Academic journal article The Review of Litigation

Office of Foreign Assets Control Regulations: Making Attorneys Choose between Compliance and the Attorney-Client Relationship

Academic journal article The Review of Litigation

Office of Foreign Assets Control Regulations: Making Attorneys Choose between Compliance and the Attorney-Client Relationship

Article excerpt

I. INTRODUCTION

There is a sharp conflict between the power that the Office of Foreign Assets Control (OFAC) claims to possess over the attorneyclient relationship and the power it was permitted to exercise by the courts prior to September 11, 2001. OFAC regulations require reporting in a number of circumstances and even attempt to regulate the attorney-client relationship by expressly prohibiting the provision of some legal services. The extent to which OFAC claims this authority varies depending on the specific sanctions regime at issue. The initial challenge for an attorney dealing with an OFAC-regulated situation is to determine whether he will be required to obtain a license to provide his services. Under most sanctions programs, determining if an OFAC license is required is difficult and often leaves the attorney to weigh maintaining his client's confidences against seeking a license in order to avoid OFAC penalties. Before September 11th, this was a much easier decision than it is today because courts appeared to be particularly averse to permitting OFAC to trounce on the attorney-client relationship.1 Because courts possessed a distinctly different conception of OFAC power, attorneys who chose to protect client confidence by not reporting to OFAC may have been able to seek refuge from OFAC penalties by appealing to the courts, thus avoiding penalty for maintaining their ethical duties.

The limited academic literature on point, nearly all of which is almost a decade old, strongly suggests that the most prudent course of action is to maintain client confidence and not to seek an OFAC license.2 Articles from the late 1990s suggest that seeking a license raises issues of attorney-client privilege and may even constitute turning a client over to the law.3 This advice is supported by two court decisions-the 1984 D.C. Circuit decision in American Airways Charters, Inc. v. Regan4 and the 1995 Southern District of Texas decision in Looper v. Morgan5-both of which upheld the duty of attorneys to maintain client confidence and chastised OFAC for seeking to regulate the attorney-client relationship. Based on these two decisions, prior academic commentary on this issue may have constituted prudent advice, as both cases suggested that courts would bail out attorneys who refused to cooperate with OFAC on the basis of protecting the attorney-client relationship. Today, however, OFAC has reasserted its power to control the attorney-client relationship, and courts have been hesitant to seriously review OFAC regulations, particularly those regulations dealing with terrorism. In light of these more recent developments, attorneys are truly stuck between a rock and a hard place when they discover that their clients are on an OFAC list or are dealing with a blocked entity.

Part II of this Note will briefly outline the purpose of OFAC regulations and the licensing requirement in general. Part III will detail the problematic licensing regulations relating to legal services and how the courts in American Airways and Looper have dealt with these regulations. Part IV will discuss how the regulatory landscape has changed, through both the promulgation of terrorism-sanction regulations and judicial reaction, and why this shift suggests that attorneys should seek licenses in ambiguous circumstances.

II. OFAC REGULATIONS AND LICENSING REQUIREMENTS APPLY TO A WIDE RANGE OF GOODS AND SERVICES, INCLUDING LEGAL SERVICES

The Office of Foreign Assets Control is part of the U.S. Department of Treasury. Its primary responsibility is to administer economic sanctions.6 As an administrative agency, OFAC drafts and implements its various regulatory programs pursuant to statutory authorization, most importantly the International Emergency Economic Powers Act (IEEPA).7 OFAC currently administers various trade bans and other economic sanctions against the Balkans, Myanmar, Cuba, Iran, Iraq, Liberia, North Korea, Sudan, Syria, and Zimbabwe. …

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