rests or to challenge the federal government's blacklisting conclusion. …