The U.S. Government’s Approach to Recovering Foreign Regimes’ Assets Varies Depending on the Goals Pursued

The U.S. government’s approach to recovering assets of foreign regimes  varies depending on the U.S. foreign policy and national security goals  pursued. Assets can be located throughout  the international financial system; identifying their location requires the  cooperation of U.S. and foreign financial institutions. Agencies Are Involved in Targeting Assets of an Increasingly Greater Number of Foreign Regime Entities

The Departments of Justice, State, and the Treasury, the Central  Intelligence Agency, and the National Security Council have been key  actors in foreign regime asset recovery. The mandate of OFAC, the administrator and enforcer of U.S. economic  sanctions programs, is to require all U.S. persons, including financial  institutions, to freeze targeted assets located in the United States or under  the control of a U.S. person outside of the United States. U.S. Government Agencies and Financial Institutions Face a Number of Challenges in Recovering Foreign Regimes’ Assets

U.S. government agencies and financial institutions involved in recovering  foreign regimes’ assets face a number of challenges. Third, OFAC’s ability to  monitor financial institutions’ compliance with its regulations is limited  because it does not have supervisory authority over financial institutions  and relies on financial regulators to monitor financial institutions’ OFAC  compliance programs. Target Information Needed to Locate and Freeze Financial Assets Is Not Always Readily Available

Law enforcement and intelligence agencies do not always have accurate  and complete information, such as the spelling of names, addresses, and  dates of birth, to provide to OFAC for distribution to U.S. financial  institutions and other countries’ to assist in their efforts to locate assets of  targeted foreign regimes. Domestic Laws of Foreign Countries Sometimes Prohibit Freezing and Transferring Assets Located in U.S. Financial Institutions Overseas

The laws of some foreign countries where branches of U.S. financial  institutions are located prohibit freezing of targeted assets under U.S.  unilateral sanctions. According to OFAC, in these instances and depending on the  circumstances, (1) the United States works diplomatically to encourage the  foreign governments to allow U.S. financial institutions to comply with  OFAC regulations to freeze and, in some cases, transfer the assets; or (2)  OFAC issues a license authorizing the financial institution to comply with  local law. When a transaction processed through an institution  is determined to be a “true hit” against the SDN list, it must, according to  law, be blocked. Mechanisms the United States Has Used to Recover Iraqi Assets Could Be Applicable in Future Efforts

The United States has invoked domestic legal authorities and international  obligations and used coordinating bodies in its recent efforts to recover  Iraqi assets; some of these mechanisms could be applicable to future  efforts. Some mechanisms initially developed to combat money  laundering and terrorist financing also have applicability to foreign regime  asset recovery. The  executive order allowed the United States to vest about $1.9 billion of  frozen Iraqi assets and transfer them to the appropriate authorities for use  in Iraq. However, for a variety of reasons,  implementation of the resolution has not yet resulted in the transfer of all  frozen assets back to Iraq. Treasury officials stated that other USA PATRIOT Act provisions could  facilitate asset recovery efforts in the future. Objectives, Scope, and Methodology

The objectives of our report were to (1) describe the approach the U.S.  government uses to recover foreign regimes’ financial assets, (2) examine  the challenges the United States faces in recovering foreign regimes’ assets,  and (3) examine the mechanisms the United States has used to recover  Iraqi assets and their applicability to future efforts.
Why GAO Did This Study

For many years, the United States has used economic sanctions, including the freezing of foreign regimes' assets, when such regimes have been determined to be a threat to the nation. In light of recent efforts to "recover"--or target, identify, freeze, and transfer--Iraqi assets, GAO was asked to examine overall U.S. efforts to recover foreign regimes' assets. This report (1) describes the approach the U.S. government uses to recover foreign regimes' assets, (2) examines the challenges the United States faces in recovering foreign regimes' assets, and (3) examines the mechanisms the United States has used to recover Iraqi assets and their applicability to future efforts.

What GAO Found

The approach the U.S. government takes to recover foreign regimes' assets varies depending on the foreign policy and national security goals pursued. Treasury officials stated that the goal of economic sanctions is to freeze assets of a sanctioned jurisdiction or targeted designee and prohibit U.S. persons from dealing with them. In certain cases, once the foreign policy goals of the sanctions are met, the assets are returned to a country. The Departments of Justice, State, and the Treasury, as well as intelligence and law enforcement agencies, work together in the targeting process. Identifying the location of financial assets throughout the international financial system requires the cooperation of U.S. and foreign financial institutions. The United States has procedures to freeze assets of targeted regimes located in the United States or under the control of U.S. persons. Pursuant to executive orders issued by the President under various authorities, Treasury's Office of Foreign Assets Control (OFAC) issues regulations that can require assets to be frozen and transactions to be blocked and administers sanctions programs. U.S. government agencies and financial institutions involved in recovering targeted regimes' assets face a number of challenges. First, U.S. agencies may not be able to readily obtain accurate and complete information on targeted entities, such as the spelling of names, addresses, and dates of birth. Financial institutions can also lack complete identifying information on their clients. Second, the laws of some foreign governments complicate the ability of overseas branches of U.S. financial institutions to comply with OFAC regulations. In these situations, the U.S. government encourages the relevant foreign governments to allow U.S. financial institutions to freeze or transfer assets in a manner consistent with U.S. law or Treasury issues a license to allow U.S. financial institutions to comply with local laws. Third, OFAC's ability to monitor financial institutions' compliance with its regulations is limited because it relies on financial regulators to monitor financial institutions' OFAC compliance programs. The United States has used a variety of legal authorities and coordinating bodies in its recent effort to recover Iraqi assets; some of these mechanisms could be applied to future efforts. The USA PATRIOT Act of 2001 allowed the United States to take ownership of $1.9 billion of Iraqi assets and transfer them for use in Iraq reconstruction efforts. United Nations Security Council Resolution 1483 has resulted in the transfer of about $847 million in frozen Iraqi assets to a fund for Iraq. However, factors that include existing claims against the assets and other countries' laws have slowed the transfer of an additional $2.9 billion held in other countries. In addition, some mechanisms developed to combat money laundering and terrorist financing might be applicable to recovering foreign regimes' assets. Although the U.S. government has used various legal authorities and coordinating bodies to recover foreign regimes' assets, it has yet to compile lessons learned from past efforts that could guide future efforts.