The U.S. Government Designates Major Foreign Criminal Organizations

International Alert
08.02.11

On July 25, 2011, the President issued Executive Order 13581, "Blocking Property of Transnational Criminal Organizations," which targets major criminal organizations in foreign countries. The Order, which identifies those organizations as "transnational" criminal organizations ("TCO"), blocks the property interests of any: 1) TCO; 2) person materially supporting a TCO; and 3) person owned by, controlled by, or acting on behalf of a TCO or a person otherwise blocked under the Order. The Order also prohibits U.S. persons from engaging in any transaction with a TCO or person blocked under the Order. The Order identifies the following as TCOs: The Brothers' Circle (Eurasia), The Camorra (Italy), The Yakuza (Japan), and Los Zetas (Mexico).

In one broad sweep, the Order broadens the scope of "blacklisted" parties with whom U.S. persons, including U.S. companies, may not conduct business. It does so, however, without specifically identifying those parties (other than the TCOs themselves). Thus, the Order presents issues regarding the ability to identify natural persons and corporate entities blacklisted under the Order, ultimately increasing the compliance burden associated with screening transactions for blacklisted parties. Although the Order does identify TCOs, criminal organizations never engage in legitimate business using its own name, leaving a company to determine on its own whether a party in a transaction is a TCO or is affiliated with a TCO. In addition, individuals and entities acting on behalf of or supporting a criminal organization never disclose such information when engaging in legitimate business, further complicating a company's efforts to identify parties blacklisted under the Order.

Under these conditions, companies should place renewed emphasis on its screening processes and procedures, with a particular focus on "know your customer" principles and best practices for identifying blacklisted parties. Companies should review and, if necessary, update those processes and procedures to help ensure that red flags indicative of a party's association with or support of a TCO can be identified during the screening process. Even small but reasonable changes, such as additional certifications and questions, can go a long way towards: 1) detecting potential association or support, and 2) mitigating liability for any transaction prohibited under the Order. Given the breadth of the Order, companies must be vigilant in identifying parties potentially blocked under the Order even before the Administration designates specific individuals and entities.

The entire text of the Order is available here. We encourage U.S. companies to read the Order to fully understand the exact nature and scope of the Order's requirements and prohibitions. 

For more information, please contact:

Larry Christensen, lchristensen@milchev.com, 202-626-1469

David Hardin

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