Treasury's Listing Procedures are Unconstitutional, 9th Circuit Rules in Al-Haramain v. Treasury

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Date: 
October 4, 2011

In June 2012, the U.S. Solicitor General decided not to file a request for Supreme Court review of the Ninth Circuit Court of Appeals ruling in Al Haramain v. Treasury. That ruling upheld a lower court ruling that procedures used by the Department of Treasury to shut down the Al Haramain Islamic Foundation of Oregon (AHIF-OR) in 2004 are unconstitutional. 

On Feb. 27, 2012 the Ninth Circuit Court of Appeals denied a Department of Justice petition asking for re-hearing of its Sept. 23, 2011 decision in Al-Haramain  et. al. v. Treasury et. al. The opinion made an amendment to the September 2011 opinion by clarifying it only applied to the facts in the case of Al-Haramain of Oregon, and did not address other scenarios raised by Justice. A summary of the original opinion is here.

On Sept. 23, 2011 the Ninth Circuit Court of Appeals upheld a lower court ruling that procedures used by the Department of Treasury to shut down the Al Haramain Islamic Foundation of Oregon (AHIF-OR) in 2004 are unconstitutional. The court said the Fifth Amendment's guarantee of due process requires Treasury to give adequate notice of the reasons it puts a group on the terrorist list, as well as a meaningful opportunity to respond. In addition, the court ruled that freezing the groups assets amounts to a seizure under the Fourth Amendment, so that a court order is required. The court also ruled that a group that wishes to engage in joint communications with AHIF-OR may do so, distinguishing the facts from the Supreme Court's decision in Holder v. Humanitarian Law Project (HLP).

Note: Page numbers cited refer to the text of the court’s opinion.
 
Key Issues before the Court:
 
 
 
On Feb. 1, 2004 Treasury's Office of Foreign Assets Control (OFAC) designated Al Haramain charities in six countries to its list of Specially Designated Global Terrorists (SDGT). Other AHIF organizations remained unlisted, including those based in Oregon and Saudi Arabia. Then on Feb. 18, 2004 federal law enforcement officials searched AHIF-OR's offices pursuant to a warrant as part of an investigation into financial crimes. The next day OFAC froze AHIF-OR's assets pending an investigation into whether or not the charity would be placed on the SDGT list. OFAC issued a press release announcing the freeze, but did not state the reasons for it or obtain a court order (warrant) authorizing it. 
 
During the next several months AHIF-OR and OFAC correspondence centered around whether a $150,000 donation to AHIF-Saudi Arabia was used for humanitarian relief in Chechnya or to support terrorism. In June 2004 AHIF-Saudi Arabia dissolved, and OFAC designated Aqueel Al-Aqil, an AHIF-OR founder who resigned its board in March 2003, as an SDGT. Aqil and another AHIF-OR founder, Soliman Al-Buthe, both held positions in the Saudi Arabian group as well.
 
On Sept. 9, 2004 OFAC designated both AHIF-OR and Al-Buthe, saying in a press release that they had diverted donations meant for refugees in Chechnya to support terrorism and Chechen leaders affiliated with al Qaida. On Sept. 16, 2004 OFAC sent AHIF-OR a Blocking Notice, saying its assets were frozen but that it could ask OFAC to reconsider its decision. The court said that in seeking reconsideration in early 2005 "AHIF-Oregon repeatedly sought both an explanation for the designation and a final determination of its request for administrative reconsideration." [p. 10] Al-Buthe also sought reconsideration.
 
OFAC did not respond to AHIF-OR's request for a decision, and after more than two years of waiting, AHIF-OR filed suit in federal court in August 2007. Three months later, in November 2007, OFAC sent AHIF-OR a letter notifying it of OFAC's "provisional" intent to re-designate them, and inviting submission of additional documents. After more than 1,000 pages were submitted, on Feb. 6, 2008 OFAC sent AHIF-OR a letter stating that it and Al-Buthe met the criteria for designation for three reasons: it was owned or controlled by Al-Buthe and Aqil, acted on their behalf and operated as a branch office of AHIF worldwide. In June 2008 OFAC designated AHIF worldwide.
 
On Nov. 7, 2008 Judge Garr King of the United States District Court in Oregon ruled that Treasury's action in shutting down the AHIF-OR violated the organization's Fifth Amendment and Fourth Amendment rightsl.  But he also ruled that substantial evidence supported the designation. AHIF-OR appealed to the Ninth Circuit Court of Appeals, which held oral argument on March 9, 2011.
 
While these actions were pending, the government pursued money laundering and tax evasion charges against the leader of AHIF-OR, Pete Seda. He was convicted and has appealed.
 
Key Issues before the Court
 
 
The court held that, since Aqil had resigned from AHIF-OR's board before it was designated, and there was no evidence of any continued involvement, he did not exercise control over AHIF-OR. However, the court found that Al-Buthe, a designated person, did have control by virtue of his membership on the board.
The court rejected AHIF-OR's arguments that Al-Buthe's designation was unfounded, saying he was not a party to the case and must pursue his own designation challenge. It also rejected the argument that, since OFAC gave no reason for designated Al-Buthe in 2004, it was reasonable to assume he was designated because of his association with AHIF-OR, not the other way around. The court said that did not change the fact that Al-Buthe's board membership gave him control, and he did not resign after the 2008 re-designation specified his control as an issue.
 
The similar names of the organizations, the overlapping membership between the American and Saudi groups and statements made by them about their association also were held to support the finding that AHIF-OR was owned or controlled by the designated individuals.
 
 
The court noted that AHIF-OR had a history of supporting AHIF affiliated groups in Albania and Chechnya, and that although it claimed the funds were for humanitarian purposes, "it does acknowledge the underlying facts of those financial transactions." [p. 18] The court said OFAC can consider such history in making a designation. Although the court said the unclassified record is "not overwhelming," the classified record, coupled with the "extremely deferential" review it gives in cases involving national security, lead it conclude that substantial evidence supported OFAC's conclusions. Because the court did not discuss the classified evidence further, it is not possible to draw any conclusions as to the kinds of fact patterns that lead to AHIF-OR's designation.
 
 
Using a test established by the Supreme Court in Matthews v. Eldridge, 424 U.S. 319 (1976) for cases involving national security and due process rights, the court said it would weigh the following criteria:
 
  • AHIF-OR's property interest
  • The risk of government error from the procedures used, offset by any safeguards put in place, and
  • The government's interest in keeping current procedures, including any additional burden that may be caused by new requirements.
The court noted AHIF-OR's strong property interest, saying that "For domestic organizations such as AHIF-Oregon, a designation means that it conducts no business at all. The designation is indefinite…. Remedies take considerable time, as evidenced by OFAC 's long administrative delay in this case…designation indefinitely renders a domestic organization financially defunct." [p.20] The court went on to say that "the Constitution certainly does not require that the government take actions that would endanger national security….But the Constitution does require that the government take reasonable measures to ensure basic fairness to the private party and that the government follow procedures reasonably designed to protect against erroneous deprivation of the private party's interests." [p. 21] The court applied this test to the remaining issues in the case.
 
 
Although the court rejected AHIF-OR's claim that a designation cannot be based on classified information, it agreed that "even if OFAC may use classified information, it must undertake some reasonable measure to mitigate the potential unfairness to AHIF-Oregon." [p. 25] The court approved of AHIF-OR's suggestion that OFAC could provide an unclassified summary or have its attorney view the evidence after getting a security clearance.  The court noted that:
 
Without disclosure of the classified information, the designated entity cannot possibly know how to respond to OFAC's concerns. Without knowledge of a charge, even simple factual errors may go uncorrected despite potentially easy, ready, and persuasive explanations….Indeed, the benefits from such disclosure could flow not only to the designated entity, which may be able to clear up errors, but also to OFAC, which may benefit from the resulting information provided by the designated entity. [p. 25]
 
The court went on to note that OFAC did not defend its failure to use either of these solutions to the problem of classified evidence, arguing instead that they would be too burdensome and overwhelm the agency. The court called these concerns "abstract," finding "that they have little practical reality." [p.27] It noted that OFAC managed to eventually give AHIF-OR a list of reasons for the designation, as it also did in the KindHearts case.  But the court also pointed out that many of the people on the list are not U.S. citizens or entities, and so "likely cannot assert due process rights." [p. 27] It concluded that "the small burden on the agency of providing mitigation measures does not outweigh the potential value to AHIF-Oregon. OFAC's failure to pursue mitigation measures violated AHIF-Oregon's due process rights." [p. 28]
 
As a result, the court said OFAC is expected, at a minimum, to consider "The nature and extent of classified information, the nature and extent of the threat to national security, and the possible avenues available to allow the designated person to respond more effectively to the charges." [p. 28]
 
 
AHIF-OR argued that it was unable to effectively respond to the designation because OFAC did not provide a notice with the reasons for its action during the four years between the initial freezing of assets and the re –designation in 2008. The court noted that "In the entire four-year period, only one document could be viewed as supplying some reasons for OFAC's investigation and designation decision. Seven months after blocking AHIF-Oregon's assets, OFAC issued a press release that explained some of OFAC's reasons for the designation." [p. 30]
 
The court held that this violated AHIF-OR's due process rights, based on all three factors in the Matthews balancing test:
 
"First, OFAC's blocking notice deprived AHIF-Oregon of its ability to use any funds whatsoever for any purpose. Second, because AHIF-Oregon could only guess (partly incorrectly) at the reasons for the investigation, the risk of erroneous deprivation was high. Finally, and perhaps most importantly, although national security might justify keeping AHIF-Oregon in the dark, OFAC makes no effort to demonstrate that its failure to provide AHIF-Oregon with reasons for its investigation promoted national security." P. 30-31]
 
The court rejected OFAC's arguments that its press release provided sufficient notice, since it only addressed one of the three reasons for the designation, did not mention the ownership and control issue relating to Al-Aqil and Al-Buthe and came seven months after the initial asset freeze. The court said "Such a significantly untimely and incomplete notice does not meet the requirements of due process." [p. 31] The court also rejected OFAC's assertion that notice was impractical, since "a summary of those reasons would not present a practical burden." [p. 31] Finally, the court rejected OFAC's argument that, based on the documents it did provide to AHIF-OR, it could guess what the basis of the designation was. 
 
 
The court noted that under the Fourth Amendment, seizure of property without a warrant is generally considered to be unreasonable (and unconstitutional) unless a specific exception applies. OFAC argued that it did not need a warrant from a court to freeze AHIF-OR's assets because a "special needs" exception applied. This exception, in non-criminal cases, can be applied when it would be impractical for the government to obtain a warrant based on probable cause. 
 
The court weighed AHIF-OR's privacy interest against the government's concerns and the procedures available to address them. The court found that AHIF-OR's "interest in being free from blocking orders is great. A blocking order effectively shuts down the private entity. Indeed, blocking order do so by design." [p. 42] On the other hand, the court said the government's interest in preventing terrorism is extremely high, but went on to say "But the sensitive subject matter is no excuse for the dispensing altogether with domestic persons' constitutional rights." [p. 43]
 
The court recognized the government's strong interest in protecting national security, but then said "[W]e cannot accept OFAC's contention that its blocking orders are per se reasonable in all circumstances, solely by virtue of that vital mission."
 
That left the question of whether getting a warrant based on probable cause would be impractical for OFAC. The court f since found it would not be impractical, since "the number of designated persons located within the United States appears to be very small. The warrant requirement therefore will only be relevant in a few cases." 
 
OFAC argued that it must be able to block assets without a warrant because otherwise the person or entity subject to the blocking order may move the assets outside of U.S. jurisdiction, making the sanction ineffective. The court rejected this line of reasoning, saying "OFAC can protect its interest in stopping the funding of terrorism by seizing the assets initially pursuant to an emergency exception to the warrant requirement…After OFAC has blocked the assets so that asset flight is foreclosed, OFAC then can obtain a warrant specifying particular assets." [p.44]
 
 
The Multicultural Association of Southern Oregon (MCASO) was a party to the case because it wished to coordinate with AHIF-OR to "speak [] to the press on its behalf, hold [] demonstrations and contact [] the government." [p. 52] The court found that these activities fall outside the scope of prohibited coordinated communications under the Supreme Court's reasoning the Holder v. Humanitarian Law Project because MCASO had described specific activities and "in contrast to the direct aid to the wholly foreign organization at issue in HLP and the clear possibility of freeing up assets, the link between the services at issue here and the freeing of resources is less direct and more speculative." [p. 55] The court found the same rationale applied to OFAC's concerns that MCASO's coordinated advocacy would lend legitimacy to AHIF-OR.
 
The court noted that "an organization may advocate vigorously on behalf of the designated entity so long as that advocacy is independent. We see only a small difference, for purposes of determining the legitimizing effect, between a vigorous independent advocacy campaign and a coordinated advocacy campaign." The fact that MCASO's proposed advocacy is limited to the domestic branch of AHIF-OR, distinguishes the case from the facts of HLP.