The U.S. government has for many years applied sanctions as a tool to combat terrorism and terrorist finance. A new Executive Order issued on September 10, 2019 (Terrorism E.O.) updates the U.S. counterterrorism sanctions regime and adds new secondary sanctions that can prohibit or restrict the correspondent and payable-through accounts of non-U.S. financial institutions. Together with the Terrorism E.O., the Treasury Department announced sanctions on financial institutions in Turkey and several Middle East countries, including currency exchange and jewelry companies. The State Department also designated 12 persons and one group for terrorist activities pursuant to its authorities under the Terrorism E.O.
This signals a renewed U.S. motivation to enforce its counterterrorism sanctions and will apply pressure on non-U.S. banks and other financial institutions to engage in careful due diligence. It also may lead U.S. correspondent banks to ask new questions of their customer banks in higher-risk jurisdictions.
Sanctions Under New Executive Order
The Terrorism E.O. expands the ability of U.S. officials to sanction terrorist groups and related parties. This includes designating as a specially designated national (SDN) a person determined to (i) have committed, attempted to commit or participated in training to commit acts of terrorism; (ii) be a leader of an entity blocked under the Terrorism E.O.; and (iii) be owned or controlled by, or own or control, or otherwise support, lead, participate in training with or conspire with persons blocked under the Terrorism E.O.
Parties sanctioned under Terrorism E.O. carry two types of secondary sanctions:
Focus on Targeting Terrorism
The U.S. government has signaled its renewed focus to use these sanctions and secondary sanctions. The Treasury Department stated that the Terrorism E.O. “serves to put all foreign financial institutions on notice that enabling terrorists and their financial backers to rely upon the international financial system to facilitate their malign activities will have consequences.”
In enforcing its anti-terrorism authorities, the U.S. government will focus on its own definition of terrorism and target political parties and funding sources related to groups like Hizballah and Hamas. This can pose challenges in markets like Turkey, Lebanon and other Middle East locations. In August 2019, the Treasury Department sanctioned Jammal Trust Bank SAL of Lebanon for banking related to Hizballah. Concurrent with the Terrorism E.O., the Treasury Department announced sanctions on multiple exchange companies, including Redin Exchange of Turkey for its services for Hamas-related entities, as well as multiple exchanges, individuals and a jewelry company in Turkey related to ISIS. The U.S. government also will continue to target under the Terrorism E.O. groups like the IRGC of Iran, al-Qaida and various financial fronts, charities and businesses related to these groups.
Customer Due Diligence and Anti-Money Laundering
The threat of sanctions to cut off U.S. correspondent banking and renewed enforcement focus will create pressure for non-U.S. banks to conduct customer due diligence and enhanced anti-money laundering compliance mechanisms in order to manage risk. Due diligence records can both help avoid interaction with terrorist groups and establish that where banks inadvertently provide services to fronts for terrorist groups, they did not do so “knowingly.”