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Inactive Financial Institution Letters 


[Federal Register: October 8, 1997 (Volume 62, Number 195)]
[Rules and Regulations]
[Page 52493-52501]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08oc97-7]

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DEPARTMENT OF THE TREASURY

Office of Foreign Assets Control

31 CFR Parts 501 and 597


Reporting and Procedures Regulations; Foreign Terrorist
Organizations Sanctions Regulations

AGENCY: Office of Foreign Assets Control, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Foreign Assets Control is issuing the Foreign
Terrorist Organizations Sanctions Regulations to implement sections 302
and 303 of the Antiterrorism and Effective Death Penalty Act as they
relate to the Treasury Department. Conforming and technical amendments
are made to the Reporting and Procedures Regulations.

EFFECTIVE DATE: October 6, 1997.

FOR FURTHER INFORMATION CONTACT: Office of Foreign Assets Control,
Department of the Treasury, Washington, DC 20220; tel.: 202/622-2520.

SUPPLEMENTARY INFORMATION:

Electronic and Facsimile Availability

    This document is available as an electronic file on The Federal
Bulletin Board the day of publication in the Federal Register. By
modem, dial 202/512-1387 and type ``/GO FAC,'' or call 202/512-1530 for
disk or paper copies. This file is available for downloading without
charge in WordPerfect 5.1, ASCII, and Adobe AcrobatTM
readable (*.PDF) formats. For Internet access, the address for use with
the World Wide Web (Home Page), Telnet, or FTP protocol is:
fedbbs.access.gpo.gov. The document is also accessible for downloading
in ASCII format without charge from Treasury's Electronic Library
(``TEL'') in the ``Business, Trade and Labor Mall'' of the FedWorld
bulletin board. By modem, dial 703/321-3339, and select the appropriate
self-expanding file in TEL. For Internet access, use one of the
following protocols: Telnet = fedworld.gov (192.239.93.3); World Wide
Web (Home

[[Page 52494]]

Page) = http://www.fedworld.gov; FTP = ftp.fedworld.gov
(192.239.92.205). Additional information concerning the programs of the
Office of Foreign Assets Control (``OFAC'') is available for
downloading from OFAC's Internet Home Page: http://www.ustreas.gov/
treasury/services/fac/fac.html, or in fax form through OFAC's 24-hour
fax-on-demand service: call 202/622-0077 using a fax machine, fax
modem, or (within the United States) a touch-tone telephone.

Background

    On April 24, 1996, President Clinton signed into law the
Antiterrorism and Effective Death Penalty Act of 1996, Pub. L. 104-132,
110 Stat. 1214-1319 (the ``Act''). Section 302 of the Act (new 8 U.S.C.
1189) authorizes the Secretary of State, in consultation with the
Secretary of the Treasury and the Attorney General, to designate
organizations meeting stated requirements as foreign terrorist
organizations, with prior notification to Congress of the intent to
designate. Upon that notification to Congress, the Secretary of the
Treasury may require U.S. financial institutions to block financial
transactions involving assets in their possession or control of the
foreign organizations proposed for designation.
    Section 303 of the Act (new 18 U.S.C. 2339B) prohibits persons
within the United States or subject to U.S. jurisdiction from knowingly
providing material support or resources to a designated foreign
terrorist organization, and makes violations punishable by criminal
penalties under title 18, United States Code. Additionally, except as
authorized by the Treasury Department, financial institutions in
possession or control of funds in which a foreign terrorist
organization or its agent has an interest are required to block such
funds and file reports in accordance with Treasury Department
regulations. Financial institutions in violation of 18 U.S.C.
2339B(a)(2) are subject to civil penalties administered by the Treasury
Department. In implementation of sections 302 and 303 and the statutory
purpose stated in section 301, the Treasury Department is issuing the
Foreign Terrorist Organizations Sanctions Regulations (the
``Regulations'').
    Transactions otherwise prohibited under this part but found to be
consistent with U.S. policy may be authorized by a general license
contained in subpart E or by a specific license issued pursuant to the
procedures described in subpart D of part 501 of this chapter.
Penalties for violations of the Regulations are described in subpart G.
    Conforming and technical amendments are also made to the Reporting
and Procedures Regulations, 31 CFR Part 501. Since the Regulations
involve a foreign affairs function, the provisions of Executive Order
12866 and the Administrative Procedure Act (5 U.S.C. 553), requiring
notice of proposed rulemaking, opportunity for public participation,
and delay in effective date, are inapplicable. Because no notice of
proposed rulemaking is required for this rule, the Regulatory
Flexibility Act (5 U.S.C. 601-612) does not apply.

Paperwork Reduction Act

    The Regulations are being issued without prior notice and public
comment procedure pursuant to the Administrative Procedure Act (5
U.S.C. 553). The collections of information related to the Regulations
are contained in part 501 of this chapter (the ``Reporting and
Procedures Regulations''). Pursuant to the Paperwork Reduction Act of
1995 (44 U.S.C. 3507), those collections of information have been
approved by the Office of Management and Budget (``OMB'') under control
number 1505-0164. An agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless the
collection of information displays a valid control number.

List of Subjects

31 CFR Part 501
    Administrative practice and procedure, Banks, banking, Blocking of
assets, Foreign trade, Reporting and recordkeeping requirements

31 CFR Part 597
    Administrative practice and procedure, Banks, banking, Blocking of
assets, Foreign terrorist organizations, Penalties, Reporting and
recordkeeping requirements, Terrorism, Transfer of assets.

    For the reasons set forth in the preamble, 31 CFR chapter V is
amended as follows:

PART 501--REPORTING AND PROCEDURES REGULATIONS

    1. The authority citation for part 501 continues to read as
follows:

    Authority: 22 U.S.C. 287c; 31 U.S.C. 321(b); 50 U.S.C. 1701-
1706; 50 U.S.C. App. 1-44.

    2. Section 501.101 is revised to read as follows:

Sec. 501.101  Relation of this part to other parts in this chapter.

    This part sets forth standard reporting and recordkeeping
requirements and license application and other procedures governing
transactions regulated pursuant to other parts codified in this
chapter, as well as to economic sanctions programs for which
implementation and administration are delegated to the Office of
Foreign Assets Control. Substantive prohibitions and policies
particular to each economic sanctions program are not contained in this
part but are set forth in the particular part of this chapter dedicated
to that program, or, in the case of economic sanctions programs not yet
implemented in regulations, in the applicable executive order or other
authority. License application procedures and reporting requirements
set forth in this part govern transactions undertaken pursuant to
general or specific licenses. The criteria for general and specific
licenses pertaining to a particular economic sanctions program are set
forth in subpart E of the individual parts in this chapter. Statements
of licensing policy contained in subpart E of the individual parts in
this chapter, however, may contain additional information collection
provisions that require production of specified documentation unique to
a given general license or statement of licensing policy.

    3. The following note is added to the end of Sec. 501.601 to read
as follows:

    Note: See subpart F of part 597 for the relationship between
this section and part 597.

    4. Section 501.602 is amended by revising the last sentence to read
as follows, and by adding the following note to the end of the section:

Sec. 501.602  Reports to be furnished on demand.

    * * * Except as provided in parts 596 and 597, the Director may,
through any person or agency, conduct investigations, hold hearings,
administer oaths, examine witnesses, receive evidence, take
depositions, and require by subpoena the attendance and testimony of
witnesses and the production of all books, papers, and documents
relating to any matter under investigation, regardless of whether any
report has been required or filed in connection therewith.
    Note: See subpart F of part 597 for the relationship between
this section and part 597.

    5. The following note is added to the end of Sec. 501.603 to read
as follows:

[[Page 52495]]

    Note: See subpart F of part 597 for the relationship between
this section and part 597.

    6. Section 501.806 is amended by revising paragraph (b) to read as
follows:

Sec. 501.806  Procedures for unblocking funds believed to have been
blocked due to mistaken identity.

* * * * *
    (b) Requests to release funds which a party believes to have been
blocked due to mistaken identity must be made in writing and addressed
to the Office of Foreign Assets Control, Compliance Programs Division,
1500 Pennsylvania Avenue, NW--Annex, Washington, DC 20220, or sent by
facsimile transmission to the Compliance Programs Division at 202/622-
1657.
* * * * *

    7. Section 501.807 is amended by revising paragraph (a) to read as
follows:

Sec. 501.807  Procedures governing removal of names from appendices A,
B, and C to this chapter.

* * * * *
    (a) A specially designated national (``SDN''), specially designated
terrorist (``SDT''), specially designated narcotics trafficker
(``SDNT''), or an agent of a foreign terrorist organization (``AFTO'')
(collectively, a ``designated person''), or a person owning a majority
interest in a blocked vessel, may request disclosure of the factual
basis for designation and, subject to the limitations contained in
paragraph (c) of this section, review factual materials relied upon by
the Office of Foreign Assets Control in designating the person or
vessel.

    8. Part 597 is added to read as follows:

PART 597--FOREIGN TERRORIST ORGANIZATIONS SANCTIONS REGULATIONS

Subpart A--Relation of This Part to Other Laws and Regulations

Sec.
597.101 Relation of this part to other laws and regulations.

Subpart B--Prohibitions

597.201 Prohibited transactions involving blocked assets or funds of
foreign terrorist organizations or their agents.
597.202 Effect of transfers violating the provisions of this part.
597.203 Holding of funds in interest-bearing accounts; investment
and reinvestment.
597.204 Evasions; attempts; conspiracies.

Subpart C--General Definitions

597.301 Agent.
597.302 Assets.
597.303 Blocked account; blocked funds.
597.304 Designation.
597.305 Effective date.
597.306 Entity.
597.307 Financial institution.
597.308 Financial transaction.
597.309 Foreign terrorist organization.
597.310 Funds.
597.311 General license.
597.312 Interest.
597.313 License.
597.314 Person.
597.315 Specific license.
597.316 Transaction.
597.317 Transfer.
597.318 United States.
597.319 U.S. financial institution.

Subpart D--Interpretations

597.401 Reference to amended sections.
597.402 Effect of amendment.
597.403 Termination and acquisition of an interest in blocked funds.
597.404 Setoffs prohibited.
597.405 Transactions incidental to a licensed transaction.
597.406 Offshore transactions.

Subpart E--Licenses, Authorizations and Statements of Licensing Policy

597.501 Effect of license or authorization.
597.502 Exclusion from licenses and authorizations.
597.503 Payments and transfers to blocked accounts in U.S. financial
institutions.
597.504 Entries in certain accounts for normal service charges
authorized.
597.505 Payment for certain legal services.

Subpart F--Reports

597.601 Records and reports.

Subpart G--Penalties

597.701 Penalties.
597.702 Prepenalty notice.
597.703 Response to prepenalty notice.
597.704 Penalty notice.
597.705 Administrative collection; referral to United States
Department of Justice.

Subpart H--Procedures

597.801 Procedures.
597.802 Delegation by the Secretary of the Treasury.

Subpart I--Paperwork Reduction Act

597.901 Paperwork Reduction Act notice.

    Authority: 31 U.S.C. 321(b); Pub. L. 104-132, 110 Stat. 1214,
1248-53 (8 U.S.C. 1189, 18 U.S.C. 2339B).

Subpart A--Relation of This Part to Other Laws andRegulations

Sec. 597.101  Relation of this part to other laws and regulations.

    (a) This part is separate from, and independent of, the other parts
of this chapter, with the exception of part 501 of this chapter, the
recordkeeping and reporting requirements and license application and
other procedures of which apply to this part. Differing statutory
authority and foreign policy and national security contexts may result
in differing interpretations of similar language among the parts of
this chapter. No license or authorization contained in or issued
pursuant to those other parts authorizes any transaction prohibited by
this part. No license or authorization contained in or issued pursuant
to any other provision of law or regulation authorizes any transaction
prohibited by this part.
    (b) No license or authorization contained in or issued pursuant to
this part relieves the involved parties from complying with any other
applicable laws or regulations. This part does not implement, construe,
or limit the scope of any other part of this chapter, including (but
not limited to) the Terrorism Sanctions Regulations, part 595 of this
chapter, and does not excuse any person from complying with any other
part of this chapter, including (but not limited to) part 595 of this
chapter.
    (c) This part does not implement, construe, or limit the scope of
any criminal statute, including (but not limited to) 18 U.S.C.
2339B(a)(1) and 2339A, and does not excuse any person from complying
with any criminal statute, including (but not limited to) 18 U.S.C.
2339B(a)(1) and 18 U.S.C. 2339A.

Subpart B--Prohibitions

Sec. 597.201  Prohibited transactions involving blocked assets or funds
of foreign terrorist organizations or their agents.

    (a) Upon notification to Congress of the Secretary of State's
intent to designate an organization as a foreign terrorist organization
pursuant to 8 U.S.C. 1189(a), until the publication in the Federal
Register as described in paragraph (c) of this section, any U.S.
financial institution receiving notice from the Secretary of the
Treasury by means of order, directive, instruction, regulation, ruling,
license, or otherwise shall, except as otherwise provided in such
notice, block all financial transactions involving any assets of such
organization within the possession or control of such U.S. financial
institution until further directive from the Secretary of the Treasury,
Act of Congress, or order of court.
    (b) Except as otherwise authorized by order, directive,
instruction, regulation, ruling, license, or otherwise, from and after
the designation of an organization as a foreign terrorist organization
pursuant to 8 U.S.C. 1189(a), any U.S. financial institution that
becomes aware that it has possession of or control over any funds in
which the designated foreign terrorist organization or its agent has an
interest shall:
    (1) Retain possession of or maintain control over such funds; and
    (2) Report to the Secretary of the Treasury the existence of such
funds in accordance with Sec. 501.603 of this chapter.

[[Page 52496]]

    (c) Publication in the Federal Register of the designation of an
organization as a foreign terrorist organization pursuant to 8 U.S.C.
1189(a) shall be deemed to constitute a further directive from the
Secretary of the Treasury for purposes of paragraph (a) of this
section, and shall require the actions contained in paragraph (b) of
this section.
    (d) The requirements of paragraph (b) of this section shall remain
in effect until the effective date of an administrative, judicial, or
legislative revocation of the designation of an organization as a
foreign terrorist organization, or until the designation lapses,
pursuant to 8 U.S.C. 1189.
    (e) When a transaction results in the blocking of funds at a
financial institution pursuant to this section and a party to the
transaction believes the funds have been blocked due to mistaken
identity, that party may seek to have such funds unblocked pursuant to
the administrative procedures set forth in Sec. 501.806 of this
chapter. Requests for the unblocking of funds pursuant to Sec. 501.806
must be submitted to the attention of the Compliance Programs Division.

Sec. 597.202  Effect of transfers violating the provisions of this
part.

    (a) Any transfer after the effective date which is in violation of
Sec. 597.201 or any other provision of this part or of any regulation,
order, directive, ruling, instruction, license, or other authorization
hereunder and involves any funds or assets held in the name of a
foreign terrorist organization or its agent or in which a foreign
terrorist organization or its agent has or has had an interest since
such date, is null and void and shall not be the basis for the
assertion or recognition of any interest in or right, remedy, power or
privilege with respect to such funds or assets.
    (b) No transfer before the effective date shall be the basis for
the assertion or recognition of any right, remedy, power, or privilege
with respect to, or interest in, any funds or assets held in the name
of a foreign terrorist organization or its agent or in which a foreign
terrorist organization or its agent has an interest, or has had an
interest since such date, unless the financial institution with whom
such funds or assets are held or maintained, prior to such date, had
written notice of the transfer or by any written evidence had
recognized such transfer.
    (c) Unless otherwise provided, an appropriate license or other
authorization issued by or pursuant to the direction or authorization
of the Director of the Office of Foreign Assets Control before, during,
or after a transfer shall validate such transfer or render it
enforceable to the same extent that it would be valid or enforceable
but for the provisions of this part, and any regulation, order,
directive, ruling, instruction, or license issued hereunder.
    (d) Transfers of funds or assets which otherwise would be null and
void or unenforceable by virtue of the provisions of this section shall
not be deemed to be null and void or unenforceable as to any financial
institution with whom such funds or assets were held or maintained (and
as to such financial institution only) in cases in which such financial
institution is able to establish to the satisfaction of the Director of
the Office of Foreign Assets Control each of the following:
    (1) Such transfer did not represent a willful violation of the
provisions of this part by the financial institution with whom such
funds or assets were held or maintained;
    (2) The financial institution with which such funds or assets were
held or maintained did not have reasonable cause to know or suspect, in
view of all the facts and circumstances known or available to such
institution, that such transfer required a license or authorization by
or pursuant to this part and was not so licensed or authorized, or if a
license or authorization did purport to cover the transfer, that such
license or authorization had been obtained by misrepresentation of a
third party or the withholding of material facts or was otherwise
fraudulently obtained; and
    (3) The financial institution with which such funds or assets were
held or maintained filed with the Office of Foreign Assets Control a
report setting forth in full the circumstances relating to such
transfer promptly upon discovery that:
    (i) Such transfer was in violation of the provisions of this part
or any regulation, ruling, instruction, license, or other direction or
authorization hereunder; or
    (ii) Such transfer was not licensed or authorized by the Director
of the Office of Foreign Assets Control; or
    (iii) If a license did purport to cover the transfer, such license
had been obtained by misrepresentation of a third party or the
withholding of material facts or was otherwise fraudulently obtained.
    Note to paragraph (d): The filing of a report in accordance with
the provisions of paragraph (d)(3) of this section shall not be
deemed evidence that the terms of paragraphs (d)(1) and (2) of this
section have been satisfied.
    (e) Except for exercises of judicial authority pursuant to 8 U.S.C.
1189(b), unless licensed or authorized pursuant to this part, any
attachment, judgment, decree, lien, execution, garnishment, or other
judicial process is null and void with respect to any funds or assets
which, on or since the effective date, were in the possession or
control of a U.S. financial institution and were held in the name of a
foreign terrorist organization or its agent or in which there existed
an interest of a foreign terrorist organization or its agent.

Sec. 597.203  Holding of funds in interest-bearing accounts; investment
and reinvestment.

    (a) Except as provided in paragraph (c) of this section, or as
otherwise directed by the Office of Foreign Assets Control, any U.S.
financial institution holding funds subject to Sec. 597.201(b) shall
hold or place such funds in a blocked interest-bearing account which is
in the name of the foreign terrorist organization or its agent and
which is located in the United States.
    (b)(1) For purposes of this section, the term interest-bearing
account means a blocked account:
    (i) in a federally-insured U.S. bank, thrift institution, or credit
union, provided the funds are earning interest at rates which are
commercially reasonable for the amount of funds in the account or
certificate of deposit; or
    (ii) with a broker or dealer registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, provided
the funds are invested in a money market fund or in U.S. Treasury
Bills.
    (2) Funds held or placed in a blocked interest-bearing account
pursuant to this paragraph may not be invested in instruments the
maturity of which exceeds 180 days. If interest is credited to a
separate blocked account or sub-account, the name of the account party
on each account must be the same and must clearly indicate the foreign
terrorist organization or agent having an interest in the accounts.
    (c) Blocked funds held as of the effective date in the form of
stocks, bonds, debentures, letters of credit, or instruments which
cannot be negotiated for the purpose of placing the funds in a blocked
interest-bearing account pursuant to paragraph (a) may continue to be
held in the form of the existing security or instrument until
liquidation or maturity, provided that any dividends, interest income,
or other proceeds derived therefrom are paid into a blocked interest-
bearing account in accordance with the requirements of this section.
    (d) Funds subject to this section may not be held, invested, or
reinvested in

[[Page 52497]]

a manner in which an immediate financial or economic benefit or access
accrues to the foreign terrorist organization or its agent.

Sec. 597.204  Evasions; attempts; conspiracies.

    Any transaction for the purpose of, or which has the effect of,
evading or avoiding, or which facilitates the evasion or avoidance of,
any of the prohibitions set forth in this part, is hereby prohibited.
Any attempt to violate the prohibitions set forth in this part is
hereby prohibited. Any conspiracy formed for the purpose of engaging in
a transaction prohibited by this part is hereby prohibited.

Subpart C--General Definitions

Sec. 597.301  Agent.

    (a) The term agent means:
    (1) Any person owned or controlled by a foreign terrorist
organization; or
    (2) Any person to the extent that such person is, or has been, or
to the extent that there is reasonable cause to believe that such
person is, or has been, since the effective date, acting or purporting
to act directly or indirectly on behalf of a foreign terrorist
organization.
    (b) The term agent includes, but is not limited to, any person
determined by the Director of the Office of Foreign Assets Control to
be an agent as defined in paragraph (a) of this section.
    Note to Sec. 597.301: Please refer to the appendices at the end
of this chapter for listings of persons designated as foreign
terrorist organizations or their agents. Section 501.807 of this
chapter sets forth the procedures to be followed by a person seeking
administrative reconsideration of a designation as an agent, or who
wishes to assert that the circumstances resulting in the designation
as an agent are no longer applicable.

Sec. 597.302  Assets.

    The term assets includes, but is not limited to, money, checks,
drafts, bullion, bank deposits, savings accounts, debts, indebtedness,
obligations, notes, guarantees, debentures, stocks, bonds, coupons, any
other financial instruments, bankers acceptances, mortgages, pledges,
liens or other rights in the nature of security, warehouse receipts,
bills of lading, trust receipts, bills of sale, any other evidences of
title, ownership or indebtedness, letters of credit and any documents
relating to any rights or obligations thereunder, powers of attorney,
goods, wares, merchandise, chattels, stocks on hand, ships, goods on
ships, real estate mortgages, deeds of trust, vendors' sales
agreements, land contracts, leaseholds, ground rents, real estate and
any other interest therein, options, negotiable instruments, trade
acceptances, royalties, book accounts, accounts payable, judgments,
patents, trademarks or copyrights, insurance policies, safe deposit
boxes and their contents, annuities, pooling agreements, services of
any nature whatsoever, contracts of any nature whatsoever, and any
other property, real, personal, or mixed, tangible or intangible, or
interest or interests therein, present, future or contingent.

Sec. 597.303  Blocked account; blocked funds.

    The terms blocked account and blocked funds shall mean any account
or funds subject to the prohibitions in Sec. 597.201 held in the name
of a foreign terrorist organization or its agent or in which a foreign
terrorist organization or its agent has an interest, and with respect
to which payments, transfers, exportations, withdrawals, or other
dealings may not be made or effected except pursuant to an
authorization or license from the Office of Foreign Assets Control
authorizing such action.

Sec. 597.304  Designation.

    The term designation includes both the designation and
redesignation of a foreign terrorist organization pursuant to 8 U.S.C.
1189.

Sec. 597.305  Effective date.

    Except as that term is used in Sec. 597.201(d), the term effective
date refers to the effective date of the applicable prohibitions and
directives contained in this part which is October 6, 1997, or, in the
case of foreign terrorist organizations designated after that date and
their agents, the earlier of the date on which a financial institution
receives actual or constructive notice of such designation or of the
Secretary of Treasury's exercise of his authority to block financial
transactions pursuant to 8 U.S.C. 1189(a)(2)(C) and Sec. 597.201(a).

Sec. 597.306  Entity.

    The term entity includes a partnership, association, corporation,
or other organization, group, or subgroup.

Sec. 597.307  Financial institution.

    The term financial institution shall have the definition given that
term in 31 U.S.C. 5312(a)(2) as from time to time amended,
notwithstanding the definition of that term in 31 CFR part 103.
    Note: The breadth of the statutory definition of financial
institution precludes its reproduction in this section. Among the
types of businesses covered are insured banks (as defined in 12
U.S.C. 1813(h)), commercial banks or trust companies, private
bankers, agencies or branches of a foreign bank in the United
States, insured institutions (as defined in 12 U.S.C. 1724(a)),
thrift institutions, brokers or dealers registered with the
Securities and Exchange Commission under 15 U.S.C. 78a et seq.,
securities or commodities brokers and dealers, investment bankers or
investment companies, currency exchanges, issuers, redeemers, or
cashiers of traveler's checks, checks, money orders, or similar
instruments, credit card system operators, insurance companies,
dealers in precious metals, stones or jewels, pawnbrokers, loan or
finance companies, travel agencies, licensed senders of money,
telegraph companies, businesses engaged in vehicle sales, including
automobile, airplane or boat sales, persons involved in real estate
closings and settlements, the United States Postal Service, a
casino, gambling casino, or gaming establishment with an annual
gaming revenue of more than $1,000,000 as further described in 31
U.S.C. 5312(a)(2), or agencies of the United States Government or of
a State or local government carrying out a duty or power of any of
the businesses described in 31 U.S.C. 5312(a)(2).

Sec. 597.308  Financial transaction.

    The term financial transaction means a transaction involving the
transfer or movement of funds, whether by wire or other means.

Sec. 597.309  Foreign terrorist organization.

    The term foreign terrorist organization means an organization
designated or redesignated as a foreign terrorist organization, or with
respect to which the Secretary of State has notified Congress of the
intention to designate as a foreign terrorist organization, under 8
U.S.C. 1189(a).

Sec. 597.310  Funds.

    The term funds includes coin or currency of the United States or
any other country, traveler's checks, personal checks, bank checks,
money orders, stocks, bonds, debentures, drafts, letters of credit, any
other negotiable instrument, and any electronic representation of any
of the foregoing. An electronic representation of any of the foregoing
includes any form of digital or electronic cash, coin, or currency in
use currently or placed in use in the future.

Sec. 597.311  General license.

    The term general license means any license or authorization the
terms of which are set forth in this part.

Sec. 597.312  Interest.

    Except as otherwise provided in this part, the term interest when
used with respect to funds or assets (e.g., ``an interest in funds'')
means an interest of any nature whatsoever, direct or indirect.

[[Page 52498]]

Sec. 597.313  License.

    Except as otherwise specified, the term license means any license
or authorization contained in or issued pursuant to this part.

Sec. 597.314  Person.

    The term person means an individual or entity.

Sec. 597.315  Specific license.

    The term specific license means any license or authorization not
set forth in this part but issued pursuant to this part.

Sec. 597.316  Transaction.

    The term transaction shall have the meaning set forth in 18 U.S.C.
1956(c)(3), as from time to time amended. As of the effective date,
this term includes a purchase, sale, loan, pledge, gift, transfer,
delivery, or other disposition of any asset, and with respect to a
financial institution includes a deposit, withdrawal, transfer between
accounts, exchange of currency, loan, extension of credit, purchase or
sale of any stock, bond, certificate of deposit, or other monetary
instrument, use of a safe deposit box, or any other payment, transfer,
or delivery by, through, or to a financial institution, by whatever
means effected.

Sec. 597.317  Transfer.

    The term transfer means any actual or purported act or transaction,
whether or not evidenced by writing, and whether or not done or
performed within the United States, the purpose, intent, or effect of
which is to create, surrender, release, convey, transfer, or alter,
directly or indirectly, any right, remedy, power, privilege, or
interest with respect to any property and, without limitation upon the
foregoing, shall include the making, execution, or delivery of any
assignment, power, conveyance, check, declaration, deed, deed of trust,
power of attorney, power of appointment, bill of sale, mortgage,
receipt, agreement, contract, certificate, gift, sale, affidavit, or
statement; the making of any payment; the setting off of any obligation
or credit; the appointment of any agent, trustee, or fiduciary; the
creation or transfer of any lien; the issuance, docketing, filing, or
levy of or under any judgment, decree, attachment, injunction,
execution, or other judicial or administrative process or order, or the
service of any garnishment; the acquisition of any interest of any
nature whatsoever by reason of a judgment or decree of any foreign
country; the fulfillment of any condition; the exercise of any power of
appointment, power of attorney, or other power; or the acquisition,
disposition, transportation, importation, exportation, or withdrawal of
any security.

Sec. 597.318  United States.

    The term United States means the United States, its territories,
states, commonwealths, districts, and possessions, and all areas under
the jurisdiction or authority thereof.

Sec. 597.319  U.S. financial institution.

    The term U.S. financial institution means:
    (a) Any financial institution organized under the laws of the
United States, including such financial institution's foreign branches;
    (b) Any financial institution operating or doing business in the
United States; or
    (c) Those branches, offices and agencies of foreign financial
institutions which are located in the United States, but not such
foreign financial institutions' other foreign branches, offices, or
agencies.

Subpart D--Interpretations

Sec. 597.401  Reference to amended sections.

    Except as otherwise specified, reference to any section of this
part or to any regulation, ruling, order, instruction, direction, or
license issued pursuant to this part shall be deemed to refer to the
same as currently amended.

Sec. 597.402  Effect of amendment.

    Any amendment, modification, or revocation of any section of this
part or of any order, regulation, ruling, instruction, or license
issued by or under the direction of the Director of the Office of
Foreign Assets Control shall not, unless otherwise specifically
provided, be deemed to affect any act done or omitted to be done, or
any civil or criminal suit or proceeding commenced or pending prior to
such amendment, modification, or revocation. All penalties,
forfeitures, and liabilities under any such order, regulation, ruling,
instruction, or license shall continue and may be enforced as if such
amendment, modification, or revocation had not been made.

Sec. 597.403  Termination and acquisition of an interest in blocked
funds.

    (a) Whenever a transaction licensed or authorized by or pursuant to
this part results in the transfer of funds (including any interest in
funds) away from a foreign terrorist organization or its agent, such
funds shall no longer be deemed to be funds in which the foreign
terrorist organization or its agent has or has had an interest, or
which are held in the name of a foreign terrorist organization or its
agent, unless there exists in the funds another interest of a foreign
terrorist organization or its agent, the transfer of which has not been
effected pursuant to license or other authorization.
    (b) Unless otherwise specifically provided in a license or
authorization issued pursuant to this part, if funds (including any
interest in funds) are or at any time since the effective date have
been held by a foreign terrorist organization or its agent, or at any
time thereafter are transferred or attempted to be transferred to a
foreign terrorist organization or its agent, including by the making of
any contribution to or for the benefit of a foreign terrorist
organization or its agent, such funds shall be deemed to be funds in
which there exists an interest of the foreign terrorist organization or
its agent.

Sec. 597.404  Setoffs prohibited.

    A setoff against blocked funds (including a blocked account) by a
U.S. financial institution is a prohibited transaction under
Sec. 597.201 if effected after the effective date.

Sec. 597.405  Transactions incidental to a licensed transaction.

    Any transaction ordinarily incident to a licensed transaction and
necessary to give effect thereto is also authorized, except a
transaction by an unlicensed, foreign terrorist organization or its
agent or involving a debit to a blocked account or a transfer of
blocked funds not explicitly authorized within the terms of the
license.

Sec. 597.406  Offshore transactions.

    The prohibitions contained in Sec. 597.201 apply to transactions by
U.S. financial institutions in locations outside the United States with
respect to funds or assets which the U.S. financial institution knows,
or becomes aware, are held in the name of a foreign terrorist
organization or its agent, or in which the U.S. financial institution
knows, or becomes aware that, a foreign terrorist organization or its
agent has or has had an interest since the effective date.

Subpart E--Licenses, Authorizations, and Statements of Licensing
Policy

Sec. 597.501  Effect of license or authorization.

    (a) No license or other authorization contained in this part, or
otherwise issued by or under the direction of the Director of the
Office of Foreign Assets Control, shall be deemed to authorize or
validate any transaction effected prior to

[[Page 52499]]

the issuance of the license, unless specifically provided in such
license or authorization.
    (b) No regulation, ruling, instruction, or license authorizes any
transaction prohibited under this part unless the regulation, ruling,
instruction, or license is issued by the Office of Foreign Assets
Control and specifically refers to this part. No regulation, ruling,
instruction, or license referring to this part shall be deemed to
authorize any transaction prohibited by any provision of this chapter
unless the regulation, ruling, instruction or license specifically
refers to such provision.
    (c) Any regulation, ruling, instruction, or license authorizing any
transaction otherwise prohibited under this part has the effect of
removing a prohibition or prohibitions contained in this part from the
transaction, but only to the extent specifically stated by its terms.
Unless the regulation, ruling, instruction, or license otherwise
specifies, such an authorization does not create any right, duty,
obligation, claim, or interest in, or with respect to, any property
which would not otherwise exist under ordinary principles of law.

Sec. 597.502  Exclusion from licenses and authorizations.

    The Director of the Office of Foreign Assets Control reserves the
right to exclude any person, property, or transaction from the
operation of any license, or from the privileges therein conferred, or
to restrict the applicability thereof with respect to particular
persons, property, transactions, or classes thereof. Such action shall
be binding upon all persons receiving actual or constructive notice of
such exclusion or restriction.

Sec. 597.503  Payments and transfers to blocked accounts in U.S.
financial institutions.

    (a) Any payment of funds or transfer of credit or other financial
or economic resources or assets by a financial institution into a
blocked account in a U.S. financial institution is authorized, provided
that a transfer from a blocked account pursuant to this authorization
may only be made to another blocked account held in the same name on
the books of the same U.S. financial institution.
    (b) This section does not authorize any transfer from a blocked
account within the United States to an account held outside the United
States.
    Note to Sec. 597.503: Please refer to Secs. 501.603 and 597.601
of this chapter for mandatory reporting requirements regarding
financial transfers.

Sec. 597.504  Entries in certain accounts for normal service charges
authorized.

    (a) U.S. financial institutions are hereby authorized to debit any
blocked account with such U.S. financial institution in payment or
reimbursement for normal service charges owed to such U.S. financial
institution by the owner of such blocked account.
    (b) As used in this section, the term normal service charge shall
include charges in payment or reimbursement for interest due; cable,
telegraph, or telephone charges; postage costs; custody fees; small
adjustment charges to correct bookkeeping errors; and, but not by way
of limitation, minimum balance charges, notary and protest fees, and
charges for reference books, photostats, credit reports, transcripts of
statements, registered mail insurance, stationery and supplies, check
books, and other similar items.

Sec. 597.505  Payment for certain legal services.

    Specific licenses may be issued, on a case-by-case basis,
authorizing receipt of payment of professional fees and reimbursement
of incurred expenses through a U.S. financial institution for the
following legal services by U.S. persons:
    (a) Provision of legal advice and counseling to a foreign terrorist
organization or an agent thereof on the requirements of and compliance
with the laws of any jurisdiction within the United States, provided
that such advice and counseling is not provided to facilitate
transactions in violation of any of the prohibitions of this part;
    (b) Representation of a foreign terrorist organization or an agent
thereof when named as a defendant in or otherwise made a party to
domestic U.S. legal, arbitration, or administrative proceedings;
    (c) Initiation and conduct of domestic U.S. legal, arbitration, or
administrative proceedings on behalf of a foreign terrorist
organization or an agent thereof;
    (d) Representation of a foreign terrorist organization or an agent
thereof before any federal or state agency with respect to the
imposition, administration, or enforcement of U.S. sanctions against a
foreign terrorist organization or an agent thereof;
    (e) Provision of legal services to a foreign terrorist organization
or an agent thereof in any other context in which prevailing U.S. law
requires access to legal counsel at public expense; and
    (f) Representation of a foreign terrorist organization seeking
judicial review of a designation before the United States Court of
Appeals for the District of Columbia Circuit pursuant to 8 U.S.C.
1189(b)(1).

Subpart F--Reports

Sec. 597.601  Records and reports.

    For provisions relating to records and reports, see subpart C of
part 501 of this chapter; provided, however, that all of the powers
afforded the Director pursuant to the first 3 sentences of Sec. 501.602
of this chapter may also be exercised by the Attorney General in
conducting administrative investigations pursuant to 18 U.S.C.
2339B(e); provided further, that the investigative authority of the
Director pursuant to Sec. 501.602 of this chapter shall be exercised in
accordance with 18 U.S.C. 2339B(e); and provided further, that for
purposes of this part no person other than a U.S. financial institution
and its directors, officers, employees, and agents shall be required to
maintain records or to file any reports or furnish any information
under Secs. 501.601, 501.602, or 501.603 of this chapter.

Subpart G--Penalties

Sec. 597.701  Penalties.

    (a) Attention is directed to 18 U.S.C. 2339B(a)(1), as added by
Public Law 104-132, 110 Stat. 1250-1253, section 303, which provides
that whoever, within the United States or subject to the jurisdiction
of the United States, knowingly provides material support or resources
to a foreign terrorist organization, or attempts or conspires to do so,
shall be fined under title 18, United States Code, or imprisoned for
not more than 10 years, or both.
    (b) Attention is directed to 18 U.S.C. 2339B(b), as added by Public
Law 104-132, 110 Stat. 1250-1253, section 303, which provides that,
except as authorized by the Secretary of the Treasury, any financial
institution that knowingly fails to retain possession of or maintain
control over funds in which a foreign terrorist organization or its
agent has an interest, or to report the existence of such funds in
accordance with these regulations, shall be subject to a civil penalty
in an amount that is the greater of $50,000 per violation, or twice the
amount of which the financial institution was required to retain
possession or control.
    (c) Attention is directed to 18 U.S.C. 1001, which provides that
whoever, in any matter within the jurisdiction of the executive,
legislative, or judicial branch of the Government of the United States,
knowingly and willfully falsifies, conceals or covers up by any trick,
scheme, or device a material fact, or

[[Page 52500]]

makes any materially false, fictitious or fraudulent statement or
representation, or makes or uses any false writing or document knowing
the same to contain any materially false, fictitious or fraudulent
statement or entry, shall be fined under title 18, United States Code,
or imprisoned not more than 5 years, or both.
    (d) Conduct covered by this part may also be subject to relevant
provisions of other applicable laws.

Sec. 597.702  Prepenalty notice.

    (a) When required. If the Director of the Office of Foreign Assets
Control has reasonable cause to believe that there has occurred a
violation of any provision of this part or a violation of the
provisions of any license, ruling, regulation, order, direction or
instruction issued by or pursuant to the direction or authorization of
the Secretary of the Treasury pursuant to this part, and the Director,
acting in coordination with the Attorney General, determines that civil
penalty proceedings are warranted, the Director shall issue to the
person concerned a notice of intent to impose a monetary penalty. The
prepenalty notice shall be issued whether or not another agency has
taken any action with respect to this matter.
    (b) Contents.--(1) Facts of violation. The prepenalty notice shall
describe the violation, specify the laws and regulations allegedly
violated, and state the amount of the proposed monetary penalty.
    (2) Right to respond. The prepenalty notice also shall inform the
respondent of respondent's right to respond within 30 days of mailing
of the notice as to why a monetary penalty should not be imposed, or,
if imposed, why it should be in a lesser amount than proposed.

Sec. 597.703  Response to prepenalty notice.

    (a) Time within which to respond. The respondent shall have 30 days
from the date of mailing of the prepenalty notice to respond in writing
to the Director of the Office of Foreign Assets Control.
    (b) Form and contents of written response. The written response
need not be in any particular form, but shall contain information
sufficient to indicate that it is in response to the prepenalty notice.
It should respond to the allegations in the prepenalty notice and set
forth the reasons why the respondent believes the penalty should not be
imposed or, if imposed, why it should be in a lesser amount than
proposed.
    (c) Informal settlement. In addition or as an alternative to a
written response to a prepenalty notice pursuant to this section, the
respondent or respondent's representative may contact the Office of
Foreign Assets Control as advised in the prepenalty notice to propose
the settlement of allegations contained in the prepenalty notice and
related matters. In the event of settlement at the prepenalty stage,
the prepenalty notice will be withdrawn, the respondent is not required
to take a written position on allegations contained in the prepenalty
notice, and the Office of Foreign Assets Control will make no final
determination as to whether a violation occurred. The amount accepted
in settlement of allegations in a prepenalty notice may vary from the
civil penalty that might finally be imposed in the event of a formal
determination of violation. In the event no settlement is reached, the
30-day period specified in paragraph (a) of this section for written
response to the prepenalty notice remains in effect unless additional
time is granted by the Office of Foreign Assets Control.

Sec. 597.704  Penalty notice.

    (a) No violation. If, after considering any written response to the
prepenalty notice and any relevant facts, the Director of the Office of
Foreign Assets Control determines that there was no violation by the
respondent, the Director promptly shall notify the respondent in
writing of that determination and that no monetary penalty will be
imposed.
    (b) Violation. (1) If, after considering any written response to
the prepenalty notice and any relevant facts, the Director of the
Office of Foreign Assets Control determines that there was a violation
by the respondent, the Director promptly shall issue a written notice
of the imposition of the monetary penalty on the respondent. The
issuance of a written notice of the imposition of a monetary penalty
shall constitute final agency action.
    (2) The penalty notice shall inform the respondent that payment of
the assessed penalty must be made within 30 days of the mailing of the
penalty notice.
    (3) The penalty notice shall inform the respondent of the
requirement to furnish respondent's taxpayer identification number
pursuant to 31 U.S.C. 7701 and that the Department intends to use such
number for the purposes of collecting and reporting on any delinquent
penalty amount in the event of a failure to pay the penalty imposed.

Sec. 597.705  Administrative collection; referral to United States
Department of Justice.

    In the event that the respondent does not pay the penalty imposed
pursuant to this part or make payment arrangements acceptable to the
Director of the Office of Foreign Assets Control within 30 days of the
mailing of the written notice of the imposition of the penalty, the
matter may be referred for administrative collection measures by the
Department of the Treasury or to the United States Department of
Justice for appropriate action to recover the penalty in a civil suit
in a Federal district court.

Subpart H--Procedures

Sec. 597.801  Procedures.

    For license application procedures and procedures relating to
amendments, modifications, or revocations of licenses; administrative
decisions; rulemaking; and requests for documents pursuant to the
Freedom of Information and Privacy Acts (5 U.S.C. 552 and 552a), see
subpart D of part 501 of this chapter.

Sec. 597.802  Delegation by the Secretary of the Treasury.

    Any action which the Secretary of the Treasury is authorized to
take pursuant to 8 U.S.C. 1189 or 18 U.S.C. 2339B, as added by Public
Law 104-132, 110 Stat. 1248-1253, sections 302 and 303, may be taken by
the Director of the Office of Foreign Assets Control, or by any other
person to whom the Secretary of the Treasury has delegated authority so
to act.

Part I--Paperwork Reduction Act

Sec. 597.901  Paperwork Reduction Act notice.

    For approval by the Office of Management and Budget (``OMB'') under
the Paperwork Reduction Act of information collections relating to
recordkeeping and reporting requirements, to licensing procedures
(including those pursuant to statements of licensing policy), and to
other procedures, see Sec. 501.901 of this chapter. An agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a valid control number
assigned by OMB.

[[Page 52501]]

    Dated: September 26, 1997.
Loren L. Dohm,
Acting Director, Office of Foreign Assets Control.
    Approved: September 30, 1997.
James E. Johnson,
Assistant Secretary (Enforcement).
[FR Doc. 97-26787 Filed 10-6-97; 2:22 pm]
BILLING CODE 4810-25-F
Last Updated 11/9/2011 communications@fdic.gov