Summary
For many years, the United States has used economic sanctions, including the freezing of foreign regimes' assets, when such regimes have been determined to be a threat to the nation. In light of recent efforts to "recover"--or target, identify, freeze, and transfer--Iraqi assets, GAO was asked to examine overall U.S. efforts to recover foreign regimes' assets. This report (1) describes the approach the U.S. government uses to recover foreign regimes' assets, (2) examines the challenges the United States faces in recovering foreign regimes' assets, and (3) examines the mechanisms the United States has used to recover Iraqi assets and their applicability to future efforts.
The approach the U.S. government takes to recover foreign regimes' assets varies depending on the foreign policy and national security goals pursued. Treasury officials stated that the goal of economic sanctions is to freeze assets of a sanctioned jurisdiction or targeted designee and prohibit U.S. persons from dealing with them. In certain cases, once the foreign policy goals of the sanctions are met, the assets are returned to a country. The Departments of Justice, State, and the Treasury, as well as intelligence and law enforcement agencies, work together in the targeting process. Identifying the location of financial assets throughout the international financial system requires the cooperation of U.S. and foreign financial institutions. The United States has procedures to freeze assets of targeted regimes located in the United States or under the control of U.S. persons. Pursuant to executive orders issued by the President under various authorities, Treasury's Office of Foreign Assets Control (OFAC) issues regulations that can require assets to be frozen and transactions to be blocked and administers sanctions programs. U.S. government agencies and financial institutions involved in recovering targeted regimes' assets face a number of challenges. First, U.S. agencies may not be able to readily obtain accurate and complete information on targeted entities, such as the spelling of names, addresses, and dates of birth. Financial institutions can also lack complete identifying information on their clients. Second, the laws of some foreign governments complicate the ability of overseas branches of U.S. financial institutions to comply with OFAC regulations. In these situations, the U.S. government encourages the relevant foreign governments to allow U.S. financial institutions to freeze or transfer assets in a manner consistent with U.S. law or Treasury issues a license to allow U.S. financial institutions to comply with local laws. Third, OFAC's ability to monitor financial institutions' compliance with its regulations is limited because it relies on financial regulators to monitor financial institutions' OFAC compliance programs. The United States has used a variety of legal authorities and coordinating bodies in its recent effort to recover Iraqi assets; some of these mechanisms could be applied to future efforts. The USA PATRIOT Act of 2001 allowed the United States to take ownership of $1.9 billion of Iraqi assets and transfer them for use in Iraq reconstruction efforts. United Nations Security Council Resolution 1483 has resulted in the transfer of about $847 million in frozen Iraqi assets to a fund for Iraq. However, factors that include existing claims against the assets and other countries' laws have slowed the transfer of an additional $2.9 billion held in other countries. In addition, some mechanisms developed to combat money laundering and terrorist financing might be applicable to recovering foreign regimes' assets. Although the U.S. government has used various legal authorities and coordinating bodies to recover foreign regimes' assets, it has yet to compile lessons learned from past efforts that could guide future efforts.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
Director:
Team:
Phone:
Joseph A. Christoff
Government Accountability Office: International Affairs and Trade
(202) 512-8979
Recommendations for Executive Action
Recommendation: To improve the U.S. government's readiness to move forward quickly in future asset recovery efforts, the Departments of the Treasury and State should work with U.S. intelligence and law enforcement agencies to improve the accuracy and completeness of account identifying information needed by financial institutions to identify and freeze assets of foreign regimes.
Agency Affected: Department of the Treasury
Status: Implemented
Comments: Treasury's 60-day response letter noted that it was working with State and other agencies, including the intelligence community to continually improve identifiers. In January 2005, Treasury's Assistant Secretary for Terrorist Financing & Financial Crimes stated before the UN Security Council 1267 Sanctions Committee that over the past three years, Treasury and State in conjunction with other agencies had made great strides to improve the quality and quantity of this identifier information. Specifically, the overwhelming majority of designations issued over this period have included essential identifier information and that are constantly improving our efforts in this regard.
Agency Affected: Department of State
Status: Implemented
Comments: According to the Department of State in its 60-day response letter, it continues to work with foreign governments, Treasury, U.S. intelligence and law enforcement agencies to improve accuracy and completeness of account identifying information needed by financial institutions to identify and freeze assets of foreign regimes.In January 2005, Treasury's Assistant Secretary for Terrorist Financing & Financial Crimes stated before the UN Security Council 1267 Sanctions Committee that over the past three years, Treasury and State in conjunction with other agencies had made great strides to improve the quality and quantity of this identifier information. Specifically, the overwhelming majority of designations issued over this period have included essential identifier information and that are constantly improving our efforts in this regard.
Recommendation: To improve the U.S. government's readiness to move forward quickly in future asset recovery efforts, the Department of the Treasury should seek legislative authority, if necessary, to enhance OFAC's ability to ensure financial institution compliance with sanctions by allowing financial regulators to share complete information from their examinations with OFAC.
Agency Affected: Department of the Treasury
Status: Implemented
Comments: In September 2004, (Foreign Regimes' Assets: The United States Faces Challenges in Recovering Assets, but Has Mechanisms That Could Guide Future Efforts, GAO-04-1006), GAO recommended that the Department of the Treasury seek legislative authority, if necessary, to enhance OFAC's ability to ensure financial institution compliance with sanctions by allowing financial regulators to share complete information from their examinations with OFAC. In April 2006, Treasury's Office of Foreign Assets Control (OFAC) and the heads of the key federal banking agencies (FBA) signed a Memorandum of Understanding that contained procedures for the FBA's sharing information relating to potential sanctions violations and examinations with OFAC for potential enforcement actions.
Recommendation: To improve the U.S. government's readiness to move forward quickly in future asset recovery efforts, the Departments of the Treasury and State should develop and document a compilation of lessons learned from the current effort to recover Iraq's assets that could assist in appropriately institutionalizing and leveraging all mechanisms available for future efforts.
Agency Affected: Department of the Treasury
Status: Implemented
Comments: According to Treasury's Under Secretary for Terrorism and Financial Intelligence in 2006, over the past two years, Treasury had learned a number of lessons about how best to use financial tools to apply financial pressure and isolate terrorists, proliferators, and others whose goal it is to undermine our security. As a result, they began relying more "targeted" measures, aimed at specific actors engaged in illicit conduct. He also cited the extensive abuse of the Oil for Food program in Iraq as just one example of classic "sanctions busting" behavior and stated they eventually learned, the companies hurt by that sanctions program were the ones that played by the rules. Also, in 2007, Treasury's Secretary stated that Since September 11th, Treasury has been applying lessons learned in a more focused effort against global terrorist threats. He also cited a number of cases where lessons learned have been used to go after the financial assets of regimes in North Korea and Iran. He also mentioned State's role in pursuing these issues at the United Nations to further designate, sanction, and cut off financial networks.
Agency Affected: Department of State
Status: Implemented
Comments: According to Treasury's Under Secretary for Terrorism and Financial Intelligence in 2006, over the past two years, Treasury had learned a number of lessons about how best to use financial tools to apply financial pressure and isolate terrorists, proliferators, and others whose goal it is to undermine our security. As a result, they began relying more "targeted" measures, aimed at specific actors engaged in illicit conduct. He also cited the extensive abuse of the Oil for Food program in Iraq as just one example of classic "sanctions busting" behavior and stated they eventually learned, the companies hurt by that sanctions program were the ones that played by the rules. Also, in 2007, Treasury's Secretary stated that Since September 11th, Treasury has been applying lessons learned in a more focused effort against global terrorist threats. He also cited a number of cases where lessons learned have been used to go after the financial assets of regimes in North Korea and Iran. He also mentioned State's role in pursuing these issues at the United Nations to further designate, sanction, and cut off financial networks.
