Financial sanctions: Powerful tool pinches the purse strings of its targets
The United States is turning to sanctions to stem the tide of organized criminal groups and violence in gang-torn Haiti. So are Canada and the United Nations. Here’s why no one should want to make any sanctions list.
In Colombia, they call it “muerte civil,” civil death. In the United States, some lawyers prefer to call it purgatory, while others describe it as being closer to hell.
Getting blacklisted by the U.S. Treasury Department’s Office of Foreign Assets Control carries criminal and civil penalties, both for those who have been designated for sanctions and for any U.S. citizen or U.S. permanent resident who dares to do business with any person or company that has been listed.
“You’re dealing with millions of dollars worth of fines [and] potential incarcer
ation. It’s a very serious set of infractions,” said Adam M. Smith, a former Treasury official and current partner at Gibson, Dunn & Crutcher LLP in Washington, D.C. “The U.S. Attorney’s offices like in Southern District of Florida and Miami, main Justice in Washington, as well as agencies like the Treasury Department are going after people in very, very aggressive ways to find these violations. So there are serious risks”
Since 1995, Treasury has used the power of financial sanctions to cripple drug cartels in Colombia and Mexico, and most recently to pursue Russian oligarchs and Venezuelans associated with the regime of Nicolás Maduro.
Now they are going after Haitians who they believe are financially supporting armed gangs that reportedly control more than 60% of the capital.
At least 1,448 people have been killed by gangs in Haiti since the beginning of this year; another 1,145 have been injured and
1,005 have been kidnapped, the United Nations has reported. In recent weeks, both the U.S and Canada have announced sanctions against members of the country’s political and economic elite, and the U.N. is currently assembling a panel of experts to decide which Haitians will make it onto its own sanctions list. The U.N. Security Council in October unanimously approved an arms embargo and the first sanctions regime in five years for those who support gangs.
Canada has sanctioned a dozen people, including former President Michel Martelly, and has adopted the U.N. Security Council’s sanction against gang leader Jimmy “Barbecue” Cherizier, 45, who recently led a two-month blockade of Haiti’s main fuel terminal. Ottawa has decided to take the lead on sanctions in Haiti, and earlier this year raised the need to get tough with the alleged backers of armed gangs in discussions with the Biden administration.
The U.S. Treasury Department has so far designated four new individuals, all current and former senators who have been accused of drug trafficking and corruption. The U.S. had previously sanctioned Cherizier and two former members of then-President Jovenel Moïse’s administration, Fednel Monchery, 59, and Joseph Pierre Richard Duplan, 52, for their alleged involvement in a 2018 massacre in the La Saline neighborhood of Port-au-Prince.
“Practically speaking, if you’re sanctioned by [Treasury] you’re not going to be able to do anything with the U.S.,” said Barbara Llanes, a former federal prosecutor with the Justice Department. “You’re not going to be able to have a business in the U.S.; you’re not going to be able to have a bank account that’s active in any way in the U.S. You’re not going to be able to travel to the U.S.
“Obviously, those are serious implications if you’re someone who has interest in the U.S. or family in the
U.S., or for whatever reason, wants to be in the U.S. or transact with U.S. entities.”
Here’s a primer on what U.S.. sanctions are, how they work and who can be targeted, based on interviews with Llanes and Smith, two experts. Smith previously worked as a sanctions official in the Obama administration, while Llanes worked in the U.S. Embassy in Mexico. She now defends individuals accused of white collar crimes as a partner with Gelber Schachter & Greenberg, P.A. in Miami.
WHO CAN BE SANCTIONED?
“The U.S. can sanction anyone it wants,” says Smith, “including U.S. citizens and persons in the United States.”
The constitutional protections that U.S. citizens and legal residents have doesn’t preclude sanctions, Smith said, it just means that there “is a lot more thought and concern” given to whether it’s worth pursuing. “But there’s no prohibition or restriction about sanctioning people in the United States,” he said.
The decision to place anyone on the Specially Designated Nationals And Blocked Persons List, is an inter-agency one, both Smith and Llanes said. And getting designated doesn’t mean you can’t be criminally charged. Sometimes both happen.
“Sometimes it’s the case that you can only sanction someone and there’s not enough to charge him criminally. But there are plenty of cases where you have criminal charges and sanctions,” Llanes said.
In some instances DOJ
may be building a criminal case and may ask Treasury to hold off on issuing a financial sanction because prosecutors don’t want to tip their hands.
“Usually there’s some coordination or conversations that happen between [Treasury] and the Department of Justice. And they also talk to the State Department .... because of course, there are diplomatic considerations that have to be taken into account,” Llanes said.
GETTING OFF THE SANCTIONS LIST
Once sanctioned, a person has all accounts and assets such as properties frozen. Regaining access by getting off the list can be impossible in some cases, and challenging at best.
One way to get off the list is if the sanctions program disappears. The other two ways involve the courts and an administration reconsideration in which Treasury, based on a petition by the applicant, makes a decision that the reasons that led to the designation are no longer valid.
“You often see this in narcotics-trafficking sanctions where people are basically coming in from the cold saying, ‘I’m no longer working for that cartel, or for that narcotrafficker, therefore the reason why I’m on the sanctions list should be removed’ and people get removed for that reason,” Smith said.
Llanes said individuals who are sanctioned can file a petition with Treasury on their own or with the help of a lawyer. But one doesn’t always know the full extent of the information the government has.
“Those announcements don’t detail everything that forms the basis of the determination that Treasury needs to issue the sanctions,” Llanes said. “So if you are someone who was trying to petition to get off of the sanctions list, it’s going to be very difficult for you to get off the list, because you have to make your petition without having complete information. [Treasury] will review the petition, but they may reject it.”
One issue individuals taking this route often find is that it’s very hard getting any information from the U.S. government about the concerns that led to sanctions in the first place.
“That’s why I think a lot of people refer to it as sort of being in a type of purgatory because there isn’t that much visibility into the basis for the determination that leads to the sanction. And getting off the sanctions list is difficult,” Llanes said.
CHALLENGING SANCTIONS IN COURT
The other way to be removed from a sanctions list is to sue in U.S. federal court. Smith said this is the most difficult route because the bar is very high for someone who has been sanctioned to demonstrate that Treasury got it wrong.
“The standard of evidence needed for OFAC to put someone on the list is very, very low,” said Smith, “which means that the deference that the courts give Treasury when they’re making a decision about whether or not someone was on the list is very, very high.”
But that doesn’t mean that placement on the list isn’t based on extensive research.
“The result is an often fairly lengthy memorandum, with exhibits of sort of primary sources demonstrating why the person is being sanctioned,” Smith said.
The record, however, isn’t public and while a designated person or company can request the information, Treasury doesn’t have to turn it over. It can deem the information to be classified and can sanction someone solely on the basis of classified information.
Because a sanctioned person’s funds are frozen, Smith said any designated individual seeking to hire a lawyer will need Treasury authorization. Getting that “can be very hard to do and certainly a very lengthy process.”
“The whole idea of sanctioning somebody is to effectively make them an economic pariah,” Smith added. “So the banking sector, credit cards, the real estate sector, all of that is off limits to parties who are sanctioned. Any transaction, any property that a sanctioned person has any interest in whatsoever effectively is off limits.”
OPERATING UNDER SANCTIONS
In response to both the U.S. and Canadian sanctions, Haitian banks have been closing accounts of designated individuals, fearing they could lose their correspondent banking relationships with U.S. and Canadian banks.
The human rights group Fondasyon Je Klere, or Eyes Wide Open Foundation, is recommending that the government name public prosecutors and investigating judges specializing in financial crime in the 18 jurisdictions of the country to investigate those who have been designated.
The group is also asking the government adopt a resolution banning anyone who has been sanctioned, along with their family members, from participating in upcoming elections until an investigation has been completed.
Sanctions, Llanes said, make “it very, very difficult for someone to operate.”
“Pretty much everybody wants to stay away from entities and individuals who have been sanctioned. And so it makes it very difficult for them to operate in anything other than cash,” she said, adding that in some cases people have no choice but to depend “on friends and family to help because they have no way of accessing their money, and it’s hard sometimes even for them to get jobs.”