The legal authority for the Department of Treasury to designate a person or organization as a Specially Designated Global Terrorist (SDGT) or freeze assets "pending investigation" is based on laws providing for economic sanctions against foreign nations, going back to the Trading With the Enemy Act in 1917 and ending with the Patriot Act.
Note: Page numbers cited refer to text of the court's Aug. 18, 2009 opinion in KindHearts for Charitable and Humanitarian Development, Inc. v. Timothy Geithner, et al, Case No. 3:08CV2400 in the United States District Court for the Northern District of Ohio Western Division.
In 1977 Congress amended the Trading With the Enemy Act by passing the International Emergency Economic Powers Act (IEEPA, at 50 USC 1701-06) which authorizes the President to declare an emergency relating to "any unusual and extraordinary threat, which has its source in whole or in part outside the United States, to the national security, foreign policy or economy of the United States." In 1995 President Clinton issued Executive Order 12947 which expanded IEEPA beyond sanctions against nation states to include "specially designated terrorists" that threaten to undermine the Middle East peace process.
Section 1701(b) of IEEPA says its powers may only be invoked "to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared for purposes of this chapter and may not be exercised for any other purpose." (emphasis added)
Section 1702(a) authorizes the President to "investigate, regulate, or prohibit" a host of financial transactions with "any foreign country or national thereof" by means of regulations, licenses, instructions or other means. Section 1702(b) allows for "investigation, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit" any transactions relating to property held by the designated foreign country or national." Note that these powers do not require freezing assets, and would allow for alternative approaches that correct improper transactions or procedures in otherwise law-abiding organizations.
IEEPA is the legal authority for Executive Order (EO) 13224, issued by President George W. Bush on Sept. 24, 2001. EO 13224 declared a national emergency based on the 9/11 attacks and directed Treasury, in consultation with the Attorney General and Secretary of State, to designated SDGTs and take action to freeze all assets subject to U.S. jurisdiction. Designation may be of a terrorist organization, or if Treasury finds a group has:
- Provided material support to an SDGT
- To be "otherwise associated with an SDGT (defined in subsequent regulations as owned or controlled by an SDGT or to act for or on behalf of it).
Section 10 of EO 13224 states that no prior notice of listing needs to be provided to U.S. organizations "because of the targeted organization's ability to transfer funds or assets instantaneously, which would render the blocking measures ineffectual." [p. 5]
In October 2001 the Patriot Act expanded IEEPA by allowing sanctions pending an investigation, so that "all the blocking effects of a designation, including freezing an organization's assets indefinitely and criminalizing all its transactions, without designating a SDGT. (See 50 USC 1702(a)(1)B) The Treasury only needs to assert that it is investigating whether the entity should be designated." [p. 5] It also allows the court to review classified information in the agency record without notice to or knowledge of the blocked organization.
On June 6, 2003 Treasury issued regulations at 31 CFR 501.807 that "permits designated entities to seek administrative reconsideration by OFAC after they have been designated and had their property frozen." [p. 6]