On October 7, 2015 the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that it had made several major designations pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act). OFAC designations (opens as pdf) were made against Jaime Rolando Rosenthal Oliva, along with his son, Yani Benjamin Rosenthal Hidalgo, and his nephew, Yankel Antonio Rosenthal Coello. Also designated were several entities, including a bank linked to the Rosenthal family. OFAC alleges that these individuals and entities provide money laundering and other services that support the international narcotics trafficking activities of multiple Central American drug traffickers and their criminal organizations.
OFAC’s announcement was coordinated with the Drug Enforcement Administration (DEA) and the U.S. Attorney’s Office for the Southern District of New York (SDNY). The day before the OFAC designations were publicly announced, an Indictment was unsealed against Jaime Rolando Rosenthal Oliva, Yani Benjamin Rosenthal Hidalgo, and Yankel Antonio Rosenthal Coello, as well as a fourth individual, charging them with money laundering (18 U.S.C. 1956).
It’s not uncommon for OFAC to coordinate its Kingpin Act designations with the criminal actions of the DEA and U.S. Attorney’s Office. However, what is uncommon is that at the same time OFAC used the Kingpin Act to designate Banco Continental S.A., a Honduran bank with fairly significant assets and holdings. According to OFAC’s press release, this is the first time that OFAC has designated a bank pursuant to the Kingpin Act.
OFAC regularly designates businesses and entities under the Kingpin Act when those businesses and entities are believed to somehow facilitate the activities of narcotics traffickers. However, OFAC’s decision to go after a relatively large bank with the Kingpin Act might be a signal of the agency’s willingness to think outside the box and assert its broad legal authorities more creatively. On the other hand, the action may simply indicate the extent of the bank’s involvement with international narcotics traffickers. OFAC’s press release does mention that the bank was an “integral part” of the Rosenthal money laundering operations.
To designate the bank, OFAC and other components of the U.S. government must have determined that Banco Continental was:
- Materially assisting in, or providing financial or technological support for or to, or providing goods or services in support of, the international narcotics trafficking activities of a significant foreign narcotics trafficker;
- Owned, controlled, or directed by, or acting for or on behalf of, a significant foreign narcotics trafficker; and/or
- Playing a significant role in international narcotics trafficking.
The catch-all clause in number 3 is broad, and could conceivably justify the designation of a bank that plays a significant role in international narcotics trafficking, even if such activities make up only a small proportion of the bank’s overall activities. Couple that broad authority with OFAC’s relatively low evidentiary burden (reasonable cause to believe), and it is easy to conclude that OFAC is fully within its right to use sanctions laws in unconventional and new ways.
Although OFAC’s designation was made wholly under U.S. law to protect the U.S. financial system, its effect was fatal for the foreign bank. Less than a week after the designation was publicly announced, the Honduran government took over the bank and is subjecting it to a forced liquidation. In yet another uncommon move, OFAC issued a statement (opens as pdf) late on Sunday night clarifying its sanctions enforcement policy with respect to Banco Continental’s forced liquidation. Recognizing its own broad designation authority, OFAC clarified that foreign persons will not be “designated or be the subject of an enforcement action for engaging in transactions related to the liquidation and wind-down” of the bank.
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.