My law offices are often contacted by people in the midst of a family law dispute. These calls have been from people in the midst of divorce, contract disputes, and contested probate. At first, I thought this was odd because my practice focuses primarily on federal matters involving economic sanctions, financial crime, and export controls. However, in matters as contentious as divorce, there is real value in identifying your own legal vulnerabilities as well as those of the opposing party.
Sometimes, as these calls have made apparent, such vulnerabilities are related to economic sanctions and anti-money laundering/counter-terrorist financing regulations (AML/CTF). This tends to happen when one or both of the parties in a dispute have significant familial or financial ties to countries such as Cuba, Iran, Syria, Sudan, North Korea, and Crimea. Many people with such ties also utilize alternative remittance systems to facilitate their transactions with these countries. Alternative remittance systems, including hawalas and some saraafs (money exchangers), are unregulated and have been linked to the financing of terrorism, tax evasion, and money laundering. Vulnerabilities also exist when the parties have significant, unreported assets located overseas, such as undisclosed accounts with foreign banks.
But first, what are economic sanctions? Economic sanctions are statutes, executive orders, and regulations that govern the transactions and dealings of U.S. persons with targeted foreign countries, entities, or persons acting contrary to U.S. foreign policy or national security objectives. Some of the more well-known sanctions programs target Iran, Cuba, Syria, foreign terrorist organizations, and narcotics traffickers. Such laws are administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). A complete list of OFAC sanctions program can be reviewed on the agency’s website. Presumably, every violation of sanctions regulations undermines the national security and/or foreign policy objectives of the United States.
AML/CFT rules are complex financial regulations and reporting requirements designed to protect the U.S. financial system from exploitation by terrorists and other criminals. Primarily implemented pursuant to the Bank Secrecy Act (BSA) and USA PATRIOT Act, these rules impose obligations upon financial institutions, businesses, and individuals to detect, report, and/or prevent possible money laundering, terrorist financing, and other criminal activities. If violated, these obligations can result in severe financial penalties and/or criminal prosecution, even when the underlying financial transaction is unrelated to criminal activity. Commonly violated rules include structuring transactions to avoid the $10,000 reporting threshold and failing to disclose the movement of currency and other items of value into or out of the United States. In theory, every violation of the BSA exposes the U.S. financial system to potential harm and exploitation by criminal actors.
Most sanctions and/or AML/CFT issues also coincide with violations of the Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank Account Report (FBAR). People with financial ties to Iran or Syria, for example, also tend to have assets or bank accounts in those countries that have not been properly reported to the Internal Revenue Service (IRS) pursuant to FATCA or the Financial Crimes Enforcement Network (FinCEN) pursuant to FBAR. Failure to report such overseas accounts or assets can form the basis of an independent federal violation, subjecting a person to civil and/or criminal penalties.
The identification of OFAC or financial criminal issues in a contested family or probate proceeding can be used to either protect a client or further a client’s goals. For example, evidence of an adverse witness’ illicit financial dealings with sanctioned countries can be used to impeach that witness. Clandestine movement of money can also be used to call into question the veracity of an opposing party’s true financial condition. Depending on the parties associated with such transactions, the evidence may be sufficient to link that person to criminal activities or the financing of terrorism. However, prior to making allegations against an opposing party it is important to assess one’s own client for vulnerabilities.
Early detection of a client’s own vulnerabilities may allow the opportunity for mitigation. In some circumstances, a client may be able to clear his or her record by coming into compliance with the law or by filing a voluntary self-disclosure with the appropriate agency. Doing so may protect a client’s interests in the case as well as protect the client from the possibility of a harsher enforcement response by the federal government.
With respect to probate, it is important to determine whether anything from the estate is transferring to a sanctioned country or person subject to sanctions. Obtaining the proper licensing from OFAC prior to engaging in the transaction may protect the decedent’s property from being blocked. It may also protect a trustee or executor from liability for violating the law.
There are countless possible intersections between OFAC sanctions and family law. To demonstrate this I’ll provide one last anecdote: A judge once requested my opinion on whether a marriage, which was performed in a sanctioned country, would ever be enforceable in the United States if neither party was authorized to be present in that sanctioned country during the marriage. Depending on the context, the answer could be no. In very obvious ways this can impact a ‘divorce’ proceeding. Therefore, it may be prudent to consult with an attorney focusing on OFAC and financial crime matters whenever a sanctioned country is at least minimally involved in a case.
Disclaimer: Blog posts should not be relied upon as legal advice and are only provided for informational purposes. Information contained in blog posts may also become outdated with the passage of time as laws change and U.S. foreign policy and national security objectives evolve.