FIL-1-98 Attachment

[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.

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

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]]

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.

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.

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

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.

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;

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.

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.

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

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