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The International Journal
of Not-for-Profit Law

Volume 10, Issue 1, December 2007

A publication of the International Center for Not-for-Profit Law

Table of Contents

Letter from the Editor

The Shifting Landscape for American Not-for-Profit Organizations

Counterterrorism Developments Impacting Charities
Kay Guinane

NGOs Respond to USAID's Proposed Anti-Terror Screening
Sarah R. Eremus

Solving the Necessity Conundrum: What the Drug War Can Teach Us About Due Process for U.S. Charities in the Fight Against International Terrorist Financing
Josh D. Friedman

Good Governance Practices for 501(c)(3) Organizations:
Should the IRS Become Further Involved?

Thomas Silk

Governance Is Key Issue in Regulating Charities,
IRS Official Tells State Leaders

Grant Williams

Articles

International Treaty Protection of Not-for-Profit Organizations
Luke Eric Peterson and Nick Gallus

Notification or Registration?
Guarantees of Freedom of Association in Non-Democratic Environments: Case Studies of Lebanon and Jordan

Marc Makary

Somewhere in Between:
Conceptualizing Civil Society

Benny D. Setianto

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Download this issue (PDF) | Editorial Board

Solving the Necessity Conundrum: What the Drug War Can Teach Us About Due Process for U.S. Charities in the Fight Against International Terrorist Financing

Josh D. Friedman1

Introduction

Using new laws and novel tactics that permit the U.S. Government to freeze the domestic assets of organizations and individuals suspected of having associations with terrorists abroad, the Government has shut down seven domestic charitable organizations since the attacks of September 11, 2001. The Government’s approach to combating terrorist financing, often testing the very limits of the Constitution, does not guarantee basic due process safeguards for targeted charities. What’s more, this new legal regime lacks any provision for ensuring that frozen charitable funds are eventually used for charitable purposes.

Given how highly we as Americans esteem our Bill of Rights, we should be asking ourselves why we curtail the due process rights of U.S. charities suspected of having associations with terrorism. Aren’t we, in the name of national defense, weakening the fundamental principles that make the defense of the nation worthwhile?

Some in favor of the current regulatory regime would argue, along a line that is by now a common refrain, that terrorism presents exigent circumstances requiring drastic measures to protect our national security. In the context of the non-traditional threats posed by terrorism, we must allow the President maximum flexibility to address terrorist threats and prevent terrorist acts. Given these circumstances, the current asset-freezing regime, entailing certain curtailments of due process, is a necessary and thus reasonable response to the threats posed by terrorism.2

Of course, questioning targeted presidential authority to regulate the foreign transactions of U.S. charities in the face of terrorist threats is not a very fashionable stance. After all, if charities are being used as fronts for terrorist operations, we should act swiftly and decisively to confront this problem. But what if justice could be served without stripping individuals and organizations of their due process protections? Likewise, can’t we find ways to protect public safety without denying assistance to people in need? The history of prosecutions of drug traffickers and organized crime syndicates teaches us that we can bring the guilty to justice without trashing the Bill of Rights or prohibiting aid to the poor.

This article compares the rights of drug traffickers and charities to defend themselves in situations where the Government seizes their assets, and finds that charities and the people who depend on their help have far fewer rights and less recourse to the courts than drug lords do. Arguing that equitable mechanisms for addressing this problem can be developed, this article looks toward civil asset forfeiture laws as one public policy approach that should stimulate ideas for reforming current law on charities.

The Day the World Changed for the Holy Land Foundation

That the world changed on September 11, 2001, is by now a widely accepted notion.3 For charitable organizations like the Holy Land Foundation for Relief and Development (HLF) caught up in the wake of our response to this changed world, the consequences have been stark.

On December 3, 2001, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) decided to use the HLF to test-drive new powers recently conferred on the agency by President George W. Bush. Under provisions of the International Emergency and Economic Powers Act (IEEPA),4 freshly amended by the USA PATRIOT Act5 and activated by the President’s Executive Order 13,224,6 OFAC designated the HLF as a specially designated global terrorist (SDGT)7 and issued a “blocking notice” that immediately froze all of the HLF’s funds, accounts, and real property.8 OFAC then seized all documents, computers, and furniture from the HLF’s headquarters.9

Accusing the HLF of masquerading as a charity while covertly aiming “to promote terror,”10 the Government claimed that the HLF had raised money for Hamas-run schools that “indoctrinate children to grow up into suicide bombers” and had provided millions of dollars in funding “to recruit suicide bombers and to support their families.”11 Formidable charges indeed, but under the IEEPA and Executive Order 13,224, OFAC was entitled to use virtually any evidence, untested and unsubstantiated, in making its designation, including newspaper articles, raw intelligence data, unconfirmed hearsay declarations, and documents collected from trash bins.12

Before being shut down, the HLF had been the largest Islamic charity in the United States. A non-profit organization founded in 1989 and headquartered in Richardson, Texas, the HLF worked primarily with Palestinian refugees in Jordan, Lebanon, and the occupied Palestinian territories.13 Its stated mission was “to find and implement practical solutions for human suffering through humanitarian programs that impact the lives of the disadvantaged, disinherited, and displaced peoples suffering from man-made and natural disasters.”14 Despite the accusations made by OFAC, even the Government admitted that the HLF’s funds went to building hospitals and feeding the poor.15

What recourse was available to the HLF or any similarly situated charity? The HLF could not have challenged the freeze beforehand, and its right to appeal after the fact is extremely limited. Generally, entities with a U.S. presence are entitled to due process, which, at a minimum, requires notice and an opportunity to be heard at a meaningful time and in a meaningful manner before being deprived of property.16 For SDGTs, however, pre-freeze procedural safeguards are virtually nonexistent.17 Where security concerns are present, the Government can wait until after freezing a charity’s assets to provide notice.18 Likewise, the Government is not required to afford a pre-freeze hearing before a judge.19 The paltry OFAC administrative procedures available to a charity for contesting its designation are conducted solely on paper, impose the burden on the blocked charity of disproving its associations with terrorism, utilize secret evidence, don’t allow the charity to present witnesses or to cross-examine government witnesses, and generally are heavily skewed against the charity.20

Nor were the HLF’s post-freeze prospects for a fair trial any more propitious.21 The court was only entitled to review the case on the basis of the administrative record as presented by OFAC, including any normally inadmissible evidence.22 On top of being compelled to privilege all OFAC decisions,23 the judge was restricted to evaluating OFAC’s compliance with the minimal procedures of the asset-freezing regime.24

Not surprisingly, the HLF has not been the only charity impacted by this new regime that seeks to hold charities responsible for providing humanitarian aid to groups that the Government has never itself said were off limits. On December 14, 2001, OFAC seized the funds, accounts, and business records of the Benevolence International Foundation and the Global Relief Foundation pending further investigation.25 Then in September 2004, OFAC froze the assets of Al-Haramain USA.26 The next month, the Islamic American Relief Agency was shut down as well.27 Most recently, OFAC blocked KindHearts USA, in February 2006,28 and the Goodwill Charitable Organization, in July 2007.29

Tumbling Down the Rabbit Hole: The Limbo of Frozen Funds

Once OFAC had frozen the HLF’s assets, all of the organization’s charitable activities came to a dead halt. Its assets are frozen indefinitely, and OFAC has denied the HLF’s requests to transfer some of its funds to other charities.30

In general, all frozen charitable funds are subject to rules that give OFAC unfettered discretion to decide when they will or will not release the funds. This includes discretion over the right to use funds to pay for legal counsel. D ebiting a frozen account for any purpose at all requires a license, and the issuance of licenses and the application of conditions thereto are discretionary and carried out on an ad hoc basis.31 OFAC has permitted some limited activities in the past, though few and far between .32 But even if a charity is able to secure permission, OFAC can modify or revoke the license at any time it wishes.33 For a variety of other activities, OFAC has categorically denied licenses, including for payment of operational expenses,34 transfers of blocked assets to ostensibly legitimate charities,35 receipt of blocked funds to satisfy court judgments,36 retention of counsel on a contingency basis,37 or appointment of a custodian to care for blocked assets.38

Rather than permitting a charity to transfer its donated assets to other charitable organizations, the Government is entitled to sit on the funds for an extended period of time or to use them for various instrumental policy purposes.39 Although, presumably, an entity in this position would be able to challenge a long-standing freeze as an unconstitutional taking without just compensation, courts have thus far held that a temporary restriction on assets does not constitute an uncompensated taking.40

Even if a charity were successful in mounting a takings challenge to a prolonged freeze, nothing prohibits OFAC from simply releasing and simultaneously “re-freezing” the targeted property by publishing notice in the Federal Register and thereby reinitiating the entire process without ever returning the property to the organization. Alternatively, if freezing assets becomes too procedurally burdensome, OFAC can always forfeit title to the property without needing to comply with the normal due process requirements afforded to property owners by federal forfeiture laws.41

While the HLF was left to grapple with this procedural morass, the U.S. Department of Justice was busy preparing an indictment of the charity on criminal charges,42 and elsewhere federal judges were handing down decisions permitting the families of Hamas victims to raid hundreds of millions in compensatory damages from the HLF’s frozen accounts.43 By the time the Government was finished with the charity, it practically existed only in name.

At the end of the day, however, it appears that the Government may have been overzealous in its drive to rout the HLF. In a recent turn of events in what was widely viewed as the Government’s “flagship terror-financing case,” a Texas jury was unable to reach a verdict in the criminal case against the HLF and its leaders, and on October 22, 2007, the judge declared a mistrial.44 But even if the HLF is eventually acquitted or the charges dropped, its assets will remain frozen ad infinitum, with OFAC not being required to take the HLF off its list of designated organizations. That means that the intended beneficiaries of the HLF’s relief-aid programs will remain without the help that the charity’s donors meant for them to have.

A Twist of Irony: Protections for the Assets of Accused Drug Traffickers

Our experience with prosecuting narcotics traffickers and shutting down organized crime syndicates teaches us that we can avoid these due process quandaries raised by the asset-freezing regime. In other words, it turns out that we can effectively protect due process rights and bring the guilty to justice at the same time. Take, for example, the ongoing case of the Black Mafia Family (BMF).

Until recently, the BMF, a nationwide street gang entrenched in several cities, including Atlanta, Detroit, Houston, and Los Angeles, operated a highly sophisticated drug-distribution network in a multi-state region that included California, Florida, Georgia, Kentucky, Michigan, Mississippi, and Texas.45 The BMF trafficked multi-kilogram quantities of cocaine and marijuana from Mexico into the United States, then ran the proceeds of their drug-trafficking operations through various bank accounts and money-wiring services and acquired fleets of luxury vehicles, high-value real estate, and opulent jewelry as a way of concealing the illicit sources of their money.46 During its fifteen years in operation, the criminal enterprise had managed to launder more than $270 million in drug money.47 At the height of its infamy and as a testament to its nearly two-decade reign of terror and crime, the BMF had billboards towering over Atlanta that brazenly proclaimed, “The world is ours.”48

In October 2005, the Government dealt a death blow to the once-flourishing drug empire when the U.S. Drug Enforcement Administration (DEA) raided the BMF, arresting some thirty members of the gang.49 During the raids, the DEA seized over $10 million in assets as well as 9.5 kilograms of cocaine.50 Over the next two years, the Government issued a series of indictments against members of the gang, including conspiracy to distribute cocaine and conspiracy to launder illegally obtained funds.51 As icing on the cake, the Government sought to forfeit millions worth of the gang’s assets.52 Spelling out the obituary of the BMF, U.S. Attorney David E. Nahmias declared, “A combined effort by federal, state, and local law enforcement has brought to an end an infamous chapter of drug dealing and gang violence that affected this country literally coast to coast.”53

The prosecutions of the BMF were a triumph indeed. Despite the aggressive posturing, however, federal prosecutors were bound to afford these notorious criminals with due process, including during the Government’s forfeiture actions. In fact, by most measures, the due process safeguards available to one of the most sinister criminal enterprises in recent U.S. history far outstrip the minimal procedural protections afforded to charities like the HLF under the current asset-freezing regime.

First off, in contrast to the IEEPA’s permissiveness about providing an entity with notice of a freeze, the Civil Assets Forfeiture Reform Act (CAFRA)54 (which, as the name implies, governs all federal civil forfeitures) imposes strict notice and filing requirements as a way of curbing prosecutorial abuse.55 Under CAFRA, the Government has to comply with tight deadlines for filing civil judicial complaints and commencing civil or criminal actions once it seizes an entity’s assets.56 If the Government misses even one of its deadlines, it has to “promptly release the property pursuant to regulations promulgated by the Attorney General” and will be barred from taking “any further action to effect the civil forfeiture of such property in connection with the underlying offense.”57

What’s more, CAFRA entitles the average Mafioso to contest the pending forfeitures of his property in a federal court58 – and not just by one, but by three, different remedies: by claiming that the pending forfeiture would cause hardship,59 amount to disproportional punishment,60 or deprive an innocent owner of his property.61 Once at trial, instead of enjoying a presumption in favor of its allegations, the Government bears the burden of proving the forfeitability of the targeted property by a preponderance of the evidence.62 CAFRA also prevents the Government from admitting into court any hearsay or other evidence scavenged from news reports or dredged up from garbage bins in order to satisfy its evidentiary burden.63

If the BMF were unable to pay for lawyers, CAFRA would guarantee that these drug lords are not deprived of their right to counsel.64 Even though CAFRA prevents drug traffickers and other property claimants from using seized assets to pay for counsel,65 the court can appoint attorneys to represent criminal defendants in their civil forfeiture proceedings.66 When it comes to a gangster’s multi-million-dollar mansions, the judge is required to afford a court-appointed attorney.67 And if the trafficker eventually wins his case, CAFRA obligates the Government to pay his attorneys’ fees and litigation costs.68

When all is said and done, what happens to the forfeited Mafia property? As an example of forward-thinking public policy, CAFRA makes sure that assets do not simply rot away in some government warehouse but instead get put to socially productive use. Both the Department of Treasury and the Department of Justice maintain accounts where forfeited funds are deposited and later used to pay for various law-enforcement activities.69

Frozen Charitable Funds, Revisited

The happy ending to the BMF story is that the civil forfeiture regime worked. The bad guys got it, and we didn’t have to sacrifice the Constitution in the process – all of which raises the question: Why can’t we do the same when freezing the assets of charities accused of having links to terrorism?

Some may still maintain that the cases of charities like the HLF are different. After all, we’re dealing with international terrorism rather than domestic organized crime. Still, we’ve successfully dismantled international drug-trafficking rings without throwing out the Bill of Rights. Remember José “Chepe” Santacruz Londoño, the number three leader and reputedly most violent member of the infamous Cali Cartel, a Colombia-based cocaine trafficking empire that had been responsible for eighty percent of the world’s cocaine supply up until the mid-1990s?70 Using the U.S. civil forfeiture laws, along with all of their attendant due process safeguards, the U.S. Department of Justice assisted the Colombian Government in taking down the cartel by seizing and forfeiting the bank accounts that Santacruz Londoño used to launder his millions in illicit drug proceeds.71 A similar fate befell international drug lord Gilberto “El Ajedrecista” Rodríguez Orejuela, founder of the Cali Cartel, when the U.S. Government forfeited approximately $3 million in narcotics trafficking proceeds from his personal bank accounts.72

This is not to say that fighting global terrorism is indistinguishable from the War on Drugs. Nor do I mean to blur the legal divide between civil asset forfeiture and asset freezing. But our victories in the War on Drugs have a lot to teach us.

We should start by trusting our court system’s remarkable ability to address the challenges posed by non-traditional threats, whether from international narcotics trafficking, money laundering, or terrorist financing. This means guaranteeing designated organizations and individuals the basic right to a fair hearing before a judge, where they are afforded a presumption of innocence and where they can confront their accusers and challenge all the evidence against them. This also means guaranteeing them legal representation, by permitting them to use seized assets to pay for legal expenses, providing them with court-appointed counsel, allowing them to retain counsel on a contingency basis, or employing some other reasonable method.

We might also listen to CAFRA’s lesson about putting forfeited assets to socially productive use. In the case of designated charities, donors have a justifiable interest in seeing their contributions put toward the charitable purposes for which they were originally donated.

The bottom line is that when the scores are tallied, the case for the asset-freezing regime’s exceptionalism looks pretty thin. Drastic limitations to the Bill of Rights are not necessary for successfully and decisively fighting terrorist financing. In other words, we can combat these threats to democracy without weakening the principles that make the defense of democracy a worthy cause.

1 The author is a J.D. candidate specializing in international law at the University of California, Hastings College of the Law, and a master’s candidate in international policy studies at the Monterey Institute of International Studies. He served as an intern at the International Center for Not-for-Profit Law during the summer of 2007. The author thanks Kay Guinane, Director of OMB Watch’s Nonprofit Speech Rights Program, and Douglas Rutzen, Director of the International Center for Not-for-Profit Law, for helping to shape this article.

2 See, e.g. , Bethany K. Hipp, Comment, Defending Expanded Presidential Authority to Regulate Foreign Assets and Transactions, 17 Emory Int'l L. Rev. 1311, 1314 (2003) (arguing that “Congress’s grant of expanded authority to the President to regulate foreign transactions and take title to foreign assets was a reasonable and appropriate response to the threat the United States now confronts”).

3 It’s certainly a popular notion too: A Westlaw news search conducted on November 14, 2007, for the words “September 11,” “world,” and “changed” used in the same sentence anytime during the last three years returned over 863 references.

4 International Emergency and Economic Powers Act (IEEPA), Pub. L. No. 95-223, tit. II, 91 Stat. 1625 (1977) (codified as amended at 50 U.S.C. §§ 1701-1707 (2006)).

5 Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) of 2001, Pub. L. No. 107-56, 115 Stat. 272 (codified as amended at various sections of 8, 15, 18, 22, 31, 42, 49, and 50 U.S.C. (2006)).

6 Exec. Order No. 13,224, 66 Fed. Reg. 49079 (Sept. 23, 2001).

7 Press Release, U.S. Dep't of Treas. Off. of Pub. Aff., Statement of Secretary Paul O'Neill on the Blocking of Hamas Financiers' Assets (Dec. 4, 2001).

8 U.S. Department of Treasury Designation & Blocking Mem. (Dec. 3, 2001). See 50 USC 1702(a)(1)(B) (allowing the President to “investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States”).

9 Before the Government may initiate a freeze of an entity’s assets under the IEEPA, two steps must be taken: First, to activate the executive powers granted to him by the IEEPA, the President must declare a national emergency. 50 U.S.C. § 1701(a) (defining “national emergency” as “any unusual or extraordinary threat, which has its source in whole or in part outside the United States, to the national security, foreign policy, or economy of the United States”). The President did so on September 23, 2001. See Exec. Order No. 13,224, 66 Fed. Reg. at 49079. Second, the President must designate the targeted entity as an SDGT. 50 U.S.C. § 1702(a)(1). Although section 1702(a)(1) of the IEEPA vests its authority in the President, 3 U.S.C. § 301 enables the President to delegate to “the head of any department or agency in the executive branch, or any official thereof . . . any function which is vested in the President by law,” including his section-1702(a) authorities. In 2001, President George W. Bush entrusted his IEEPA authority to the Treasury. See Exec. Order No. 13,224, § 7, 66 Fed. Reg. at 49081. Pursuant to the authority delegated to it, the Secretary of the Treasury may designate entities determined by it “to be owned or controlled by, or to act for or on behalf of . . . ; to assist in, sponsor, or provide financial, material, or technological support for,” or to be “otherwise associated with” already designated entities. Id. at 49079-80. “Terrorism” in this context means any activity that involves a violent act or an act dangerous to human life, property, or infrastructure; and appears to be intended to intimidate civilians, to influence governmental policy by intimidation or coercion, or to affect the conduct of the Government by mass destruction, assassination, kidnapping, or hostage-taking. Id. at 49080. After a federal court held the phrase “otherwise associated with” to be unconstitutionally vague, Humanitarian Law Project v. U.S. Dep’t of Treas., 463 F. Supp. 2d 1049, 1064 (C.D. Cal. 2006), the Treasury redefined the term. See 31 C.F.R. § 594.316. The clarified phrase was upheld as valid. SeeHumanitarian Law Project, 463 F. Supp. 2d at 1105-07.

10 Press Release, U.S. Dep’t of Treas. Off. of Pub. Aff., supra note 6.

11 President George W. Bush, President Announces Progress on Financial Fight Against Terror, Remarks at the Rose Garden (Dec. 4, 2001).

12 See Nat’l Comm’n on Terrorist Attacks Upon the U.S., Monograph on Terrorist Financing 11 (2004) [hereinafter Nat’l Comm’n on 9-11, Monograph]. Despite the fact that almost all of this evidence would normally be inadmissible in any other civil trial context, courts have not yet blinked at OFAC’s the-sky’s-the-limit approach to using evidence. See, e.g., United States v. Soussi, 316 F.3d 1095, 1108-09 (10th Cir. 2002); Holy Land Found. for Relief & Dev. v. Ashcroft, 333 F.3d 156, 162 (D.C. Cir. 2003), cert. denied, 540 U.S. 1218 (2004); Nat’l Council of Resistance of Iran v. Dep’t of State, 251 F.3d 192, 196 (D.C. Cir. 2001).

13 Holy Land Foundation for Relief and Development Website, (last updated Dec. 4, 2001) (archived at http://wasearch.loc.gov/sep11/20011204221949/http://www.hlf.org/).

14 Id.

15 See Leslie Eaton, U.S. Prosecution of Muslim Group Ends in Mistrial, N.Y. Times, Oct. 23, 2007, at A1.

16 See Mathews v. Eldridge, 424 U.S. 319, 333 (1976); Nat’l Council, 251 F.3d at 205; Global Relief Found. v. O'Neill, 207 F. Supp. 2d 779, 803 (N.D. Ill. 2002).

17 Courts have recognized that the presence of exigent circumstances and a demonstrated governmental need for prompt action justifies the denial of pre-deprivation process. United States v. James Daniel Good Prop., 510 U.S. 43, 56 (1993); Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 679 (1974); Global Relief Found., 207 F. Supp. 2d at 803. In such cases “where a State must act quickly, or where it would be impractical to provide predeprivation process, postdeprivation process satisfies the requirements of the Due Process Clause.” Gilbert v. Homar, 520 U.S. 924, 930 (1997). Under the IEEPA in particular, because of the Executive Branch’s need for prompt action in preventing the flight or destruction of assets and the exigencies of national security, pre-deprivation process has not historically been required. Global Relief Found., 207 F. Supp. 2d at 803.

18 See Nat’l Council, 251 F.3d at 208; Milena Ship Mgmt. Co. v. Newcomb, 995 F.2d 620, 624 (5th Cir. 1993); Global Relief Found., 207 F. Supp. 2d at 803. When it eventually provides notice, the Government must disclose the charges against the entity, but executive privilege entitles it to withhold any classified information. SeeNat’l Council, 251 F.3d at 208.

19 See Holy Land Found., 333 F.3d at 164 (in exigent circumstances, “we do not require an agency to provide procedures which approximate a judicial trial”); Nat’l Council, 251 F.3d at 209 (“We do not suggest ‘that a hearing closely approximating a judicial trial is necessary’”) (quoting Mathews v. Eldridge, 424 U.S. at 333). See also Global Relief Found. v. O’Neill, 315 F.3d 748, 754.

20 OFAC need only provide an opportunity to present responsive evidence in writing. See Nat’l Council, 251 F.3d at 209; Holy Land Found., 333 F.3d at 164 (the Secretary of Treasury complied with the hearing requirement of due process by providing the HLF with an opportunity for written response). While a designated entity may challenge its designation by seeking administrative reconsideration of its designation, 31 C.F.R. § 501.807, the entity carries the burden of establishing that an “insufficient basis exists for the designation” or otherwise proposing “remedial steps on the person’s part . . . which the person believes would negate the basis for designation.” 31 C.F.R. § 501.807(a). The petitioner may submit “arguments or evidence” to satisfy its burden of proof. Id. However, the entity is only entitled to a review conducted solely on the basis of written submissions, without an opportunity to present witnesses or cross-examine USG witnesses. Id (providing that the “submission must be made in writing”). Although designated entities “may request a meeting” with OFAC, “such meetings are not required, and the office may, at its discretion, decline to conduct such meetings.” 31 C.F.R. § 501.807(b). Finally, the Treasury regulations do not establish deadlines for conducting the review.

21 Under the IEEPA, an entity who is wrongly designated or whose assets are wrongly frozen by OFAC may seek relief pursuant to the Administrative Procedures Act (APA). 5 U.S.C. § 702. The APA provides that any federal court of competent jurisdiction may review agency actions that are final or made reviewable by statute. 5 U.S.C. §§ 703, 704.

22 The APA narrowly limits the court’s basis of review to the administrative record as presented by OFAC, including any normally inadmissible evidence. 5 U.S.C. § 706; Holy Land Found. for Relief & Dev. v. Ashcroft, 219 F. Supp. 2d 57, 67 (D.C. Cir. 2002) (“the Court does not undertake its own fact-finding” but “review[s] the administrative record assembled by the agency to determine whether its decision was supported by a rational basis”). As usual, OFAC may submit evidence ex parte and in camera for judicial review. 50 U.S.C. § 1702(c).

23 Extraordinary judicial deference is given to OFAC actions. SeeGlobal Relief Found., 207 F. Supp. 2d at 793 (in cases involving foreign policy and national security, courts are “‘particularly obliged to defer to the discretion of executive agencies interpreting their governing law and regulations’” (quoting Paradissiotis v. Rubin, 171 F.3d 983, 988 (5th Cir. 1999))).

24 Under the APA, the scope of the court’s review is restricted to evaluating the procedural reasonableness of OFAC’s actions, meaning whether such actions are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law”; “contrary to constitutional right, power, privilege, or immunity”; “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right”; “without observance of procedure required by law”; “unsupported by substantial evidence”; or “unwarranted by the facts.” 5 U.S.C. § 706(2). SeeHoly Land Found., 219 F. Supp. 2d at 66-67 (“‘In making this determination, the Court must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.’” (quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971))). What’s more, determinations of national security have been held to be non-justiciable political questions. SeeRegan v. Wald, 468 U.S. 222 (1984) (“‘[m]atters related ‘to the conduct of foreign relations . . . are so exclusively entrusted to the political branches of government as to be largely immune from judicial inquiry or interference.’’” (quoting Harisiades v. Shaughnessy, 342 U.S. 580, 589 (1952))), quoted inGlobal Relief Found., 207 F. Supp. 2d at 787-88.

25 See Benevolence Int’l Found., Inc. v. Ashcroft, 200 F. Supp. 2d 935 (N.D. Ill. 2002); Global Relief Found. v. O’Neill, 205 F. Supp. 2d 885 (N.D. Ill. 2002). See also Press Release, U.S. Dep't of Treas. Off. of Pub. Aff., Treasury Designates Benevolence International Foundation and Related Entities as Financiers of Terrorism (Nov. 19, 2002) ; Press Release, U.S. Dep't of Treas. Off. of Pub. Aff., Treasury Department Statement Regarding the Designation of the Global Relief Foundation (Oct. 22, 2002).

26 Press Release, U.S. Dep't of Treas. Off. of Pub. Aff., U.S.-Based Branch of Al Haramain Foundation Linked to Terror: Treasury Designates U.S. Branch, Director (Sept. 9, 2004).

27 Press Release, U.S. Dep't of Treas. Off. of Pub. Aff., Treasury Designates Global Network, Senior Officials of IARA for Supporting bin Laden, Others (Oct. 13, 2004). See also See Nate Carlisle & Mike Wells, Federal Agents Raid Columbia, Mo.-based Islamic Charity, Colum. Daily Trib., Oct. 14, 2004 (pg. unavail.).

28 Press Release, U.S. Dep't of Treas., Treasury Freezes Assets of Organization Tied to Hamas (Feb. 19, 2006).

29 Press Release, U.S. Dep't of Treas. Off. of Pub. Aff., Twin Treasury Actions Take Aim at Hizballah’s Support Network (July 24, 2007).

30 See OMB Watch, Muslim Charities and the War on Terror 6 (2006) (available at http://www.ombwatch.org/pdfs/muslim_charities.pdf) [hereinafter OMB Watch, Muslim Charities].

31 The IEEPA allows the President to regulate the use of frozen assets through the issuance of licenses. 50 U.S.C. § 1702(a)(1). In general, debiting a frozen account of blocked entities requires permission from OFAC in the form of a license. Pursuant to the authority delegated to it by the President, OFAC has promulgated regulations governing the issuance of general and specific licenses. See 31 C.F.R. § 501.801. Nevertheless, the issuance of licenses and the application of conditions thereto are discretionary and carried out on an ad hoc basis. See, e.g., 31 C.F.R. § 595.506 (providing that specific licenses for provision listed legal services to SDGTs “may be issued, on a case-by-case basis”).

32 For example, OFAC may issue licenses authorizing a designated entity to access frozen funds for paying attorneys’ fees. 31 C.F.R. § 595.506. SeeGlobal Relief Found., 207 F. Supp. 2d at 786. Alternatively, a blocked entity may pay attorneys’ fees from extra-jurisdictional “fresh funds” – that is, funds drawn from unblocked foreign sources, such as foreign bank accounts held at non-U.S. financial institutions. See William B. Hoffman, How to Approach a New Office of Foreign Assets Control Sanctions Program, 27 Stetson L. Rev. 1413, 1422-23 (1998).

33 Even after issuance, licenses are modifiable and revocable at OFAC’s discretion. 31 C.F.R. § 501.803.

34 OFAC may issue licenses authorizing a blocked entity to access frozen funds to pay administrative overhead costs and to settle outstanding debts. 31 C.F.R. § 501.801 (authorizing specific licenses on a case-by-case basis).See Nicole Nice-Petersen, Note, Justice for the “Designated”: The Process That Is Due to Alleged U.S. Financiers of Terrorism, 93 Geo. L.J. 1387, 1406, n.142 (2005). In terms of the operations of humanitarian relief organizations and grantmaking institutions, however, President George W. Bush specifically foreclosed the issuance of licenses for making donations “by, to, or for the benefit of” any blocked entity. See Exec. Order No. 13,438, 72 Fed. Reg. 39719, 39719 (July 17, 2007) (prohibiting donations of “funds, goods, or services”); Exec. Order No. 13,372, 70 Fed. Reg. 8499, 8499 (Feb. 16, 2005) (amending Executive Orders 13,224 and 12,947 to prohibit donations of “articles, such as food, clothing, and medicine, intended to be used to relieve human suffering”). The IEEPA expressly exempts donations of humanitarian relief aid from the President’s regulatory authority unless “the President determines that such donations . . . would seriously impair his ability to deal with any national emergency . . . or . . . would endanger Armed Forces of the United States which are engaged in hostilities . . . .” 50 U.S.C. § 1702(b)(2). Executive Orders 13,438 and 13,372 represent such a determination.

35 In the past, OFAC has refused to grant licenses authorizing the transfer of blocked assets to seemingly legitimate charities due to concerns that such funds can be at least partially diverted to terrorist activities and that OFAC has limited ability to monitor the use of funds overseas. See Nat’l Comm’n on 9-11, Monograph 101. In one highly publicized case, Benevolence International Foundation, Inc. v. Ashcroft, a blocked charity sought a license to transfer $700,000 to $800,000 of its blocked funds to overseas charitable causes, even offering to have Treasury officials escort the money to the intended recipient and monitor its eventual use. Nat’l Comm’n on 9-11, Monograph 101. Predictably, OFAC denied the license. Id. The report by the National Commission on 9-11 recounts that the charities’ legal bills ended up consuming the majority of the frozen funds, which infuriated donors who had donated the funds with the intentions that they be applied towards humanitarian relief aid. Id.See Gregory Vistica, Frozen Assets Going to Legal Bills, Wash. Post, Nov. 1, 2003, at A6.

36 OFAC has also denied licenses to individuals wanting to receive blocked funds to satisfy judgments they have obtained against blocked entities. SeeSage Realty Corp. v. U.S. Dep’t of Treas., No. 99 CIV. 3718(RJW), 2000 WL 272192, at *6 (S.D.N.Y. Mar. 10, 2000) (holding that OFAC did not abuse its discretion in denying a license to plaintiff property-management company to levy against a blocked Yugoslav bank account in order to execute a court judgment obtained by the plaintiff against a blocked entity).

37 OFAC may refuse to authorize the retention of counsel on a contingency basis that would entail payment of attorneys’ fees by a blocked entity from any funds recovered by settlement or judgment. SeeBeobanka d.d. Belgrade v. United States, No. Nos. 95 Civ. 5138 (HB), 95 Civ. 5771 (HB), 1997 WL 23182, at *1 (S.D.N.Y. Jan. 22, 1997) (upholding OFAC’s denial of applications to retain counsel to be paid either on a contingency basis from blocked funds recovered by settlement or judgment). Restrictions on the method of payment of counsel have been found not to deprive a litigant of due process of law. Seeid. at *1-2. Such restrictions are upheld against equal protection challenges if they are rationally related to the advancement of legitimate governmental purposes. Heller v. Doe, 509 U.S. 312, 319-20 (1993).

38 In contrast to section 12 of the IEEPA’s statutory predecessor, the Trading with the Enemy Act (TWEA), Pub. L. No. 65-91, ch. 106, 40 Stat. 411 (1917) (codified as amended at 50 App. U.S.C. §§ 1-44 (2006)), which explicitly authorized appointment of an “alien property custodian” to coordinate and administer the seizure and holding of property, the IEEPA is silent as to the Government’s duty of maintenance of and care for blocked assets. At least one court has held that Congress’s omission of a custodian provision indicates a lack of congressional intent to carry the custodian provision over from the TWEA and that, as such, the IEEPA imposes no obligation on OFAC to provide custodial agents for assets during seizure periods. SeeMilena Ship Mgmt. Co., 995 F.2d at 625 (5th Cir. 1993) ( holding that OFAC had no implied duty of maintenance and care with respect to vessels blocked under the former Republic of Yugoslavia embargo program). Seealso Rudolph Lehrer, Comment, Unbalancing the Terrorists’ Checkbook: Analysis of U.S. Policy in its Economic War on International Terrorism, 10 Tul. J. Int’l & Comp. L. 333, 343 (2002). As a corollary, OFAC likely has no duty to ensure the integrity of seized property under its control or to compensate third parties for incidental damages resulting from a freeze and could foreseeably return to the owner property that was blocked in error in a damaged condition. That the Government has no duty to compensate innocent third parties for incidental damage to their property caused by blocking orders is also clear. SeeRockefeller Ctr. Props. v. United States, 32 Fed. Cl. 586, 591-94 (1995) (holding that a blocking order preventing a landlord from evicting his tenant and from drawing on a letter of credit did not constitute unconstitutional takings within the meaning of the Fifth Amendment, given the importance of the public interest served by presidential actions carried out under the IEEPA).

39 These purposes include retaining a pool of blocked assets to use as leverage in negotiating the resolution of the broader defensive policy objective underlying the freezing regime or to settle claims of U.S. nationals against the target nation or entity. See Sokol Braha, The Changing Nature of U.S. Sanctions Against Yugoslavia, 8 MSU-DCL J. Int’l L. 273, 287 (1999).

40 Global Relief Found., 207 F. Supp. 2d at 802 (besides the fact that takings challenges may only be brought in the Federal Court of Federal Claims under the Tucker Act, a “temporary blocking of assets does not constitute a taking”); DC Precision, Inc. v. U.S. Government, 73 F. Supp. 2d 338, 343 n.1 (S.D.N.Y. 1999).

41 When the USG is engaged in armed hostilities with a foreign country or foreign nationals, the President is empowered to forfeit “any property, subject to the jurisdiction of the United States, of any foreign person, foreign organization, or foreign country that he determines has planned, authorized, aided, or engaged in such hostilities or attacks against the United States.” 50 U.S.C. § 1702(a)(1)(C). Section 316(d) of the USA PATRIOT Act (amending 18 U.S.C. § 983(i)(2)(D)) explicitly exempts such forfeiture actions from the procedural safeguards of the federal civil forfeiture laws.

42 See Indictment, United States v. Holy Land Found. for Relief & Dev., 2005 WL 4902463 (N.D. Tex. 2004) (No. 3:04-CR-240-G).

43 SeeEstates of Ungar ex rel. Strachman v. Palestinian Auth., 304 F. Supp. 2d 232, 241-43 (D.R.I. 2004); Boim v. Quranic Literacy Inst., 127 F. Supp. 2d 1002, 1021 (N.D. Ill. 2001).

44 Leslie Eaton, U.S. Prosecution of Muslim Group Ends in Mistrial, N.Y. Times, Oct. 23, 2007, at A1.

45 See S.A. Reid, Atlantans Charged in Cocain Ring: ‘Black Mafia’ Had Ties to Rap Music, Officials Say, Atlanta J. Const., Oct. 30, 2005, at E4; Staff, Cocaine Trafficking Ring Broken by Feds, Daily News (L.A.), Oct. 29, 2005, at N6.

46 See S.A. Reid, supra note 44, at E4.

47 Id.

48 Press Release, U.S. Dep't of Just., Sixteen Members of Black Mafia Family Charged in Cocaine Distribution Conspiracy (July 25, 2007.

49 See Press Release, U.S. Drug Enforcement Admin., DEA Deals Motor City Mafia a Knock-out Blow: Detroit Drug Legends Facing Twenty Years to Life (Oct. 28, 2005).

50 Id.

51 See Press Release, U.S. Drug Enforcement Admin., 16 Additional People Indicted in Large Scale Drug and Money Laundering Case (June 15, 2006.

52 See id.; Press Release, U.S. Drug Enforcement Admin., Major Drug Trafficker Connected To Black Mafia Family (BMF) Gets Life Sentence (May 4, 2007). See alsoUnited States v. One 2003 Hummer H2, VIN: 5GRGN23U03H109783, No. 06-11733, 2006 WL 3386565 (E.D. Mich. Nov. 21, 2006) (reviewing the Government’s attempt to forfeit a Hummer belonging to Stanley Lackey, one member of the BMF).

53 Press Release, U.S. Dep't of Just., supra note 47.

54 Civil Asset Forfeiture Reform Act of 2000 (CAFRA), Pub. L. No. 106-185, 14 Stat. 202 (codified as amended at various sections of 8, 18, 21, 28, 31, and 42 U.S.C.)).

55 See Stefan D. Cassella, The Civil Asset Forfeiture Reform Act of 2000: Expanded Government Forfeiture Authority and Strict Deadlines Imposed on All Parties, 27 J. Legis. 97, 125 (2001) [hereinafter Cassella, CAFRA 2000] ( “The enactment of CAFRA was, in part, a reaction to the perception that there was some inequity in imposing strict deadlines and sanctions on property owners contesting civil forfeiture actions, while not imposing similar deadlines and sanctions on the government. The logic was that if property owners were required to file claims within a fixed period of time, and were made to suffer consequences for failing to do so, the government should face deadlines and suffer consequences as well.”).

56 In general, the Government has sixty days from the date of the seizure of the property to send notice of the forfeiture action to all interested parties. 18 U.S.C. § 983(a)(1). Once the Government files a civil judicial complaint, property owners have thirty days from the last date of publication to file a claim to the property and twenty days from the filing of the claim to file and answer. 18 U.S.C. § 983(a)(2); § 983(a)(4). If a claim is filed, the Government has ninety days either to commence either a civil or criminal forfeiture action in federal court or to return the property to the owner. 18 U.S.C. § 983(a)(3). However, if no one files a claim challenging the forfeiture within thirty days, the Government can declare the property forfeited by default. 19 U.S.C. § 1609.

57 18 U.S.C. § 983(a)(3)(B).

58 A claim must be filed no later than thirty days either after the Government serves the complaint or after the date of final publication of the notice of the filing of the complaint. 18 U.S.C. § 983(a)(4)(A).

59 Under the hardship remedy, a claimant may file a petition for the release of seized property with the seizing authority, asserting that the property should be released to the claimant pending trial to avoid hardship. 18 U.S.C. § 983(f). A claimant must show that, among other things, he has filed a claim to the property, he has a possessory interest in the property, and the Government’s continued possession will cause hardship outweighing the risk that the property will be made unavailable for forfeiture upon its return to the claimant. 18 U.S.C. § 983(f)(1). If the seizing agency fails to grant the petition within fifteen days, the claimant may file the petition in the federal court sitting in the district either where the property was seized or where the seizure warrant was issued. 18 U.S.C. § 983(f)(3).

60 A claimant may challenge the forfeiture on the ground that it is grossly disproportionate to the gravity of the crime. 18 U.S.C. § 983(g). This provision essentially codifies the U.S. Supreme Court’s ruling in United States v. Bajakajian, 524 U.S. 321 (1998), which held that any forfeiture that is grossly disproportional to the gravity of the offense violates the Excessive Fines Clause of the Eighth Amendment. The claimant bears the burden of establishing the violation. 18 U.S.C. § 983(g)(3). Moreover, the determination is a matter of law to be decided by a court rather than by a jury. Id.

61 Pursuant to the innocent owner defense, a person who held a property interest at the time of the alleged crime bears the burden of proving either that he was unaware that his property was being employed for an illegal purpose or that, upon learning of the illegal use, he “did all that reasonably could be expected under the circumstances to terminate such use of the property.” 18 U.S.C. § 983(d)(2).

62 18 U.S.C. § 983(c)(1). If the government’s theory of forfeiture is that the property was used to facilitate a criminal offense or was involved in such offense, the government must prove a “substantial connection between the property and the offense.” 18 U.S.C. § 983(c)(3).

63 Although hearsay may be used to establish probable cause, it is not admissible for establishing the forfeitability of the property by a preponderance of the evidence. 18 U.S.C. § 983(c)(1). However, the government is explicitly permitted to use evidence “gathered after the filing of a complaint for forfeiture” to meet its burden of proof at trial. U.S.C. § 983(c)(2). Nevertheless, the Government must still have had enough evidence to establish probable cause at the time of filing or seizure. See 146 Cong. Rec. H2040-01, at H2050 (daily ed. Apr. 11, 2001) (statement of Rep. Hyde); Cassella, CAFRA 2000, supra note 54, at 108-09.

64 Criminal defendants have no constitutional due process right under the Sixth Amendment to legal fees from forfeited or forfeitable funds. SeeCaplin & Drysdale, Chartered v. United States, 491 U.S. 617, 622-23 (1989) (holding that the Sixth Amendment is not violated by preventing a criminal defendant from using forfeitable assets to pay attorneys’ fees). See alsoUnited States v. Payment Processing Ctr., 439 F. Supp. 2d 435, 441, n.3 (E.D. Pa. 2006) (“In a criminal case, of course, an indigent defendant would be eligible for court-appointed counsel. Thus, a criminal defendant’s inability to access property subject to forfeiture does not deprive the defendant of his right to counsel.”). However, restrictions on a defendant’s right to retain counsel in civil cases, where defendants are not entitled to court-appointed counsel, may deny a defendant his or her right to due process and access to the courts. Indeed, without provision for counsel or entitlement to recovery of legal fees in civil forfeiture cases, overzealous prosecutors could choose “to pursue the forfeiture in a civil proceeding rather than as part of [a] criminal case in order to deprive the claimant of his right to counsel.” 146 Cong. Rec. S1753-02 (daily ed. Mar. 27, 2000) (statement of Sen. Leahy in support of the passage of CAFRA). By enacting CAFRA, Congress sought to plug this due process loophole. See id.

65 See United States v. Melrose E. Subdiv., 357 F.3d 493, 501, 508 (5th Cir. 2004) (denying claimant’s motion to release restrained funds needed to retain an attorney in a related criminal case, upon finding that the government had met its burden of having to show probable cause at a post-restraint hearing to believe that the restrained assets were forfeitable).

66 CAFRA permits courts to authorize judicially appointed counsel to represent indigent criminal defendants in related federal civil forfeiture proceedings. 18 U.S.C. § 983(b)(1). While the determination of whether to authorize representation is discretionary, id. (providing that “the court may authorize counsel” (emphasis added)), such a determination is made by an independent judge according to comprehensible criteria: Judges are directed to weigh both the claimant’s standing to contest the forfeiture and whether the claim appears to be made in good faith. Id.

67 When the Government seeks to forfeit an indigent claimant’s primary residence, the court must afford the person with representation. 18 U.S.C. § 983(b)(2). In contrast to the discretionary nature of authorizations of counsel for criminal defendants in related civil cases, CAFRA provides that the court “shall insure that the person is represented by an attorney for the Legal Services Corporation” if “the property subject to forfeiture is real property that is being used by the person as a primary residence.” Id. (emphasis added).

68 CAFRA obligates the government to pay attorneys’ fees and litigation costs in a civil forfeiture proceeding to all claimants, including those who are not provided with counsel, if the claimants “substantially prevail” on their claim. 28 U.S.C. § 2465(b)(1)(A). The government is not liable for attorneys’ fees or litigation costs, however, if the claimant is convicted in a criminal case for which the interest of the claimant was subject to criminal forfeiture, 28 U.S.C. § 2465(b)(2)(B), or where multiple claims are filed and the government prevails on at least one claim while not contesting another. 28 U.S.C. § 2465(b)(2)(C). Similarly, if the government partially prevails in a civil proceeding, the court is required to reduce proportionally an award of attorneys’ fees and costs. 28 U.S.C. § 2465(b)(2)(D). Moreover, where a reasonable cause for the seizure is apparent, the claimant is not entitled to attorneys’ fees or costs. 28 U.S.C. § 2465(a)(2). Finally, some commentators have argued that the attorneys’-fee provision is inapplicable in cases where the government declines to file a forfeiture complaint, given that such cases do not involve “litigation.” See Cassella, CAFRA 2000, supra note 54, at 113, n.91. The legislative history appears to support this view. See, e.g., 146 Cong. Rec. H2040-01 (daily ed. Apr. 11, 2001) (statement of Rep. Hyde) (“The bill provides that property owners who substantially prevail in court proceedings challenging the seizure of their property will receive reasonable attorneys fees.”); 145 Cong. Rec. S14612-05 (daily ed. Nov. 16, 1999) (statement of Sen. Hatch) (“If the government decides to pursue a civil forfeiture action instead of the more difficult to prove criminal forfeiture action, it should be obligated to pay the attorney fees and costs of the property owner when the property owner prevails.”); 145 Cong. Rec. S14612-05 (daily ed. Nov. 16, 1999) (statement of Sen. Leahy) (“For claimants who were not appointed counsel by the court, the Hatch-Leahy bill allows for the recovery of reasonable attorney fees and costs if they substantially prevail in court.”). However, this reading of the statute has as of yet only been borne out in one circuit. See Synagogue v. United States, 482 F.3d 1058, 1062 (9th Cir. 2007) (construing 28 U.S.C. § 2465(b) as operative only upon “the conclusion of a court proceeding”).

69 Federal law authorizes the Department of Treasury to deposit assets seized and forfeited by the Treasury in a Treasury Forfeiture Fund (Treasury Fund). 31 U.S.C. § 9703(a) (2006). The money in the Treasury Fund is available to the Secretary to fund various law-enforcement activities, including reimbursement of forfeiture-related expenses. 31 U.S.C. § 9703(a)(1). Federal law also permits assets forfeited or seized by the Department of Justice to be placed in a special Department of Justice Forfeiture Fund (DoJ Fund), from which the Attorney General can withdraw moneys for funding various law-enforcement activities. 28 U.S.C. § 524(c)(1). (The most recent financial statement of the DoJ Fund is available at http://www.usdoj.gov/oig/reports/OBD/a0715.htm). The Attorney General is required to deposit in the Department of the Treasury Forfeiture Fund “amounts appropriate to reflect the degree of participation of the Department of the Treasury” in Department of Justice forfeitures. 28 U.S.C. § 524(c)(10). However, when property is civilly or criminally forfeited in relation to a drug offense, federal law permits the Attorney General either to retain the property for official use, to transfer the property to another agency that participated in the seizure or forfeiture, to sell non-illicit or non-harmful property, to destroy the property, or to deliver the property to a state or federal agency for medical or scientific use. 21 U.S.C. § 881(e)(1).

70 See Press Release, U.S. Drug Enforcement Admin., Arrest of Cali Mafia Leader Jose Santacruz-Londono (July 5, 1995).

71 See United States v. All Funds on Deposit in Any Accounts Maintained in Names of Castro Meza or Rodriguez de Castro, 856 F. Supp. 759 (E.D.N.Y. 1994).

72 See United States v. Banco Cafetero Pan., 797 F.2d 1154 (2d Cir. 1986).

 

 

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