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27–514PDF 2017

EXAMINING THE EFFECTIVENESS OF THE KINGPIN

DESIGNATION ACT IN THE WESTERN HEMISPHERE

HEARING

BEFORE THE

SUBCOMMITTEE ON 

THE WESTERN HEMISPHERE

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTEENTH CONGRESS

FIRST SESSION

NOVEMBER 8, 2017

Serial No. 115–86

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

DARRELL E. ISSA, California 

TOM MARINO, Pennsylvania 

MO BROOKS, Alabama 

PAUL COOK, California 

SCOTT PERRY, Pennsylvania 

RON DESANTIS, Florida 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

ADAM KINZINGER, Illinois 

LEE M. ZELDIN, New York 

DANIEL M. DONOVAN, JR., New York 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

ANN WAGNER, Missouri 

BRIAN J. MAST, Florida 

FRANCIS ROONEY, Florida 

BRIAN K. FITZPATRICK, Pennsylvania 

THOMAS A. GARRETT, JR., Virginia 

VACANT 

ELIOT L. ENGEL, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

KAREN BASS, California 

WILLIAM R. KEATING, Massachusetts 

DAVID N. CICILLINE, Rhode Island 

AMI BERA, California 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas 

ROBIN L. KELLY, Illinois 

BRENDAN F. BOYLE, Pennsylvania 

DINA TITUS, Nevada 

NORMA J. TORRES, California 

BRADLEY SCOTT SCHNEIDER, Illinois 

THOMAS R. SUOZZI, New York 

ADRIANO ESPAILLAT, New York 

TED LIEU, California

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

SUBCOMMITTEE ON THE WESTERN HEMISPHERE

PAUL COOK, CALIFORNIA, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

MICHAEL T. MCCAUL, Texas 

MO BROOKS, Alabama 

RON DESANTIS, Florida 

TED S. YOHO, Florida 

FRANCIS ROONEY, Florida 

ALBIO SIRES, New Jersey 

JOAQUIN CASTRO, Texas 

ROBIN L. KELLY, Illinois 

NORMA J. TORRES, California 

ADRIANO ESPAILLAT, New York 

GREGORY W. MEEKS, New York 

(III)

C O N T E N T S 

Page

WITNESSES 

Mr. Donald C. Semesky Jr. (former Chief, Office of Financial Operations, 

U.S. Drug Enforcement Administration) ............................................................ 4

Mr. David Hall, partner, Wiggin and Dana LLP (former prosecutor, U.S. 

Department of Justice) ........................................................................................ 13

Emanuele Ottolenghi, Ph.D., senior fellow, Center on Sanctions and Illicit 

Finance, Foundation for Defense of Democracies .............................................. 19

Mr. Eric L. Olson, deputy director, Latin American Program, Woodrow Wilson 

Center .................................................................................................................... 45

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Mr. Donald C. Semesky Jr.: Prepared statement ................................................. 7

Mr. David Hall: Prepared statement ..................................................................... 15

Emanuele Ottolenghi, Ph.D.: Prepared statement ............................................... 21

Mr. Eric L. Olson: Prepared statement ................................................................. 47

APPENDIX 

Hearing notice .......................................................................................................... 68

Hearing minutes ...................................................................................................... 69

Questions submitted for the record by the Honorable Paul Cook, a Representative in Congress from the State of California, and chairman, Subcommittee 

on the Western Hemisphere, and written responses from: 

Mr. Donald C. Semesky Jr. ................................................................................. 70

Mr. David Hall ..................................................................................................... 74

Emanuele Ottolenghi, Ph.D. ............................................................................... 78

Mr. Eric L. Olson ................................................................................................. 81

(1)

EXAMINING THE EFFECTIVENESS OF THE 

KINGPIN DESIGNATION ACT IN 

THE WESTERN HEMISPHERE 

WEDNESDAY, NOVEMBER 8, 2017

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON THE WESTERN HEMISPHERE,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The subcommittee met, pursuant to notice, at 2:00 p.m., in room 

2172, Rayburn House Office Building, Hon. Paul Cook (chairman 

of the subcommittee) presiding. 

Mr. COOK. A quorum being present, the subcommittee will come 

to order. Without objection, all members will have 5 days to submit 

statements, questions, and extraneous materials for the record, 

subject to the length limitations for the rules. 

I would like to recognize myself for 5 minutes for my opening 

statement. 

Today’s hearing marks the beginning of my time as chair of the 

Western Hemisphere Subcommittee leadership. I am honored to assume the chairmanship and continue the good works of the subcommittee and the full committee chairman, Ed Royce, in promoting American interests in the Western Hemisphere. 

This subcommittee has a long history of bipartisanship, and I 

look forward to continuing that tradition with my ranking member 

and other subcommittee members. 

The United States has significant security, economic, and political interests in the Arctic, Canada, Central America, and the Caribbean and South America. And I am deeply supportive of greater 

U.S. engagement with our partners and friends in these places. 

As U.S. Southern Command Admiral Tidd testified to Congress 

in April, Latin American and the Caribbean is the region most connected to our own society, prosperity, and security, and we are 

linked by our shared values, cultures, and the rapid flow of goods, 

services, people and information throughout our hemisphere. To 

that end, today’s subcommittee hearing is significant with an increasing number of transnational criminal networks exploiting 

those links for the purposes of drug trafficking and other illicit activities. 

In fact, according to the U.N. Office on Drugs and Crime, revenue from illegal drugs may account for 50 percent of all 

transnational organized crime proceeds. These developments have 

a direct impact on the United States where we are struggling with 

2

an opioid crisis that claimed more than 59,000 American lives last 

year and results in 91 Americans lost every day according to the 

Center for Disease Control. 

Last year’s White House national drug control strategy noted significant increases in the number of Americans using cocaine, heroin, marijuana, and methamphetamine. Many of these illicit drugs 

are produced in foreign countries in the Western Hemisphere and 

are sent here to feed American demand. Illicit drugs have caused 

American deaths and contributed to horrible violence in our neighbors as criminal groups vie for power and control of trafficking 

routes. 

Moreover, 6 of the 10 top countries with the highest murder 

rates in the world this year are in the Western Hemisphere. It is 

imperative that we work proactively with our regional partners to 

fight back against the crime and violence plaguing our nations. It 

is against this backdrop that we meet today to conduct oversight 

of a key tool the United States has used since 1999 to target drug 

traffickers and their supporters—the Foreign Narcotics Kingpin 

Designation Act, or Kingpin Act. The Kingpin Act builds on Executive Order 12978, issued in 1995, which was focused solely on Colombia and was the first ever U.S. economic sanctions program administered by the Treasury Department’s Office of Foreign Assets 

Control to address drug trafficking. 

In brief, the Kingpin Act blocks all property and assets of designated entities and those who support them. It prohibits U.S. 

transactions with designated entities. It establishes an annual 

process for sanctioning the most significant foreign narcotics traffickers. It increases civil and criminal penalties, and it prevents 

drug traffickers’ spouses and children from getting visas to the 

United States. 

In 2011 President Obama issued Executive Order 13581 establishing another sanctions program targeting transnational criminal 

networks that threaten U.S. national security, foreign policy, or 

economic interests. In February, President Trump signed executive 

order 13773 prioritizing Federal law enforcement responses to 

transnational organized crime. The State Department’s Bureau of 

International Narcotics and Law Enforcement Affairs also publishes an annual report to Congress providing the factual basis for 

designations on major drug transit and major illicit drug-producing 

countries. The State Department designates countries that are vulnerable to money laundering by drug traffickers and one-third of 

the countries of the primary concern are in the Western Hemisphere. 

These rules appear useful to U.S. objectives to counter drug flows 

and transnational criminal networks. However, Congress has an 

interest in ensuring these tools are coordinating with lasting results. 

The Kingpin Act has been around for a long time and has led to 

hundreds of individuals and entities being sanctioned. As of October, of the 110 top-tier kingpin designations, 65 individuals and 16 

organizations are connected to countries in the Western Hemisphere. Over the years, the Kingpin Act has expanded, and it is 

now utilized globally. 

3

A lot of changing dynamics in terms of the drug cartels and different things in the global use of the Kingpin Act necessitate a review to consider lessons learned in the Western Hemisphere. It is 

important to note that while the FARC and Urabenos in Colombia 

are both designated as kingpins, the National Liberation Front, the 

ELN, is not. Similarly, although MS-13 is designated under the 

transnational crimes sections program, it is not sanctioned as a 

kingpin. 

Hezbollah, although listed as a foreign terrorist organization, is 

not sanctioned as a kingpin in any country in the Western Hemisphere. What are we losing by not including these groups in further sanctions, especially given the dangerous nexus between multinational drug operations and terror operations? 

The Kingpin Act was recently used against the Venezuelan Government officials and Mexican drug cartel operatives. How are we 

measuring these objectives since its inception? Has the act lead to 

fewer arrests coming into the United States? 

I look forward to hearing from our experts, and I will now yield 

to the ranking member on the subcommittee for his opening statement. 

Mr. SIRES. Well, good afternoon, and thank you for being here. 

I would like to start by welcoming our new chairman, Mr. Cook. 

I look forward to working with you. We are happy to have you here 

leading the subcommittee, and I look forward to a good relationship. 

Today’s hearing focuses on the Kingpin Designation Act, a powerful tool the U.S. has used against drug traffickers and money 

launderers around the world since President Clinton’s administration. The Kingpin Act allows the U.S. Government to target narcotic traffickers and senior members of their organizations. Dismantling these powerful organizations by going after their financial 

network instead of arresting low-level criminals in the streets can 

help take apart an organization permanently instead of trying to 

put a Band-Aid on an open wound. 

These designations have been used all over the world to target 

powerful drug traffickers and have helped bring down criminals 

who were previously thought to be untouchable. Going after groups 

like the Cali cartel in Colombia showed the world that no amount 

of money could protect the criminal network. 

Today, the Kingpin Act has targeted criminals all over the world, 

reaching from Mexico, Honduras, Colombia, to India, Afghanistan, 

and Lebanon. However, the process to designate an individual or 

an entity under the Kingpin Act can be long and murky. There are 

questions about how decisions are made and how the interagency 

process is used to coordinate these designations that frequently relate to politically sensitive foreign policies. We also need to look 

closely at whether these agencies have the resources they need to 

thoroughly investigate the targets in a timely manner. 

Most importantly, we must remember the kingpin designation 

act and all the sanctions are a tool, not an end goal. Without a 

clear focus of policy toward a country or criminal organization, 

these designations will do nothing more than stir up a few press 

releases and create uncertainty in already unstable countries. 

4

I am eager to listen to our witnesses today to learn how the designation process may be strengthened so that we can effectively 

combat criminal organizations around the world and especially 

here in the Western Hemisphere. 

Thank you, and I yield back the balance of my time. 

Mr. COOK. Thank you, Mr. Sires. 

Before I recognize our witnesses, I was going to—normally, I 

would like to have opening statements. But if they will indulge me, 

because we have got four witnesses here, and I have a lot of questions. And I would rather err on the side of questions so that we 

can get right to the point. 

And before I provide you your testimony, I am going to explain 

the lighting system in front of you. Very complicated. You are going 

to have 5 minutes. Try to stick to that. I will try to be polite, and 

then, you know, you go on, and on, and on like some Members of 

Congress, I will break the gavel. But when you begin, the light will 

turn green. When you have a minute left, it will turn yellow. When 

your time has expired, the light will turn red. And then, as I said, 

I don’t mean for you to just to stop in mid-sentence. But you get 

the cue. It depends. If it is good stuff, yes. 

After our witnesses testify, members will have 5 minutes to ask 

questions. I urge my colleagues to stick to the 5-minute rule. We 

don’t have many here today, but I hope others will be watching us 

on TV. What an important hearing this is, and they are all going 

to descend here and all the seats are going to be filled. 

Today we are going to be hearing from four witnesses. First let 

me introduce Mr. Donald C. Semesky, Jr. Mr. Semesky spent 44 

years in the U.S. Federal law enforcement, 30 years with the U.S. 

Internal Review Service, criminal investigation, and 14 with the 

United States Drug Enforcement Agency, 5 years as the Chief of 

the Office of Financial Operations, and 9 years as a money laundering subject matter expert consultant. I think that adds up to 

about 156 years. God, whatever you are taking, I want some of it. 

Mr. Semesky, thank you for joining us today. 

And I am going to introduce each panel member as we go along. 

So right now, unless you have any objections, you will be recognized for 5 minutes. 

STATEMENT OF MR. DONALD C. SEMESKY JR. (FORMER CHIEF, 

OFFICE OF FINANCIAL OPERATIONS, U.S. DRUG ENFORCEMENT ADMINISTRATION) 

Mr. SEMESKY. Thank you, Mr. Chairman. 

Chairman Cook, Ranking Member Sires, and distinguished members of the House of Representatives Subcommittee on the Western 

Hemisphere, first, thank you, very much, for allowing me to appear 

before you today to discuss the effectiveness of the Kingpin Act. 

I believe that my written statement and my testimony, as well 

as my answers today, will help you understand more of the tremendously effective impact that this has had on protecting the United 

States from the scourge of illegal drugs and the flow of money back 

to these organizations. 

One of the things I want my testimony to really hone in on is 

the use of the Kingpin Act as an effective law enforcement tool, not 

just a sanctions tool. You know, where we have been able to work 

5

very closely with the Office of Foreign Assets Control, Department 

of Treasury, as part of our investigative process, to target and take 

down, simultaneously with the sanctions, major foreign drug operations and money laundering operations. 

I will preface my remarks by saying that I am not here as a representative of the Drug Enforcement Administration today. I am 

here as a private citizen, although I did spend, as Congressman 

Cook highlighted, 5 years as the Chief of Financial Operations. 

During that tenure, I worked very closely with the Office of Foreign 

Assets Control and helped bring them into DEA headquarters, 

open up DEA data to them, and then stand up a memorandum of 

understanding and the standard operating procedure by which that 

office, which is commonly referred to as OFAC, uses drug enforcement administration information in their targeting and designation 

process. 

My written statement outlines the designation process, so I will 

not go through that except to say that OFAC works very closely 

with the interagency law enforcement partners, with the Department of Defense, and with the intelligence community in targeting 

and vetting their designees prior to the actual designation. 

As I mentioned, OFAC and DEA operate under a memorandum 

of understanding and standard operating procedure in accessing 

DEA’s information and then vetting it through our agency before 

they can use it in their investigative reports. OFAC has a permanently assigned investigator to DEA headquarters and also another 

one permanently assigned to our special operations division in Virginia. 

As you know, I am sure, the agency also has permanently assigned investigators in both the Embassy in Bogota, Colombia, and 

the U.S. Embassy in Mexico city, Mexico. This allows for on-theground investigation by those members of OFAC into foreign drug 

kingpins, foreign drug money laundering organizations, and it also 

allows the Ambassadors in those countries to get in-depth briefings 

on pending actions so they can make the decisions they have to on 

the political and financial ramifications that it is going to have on 

their area of operation. 

I have personally witnessed at many different levels in these 

countries the business community and the financial community’s 

interest in the Kingpin Act and their interest in dealing with, on 

a day-to-day basis, the representatives of OFAC in those Embassies. They are always the most sought after people in the Embassy 

for those sectors, and they are at every conference, financial conference, business conference, throughout Latin America. So that 

alone speaks to the impact of the agency. 

My statement talks about two examples of the effectiveness. One 

is, as you mentioned, Cali, Colombia the Rodriguez Orejuela brothers waived extradition and turned themselves over to U.S. authorities for the sole purpose of removing their families from the OFAC 

designation list. The other investigation is the recently concluded 

Rosenthal family enterprise in Honduras which laundered drug 

money throughout Latin America, and that enterprise has been 

completely dismantled because of a joint law enforcement and sanctions activity. 

6

I will conclude with one final recommendation. And that would 

be that the Kingpin Act has never been included as a specified unlawful activity in the Federal money laundering statute. And it 

would be very helpful if that violation could be included so when 

drug kingpins that cannot be touched for any other reason conduct 

financial transactions, we can bring charges using that as the violation. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Semesky follows:]

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House Committee on Foreign Affairs 

Subcommittee on the Western Hemisphere 

"Examining the Effectiveness of the Kingpin Designation Act in the \Vestern Hemisphere" 

Written Statement of~fr. Donald C. Semesky, Jr., Former Chief, U.S, Drug 

F;nforrement Administration, Office of F'inancial Operations (Retired) 

November 8, 2017 

Introduction 

Chairman Cook, Ranking Member Sires, and distinguished members of the House of 

Representatives, Subcommittee on the Western Hemisphere, thank you for allowing me to 

appear before you today to discuss the effectiveness of the Kingpin Act. I believe this law has 

had been tremendously effective in protecting the United States from the scourge of illegal drugs 

by allowing Federal law enforcement authorities to impact foreign Kingpin drug traffickers and 

money launderers, many times in situations where these criminals have insulated themselves 

from traditional law enforcement processes. 

I must preface my remarks today by stating that I am appearing as a citizen, and not as a 

representative of the Drug Enforcement Administration (DEA), and my testimony should not be 

construed as the position of the agency. I am a retired Chief of Financial Operations with the 

DEA; and, during my tenure in that position, and since as a consultant to DEA, have had the 

opportunity to work very closely with the Office of Foreign Assets Control (OF AC), to include 

serving on the OF AC Kingpin Committee. I have also witnessed how this sanctions authority 

has grown into one of the most effective enforcement tools that the Drug Enforcement 

Administration has at its disposal in dealing with international sources of drug supply. 

Background 

On October 21, 1995 President Clinton signed Executive Order 12978, entitled Blocking Assets 

and Prohibiting Transactions With Significant Narcotics Traffickers. This list specifically 

targeted the Cali (Drug) Cartel, but was eventually expanded to include all Colombian-based 

cartel leaders. Under this Executive Order these designees were called "Specially Designated 

Narcotics Traffickers (SDNT). This list became known, and is still known in Colombia as T.a 

Lis/a Clinton, i.e. The Clinton List. 

Based on the success of the SDNT Program, Congress passed The Foreign Narcotics Kingpin 

Designation Act, also known as the Kingpin Act, as part of the Intelligence Authorization Act for 

Fiscal Year 2000. The Kingpin Act was signed into law by President Clinton on December 3, 

1999. 

Since 2010, all OFAC designations of narcotics tratlickers and drug money launderers have been 

done under the authority of the Kingpin Act. As part of this enforcement effort, OFAC publishes 

a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted 

individuals and organizations. The assets of these designated individuals, organizations and 
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legal entities that are within the jurisdiction of the United States are blocked; and, US persons 

are generally prohibited from dealing with them. 

OFAC has two sides within its infrastructure, an investigative/enforcement side that investigates 

and puts together the reports justifying the designation, and a compliance side that works with 

the financial services industry, individuals and businesses within the U.S. and around the world 

in giving guidance on the various sanctions programs, and investigating possible violations of the 

sanctions programs. 

The Designation Process 

In October and March of each year the Crime/Narcotics & Western Hemisphere Division at the 

U.S Treasury Department's Office of Foreign Assets Control meets with otlicials from law 

enforcement, the Department of Defense, and the Intelligence Community to discuss identified 

targets and solicit additional targets. All identified potential targets are then scrubbed by each 

agency in its own database for additional infonnation that could possibly be shared for use in the 

designation process. Each agency is also able to state an objection to a particular designation, if 

it is felt that the timing of the designation could negatively impact an ongoing operation. Since 

May 2015, the Treasury Department, through OFAC, has had the authority to designate Kingpins 

and associated entities on its own. Kingpins are generally referred to as Tier One designees, and 

associated individuals and legal entities are referred to as Tier Two designees. 

OFAC also works with the law enforcement interagency on a real time, case by case basis in 

order to coordinate the designation process and announcement with law enforcement operations. 

The OFAC/DEA Relationship 

In 2004 the Office of Foreign Assets Control, an agency of the U.S. Treasury Department, and 

the Drug Enforcement Administration, an agency of the Department of Justice, entered into a 

Memorandum of Understanding (MOU) that laid out the process for access to and use of 

information from DEA's database in its Specially Designated Narcotics Traffickers and Kingpin 

sanctions programs. Under the MOU, designated OF AC investigators are given permanent 

certification for entry into DEA headquarters space, and access to the DEA database. The DEA 

Headquarters office that serves as the point of contact for OF AC is the Office of Global 

Enforcement, Financial Investigations Section (previously it was the Otlice of Financial 

Operations). The process under which DEA information may be disseminated for use in 

OFAC's investigative reports justifying designation of Kingpins and associated individuals and 

legal entities is dictated by a Standard Operating Procedure that is overseen and managed by the 

Financial Investigations Section in DEA Headquarters. Once DEA reports have been thoroughly 

vetted through this process, the information is disclosed to OF AC by a DEA Senior Executive 

level official for use in its reports of investigation. 

OFAC now also has a permanently assigned investigator at the DEA-Ied Special Operations 

Division (SOD). This assignment allows OFAC to have real time access to ongoing 

investigations of high level foreign narcotics traffickers and money launderers in order to 

coordinate designation and law enforcement actions against particular targets. DEA also works 
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closely with the OFAC investigators who are permanently assigned to the U.S. embassies in 

Bogota, Colombia and Mexico City, Mexico, as well as the investigator assigned to the United 

States Southern Command (US SOUTHCOMM) and the High Intensity Drug Trafficking Area 

(HIDTA) in Miami, Florida. 

OFAC Interaction with U.S. and Foreign Counterparts in the Foreign Arena 

Historically, most Specially Designated Narcotics Trafficker (SDNT) and Kingpin Act 

designations by OF AC have been against Colombian and Mexican cartel leaders, although the 

numbers of designees outside of these countries have continued to grow, especially in Central 

and South America. This makes pertect sense, since the cartels in Colombia and Mexico 

represent the biggest threats to the United States as far as the production and importation of 

illegal drugs into the American market. OFAC's presence in the U.S. embassies in Bogota, 

Colombia and Mexico City, Mexico have facilitated the relationships with its U.S. and foreign 

counterparts in these areas of operation, and the following of the SDNT and Kingpin list of 

designations by those countries. lt also enables the U.S. Ambassadors in those countries to 

receive real time briefings on impending designations which enables them to stay ahead of and 

deal with the impact of the political and financial ramifications that those actions will have on 

their host country. 

During my time working for the Organized Crime Section of the Mexican Attorney General's 

Office in 2009, T witnessed the close working relationship and reliance that that office placed on 

the OFAC representative assigned to Mexico City in assisting them with their investigations that 

were initiated as a result of an individual or legal entity being designated by OF AC. T have 

attended many financial sector conferences in both Mexico and Colombia; and, without 

reservation, can say that the presentations by the OFAC representatives from the respective 

embassies and their Washington, DC bosses, were always the most sought after and well 

attended. I have also attended meetings with financial and business sector leaders in these 

countries where the impact of OF AC designations was one of the foremost topics of 

conversation. 

Almost all of the countries in the Western Hemisphere now follow the SDNT/K.ingpin list. As 

mentioned previously, the countries that cooperate the most with OFAC are Colombia and 

Mexico; however, most of the Central and South American countries, cooperate with OF AC. 

The Threat of Illicit Drug Proceeds 

The Office of National Drug Control Policy (ONDCP), in its February 2014 publication entitled, 

What America's Users Spend on Illegal Drugs 2000-2010, estimated that the illegal drug 

industry generated in excess of $100 billion per year during the years contained in the study. 1 

doubt that the number has gone down; except for perhaps being replaced to a small degree by 

revenues generated by State legalized sales of marijuana. Although the exact amount is 

unknown, a large portion of these proceeds are expatriated each year to foreign sources of drug 

supply, particularly those located in Latin America. With the ever-increasing presence of Latin 

American drug cells operating in the U.S. at the wholesale and, at times, retail, distribution 

levels, I believe that the amount of drug proceeds leaving the U.S each year is escalating. The 
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cumulative effect of these drug proceeds to negatively impact the stability of democratic states in 

Latin America and throughout the world, cannot, and should not, be underestimated. These 

illegal proceeds enable criminal organizations to threaten the stability of governments through 

corruption, business and financial industries through corruption and unfair competitive 

advantage, and communities through the violence inherent in the pursuit of control of trafficking 

routes and safe havens in which to operate. 

U.S.law enforcement working with its foreign counterparts cannot always impact the 

organizations that operate in foreign arenas with traditional methods due to security concerns, 

weak or corrupt government and legal regimes and processes, inability to operate in certain 

countries, poor recordkeeping or business practices in tracking financial transactions, and/or lack 

of extradition agreements. However, these criminal organizations do need access to the financial 

system and business infrastructure to carry on their operations and hide their wealth. OF AC, 

through its SDNT/Kingpin sanctions program can reach these otherwise untouchable 

organizations by crippling them financially and making it impossible to obtain needed services. 

The Convergence of Foreign Drug Trafficking Organizations with Foreign Terrorist 

Organizations 

In its 2015 World Drug Report, the United Nations Office of Drugs and Crime stated, "The 

nexus between organized crime and terrorism in which illicit drug trafficking appears to play a 

role poses a serious threat, as emphasized by recent Security Council resolutions callingfor 

redoubled efforts to prevent terroristsji'om bene,ftting fi'om transnational organized crime. " 

DEA investigations and intelligence have linked many of the State Department's designated 

Foreign Terrorist Organizations (FTOs) to Foreign Drug Trafficking Organizations, at times, as 

in the cases of the Revolutionary Armed Forces of Colombia, known as the F ARC, and 

Hizbollah, they become, to some extent, one and the same. OF AC, through the Kingpin Act and 

other sanctions programs which it administers, as well as its close working relationships with 

DEA and other law enforcement agencies, uses its designation authorities to help strip these 

FTOs of their ability to earn revenues and purchase operational materials in the international 

marketplace. In a recent operation, DEA was able to indict and extradite Kassim Tajideen, a 

fund raiser and money launderer for Hizbollah, for violations relating to a 2009 designation by 

OFAC under Executive Order 13224, which targets terrorists and those providing support to 

terrorists or acts of terrorism. 

OFAC Sanctions as an Enforcement Tool and Its Impact on Major Foreign Drug 

Trafficking Organizations 

As I mentioned previously, coordinated OFAC sanctions coupled with enforcement takedowns 

has become a major weapon in DEA's ability to disrupt and dismantle major foreign drug 

trafficking organizations responsible for the importation of illegal drugs into the United States. 

Many successes can be attributed to the designation of individuals and entities since 1995. The 

most success occurs when a foreign country follows the OFAC designation with economic 

sanctions and criminal investigations of its own. Colombia is the best example of this. In 

Colombia, any entity placed on the list is completely shut out from the country's financial 

system. Tn Colombia being placed on the "Clinton List" is called "civil death" 
11


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The following are but a few of the examples of the impact of the SDNT/Kingpin Act 

designations by OF AC: 

Perhaps the most notable example of the impact of being placed on the list, is the 

voluntary surrender and waivers of extradition to the U.S. of Gilberta and Miguel 

Rodrigez Orejuela, founders and leaders of the Cali (Colombia) Drug Cartel, in 2004 and 

2005. The motivation for the Rodrigez Orejuela brothers to voluntarily place themselves 

in U.S. custody for what could be the remainder of their lives was to have their families 

removed from the OF AC List 

• The 2004 Kingpin designation of Peruvian Kingpin drug trailicker Fernando Zevallos 

resulted in the seizure of the US assets belonging to his Peruvian airline and the denial of 

maintenance services in the US, which put his national airline out of business. The 

Government of Peru and DEA had been investigating the drug trafficking and money 

laundering activities of Zevallos in both Peru and the US for more than a decade without 

success. ln support of the OF AC sanctions, DEA and its Peruvian counterparts 

reinvigorated their investigations; and, Zevallos was subsequently arrested and convicted 

for drug trailicking in Peru. 

• ln July 2014, in a coordinated sanctions/enforcement effort with DEA, OF AC designated 

drug money launderer, Pedro Claver Mejia Salazar and his narcotics money laundering 

network based in Medellin, Colombia pursuant to the Kingpin Act. OF AC also 

designated Fredy Alonso Mira Perez, an important underboss in the criminal organization 

known as La Oficina de Envigado, as well as 10 additional individuals and 14legal 

entities, all based in Colombia. OFAC's designation was based on evidence generated by 

a DEA money laundering investigation. As a direct result of their OFAC designation, 

both Mejia Salazar and Mira Perez negotiated their voluntary surrender and extradition to 

the United States, and have since pled guilty to criminal charges in the District of 

Massachusetts. 

• In October 2015, in a coordinated sanctions/enforcement action with DEA, OF AC 

designated three Honduran businessmen and seven businesses as Specially Designated 

Narcotics Trailickers pursuant to the Foreign Narcotics Kingpin Designation Act 

(Kingpin Act) for playing a significant role in international narcotics trafficking. Jaime 

Rolando Rosenthal Oliva; along with his son, Yani Benjamin Rosenthal Hidalgo; and his 

nephew, Yanke! Antonio Rosenthal Coello, provided money laundering and other 

services that supported the international narcotics trailicking activities of multiple Central 

American drug trailickers and their criminal organizations. OF AC' s Compliance section 

coordinated with the US banking sector to freeze the assets of The Rosenthal's 

Honduran-based bank domiciled in correspondent accounts in the US. In coordination 

with OFAC's designation, DEA and the U.S. Attorney's Office for the Southern District 

ofN ew York indicted Jaime Rolando Rosenthal Oliva, Y ani Benjamin Rosenthal 

Hidalgo, and Yanke! Antonio Rosenthal Coello, along with a fourth individual, with 

money laundering in violation of Title 18, United States Code, Section 1956. The 

Rosenthals were subsequently extradited to the US., and all have pled guilty to charges 

in US, District Court in the Southern District of New York. Their multi-billion-dollar 
12


27514a-6.eps

business empire that facilitated the laundering of billions of drug dollars has been 

completely dismantled. Just as important, the dismantlement of the Rosenthal tlnancial 

empire has sent shock waves through Central and South America, especially to the 

wealthy families and businesses that have, to date, aligned themselves with Kingpin drug 

traftlckers in order to cash in on the wealth of these organizations by providing needed 

tlnancial services. 

OFAC Resources 

While T cannot speak to the current state of OF AC' s resources, T have heard that they are 

woefully understatl'ed. This lack of staftlng would have an debilitating etl'ect on the availability 

of OFAC investigators to service the ever-growing request for coordinated investigations Given 

the impact that SDNT/Kingpin sanctions have on major foreign drug trat1icking organizations 

and their ability to operate, the return on investment for additional resources for OF AC would be 

well worth the expenditure. 

Suggested Legislative Fixes 

Once individuals are placed on the SDNT/Kingpin list, many of them will take steps to conceal 

their tlnancial dealings and wealth. These transactions, when discovered can form the basis of 

criminal money laundering violations, and criminal or ci vii asset forfeiture against the assets 

involved in the transactions. Depending on where and the manner in which the transactions were 

conducted, evidence of the source of the funds involved in the transaction may not be obtainable. 

Tn these cases, where the individual or legal entity has been designated under a sanction program 

that draws its authority on the International Emergency Economic Powers Act (IEEPA), the 

criminal money laundering otl'ense and subsequent forfeiture of the assets can be based on an 

TEEPA violation. The Kingpin Act (codified as Title 21 United States Code, Sections 1901-

1908) does not draw its authority on IEEPA; and, has not, to date, been added to the list of 

Specified Unlawful Activities (SUAs) listed in the Federal Money Laundering Statute at Title 18 

United States Code, Section 1956(c)(7). It would be very helpful to law enforcement if the list 

of offenses constituting Specified Unlawful Activities under the Federal money laundering 

statute could be amended to include violations of the Kingpin Act 

Conclusion 

Money is the lifeblood of major foreign drug trafficking organizations, and the international 

financial, business and trade markets are the veins in which this money has to run in order for 

these organizations to thrive. The Kingpin Act designation authority granted by Congress to the 

Ot1ice of Foreign Assets Control has proven to be an effective and important tool in the toolbox 

of U.S. law enforcement and regulatory authorities. OFAC has been a vigilant administrator of 

this authority, as well as a great partner to US law enforcement The Kingpin Act has had 

signitlcant impact against the major, foreign drug traftlcking organizations as intended by 

Congress when it passed the initial legislation in 1999. 
13

Mr. COOK. Thank you, Mr. Semesky. 

Next let me introduce Mr. David Hall. Mr. Hall is a partner at 

Wiggin and Dana LLP in the litigation department where he advises clients in a variety of areas but most relevant is his expertise 

with corporate compliance with the Foreign Corrupt Practices Act. 

In 2013, Mr. Hall retired from the United States Department of 

Justice after 23 years as an assistant U.S. attorney. 

Mr. Hall, thank you for joining us today, and you are recognized 

for 5 minutes. 

STATEMENT OF MR. DAVID HALL, PARTNER, WIGGIN AND 

DANA LLP (FORMER PROSECUTOR, U.S. DEPARTMENT OF 

JUSTICE) 

Mr. HALL. Thank you, Mr. Chairman. 

Chairman Cook, Ranking Member Sires, and members of the 

committee, I am very pleased to be here. Thank you very much for 

giving me the opportunity to testify. I will be summarizing my 

written statement. 

My testimony today will focus on practical sanctions issues from 

the ground level. In other words, from the point of view of U.S. 

companies who are required to comply with U.S. sanctions regimes. 

As you are aware, the Office of Foreign Assets Control administers 

a number of different sanctions programs. And all of those sanctions programs have in common that they are designed to deal with 

persons or entities who pose a threat to U.S. national security or 

U.S. foreign policy objectives. 

The Kingpin Act is one point of origin of many for the totality 

of sanctions programs administered by OFAC. And, taken together, 

the sanctioned individuals and entities make up the Specially Designated Nationals and Blocked Persons List which is known as the 

SDN. It is a 1,000 page document that lists more than 5,000 individuals and entities. U.S. persons are generally prohibited from engaging in transactions with any of the individuals or entities on the 

SDN list. 

Today I will address two practical compliance challenges that 

face U.S. businesses in their role as gatekeepers in complying with 

the sanctions regimes, including those that originate with the 

Kingpin Act. One is OFAC’s 50 percent rule, which I will describe, 

and the other is the strict liability standard that applies to all 

sanctions offenses. 

First, the 50 percent rule. OFAC has taken the position that any 

entity that is owned 50 percent or more in the aggregate, directly 

or indirectly, by one or more blocked persons, is itself considered 

to be a blocked entity even if that entity is not itself named on the 

SDN list. The question is: How does a widget maker in Wisconsin 

deal with that? As you are aware, many sanctioned individuals, including kingpins exert enormous effort to remain invisible, and, in 

part, to avoid U.S. sanctions. How does a widget maker crack that 

code? 

Through the 50 percent rule, the government has outsourced the 

fundamental national security function to the private sector. And 

this is effective, in my opinion, in reducing government accountability but is not effective in terms of achieving the goals of U.S. 

sanctions programs. This is because U.S. businesses ordinarily do 

14

not have the resources and the ability to gain the kind of granular 

information that is necessary to understand the ownership structure of every business partner or customer. 

In contrast, the U.S. Government does have access to that kind 

of information through the intel community and through law enforcement agencies. Since the government has the most reliable 

and efficient means of making those determinations, in my opinion, 

the government should do that and should list all sanctioned entities instead of leaving it up to the private sector to identify 50 percent partners. 

The second issue I wanted to address briefly is the strict liability 

standard. The sanctions regime seems simple. The government 

publishes a list of sanctioned individuals. U.S. companies have to 

read that list and can’t do business with those entities. Sometimes 

it is exactly that simple but not always. Companies employ search 

protocols in order to determine whether or not they are dealing 

with sanctioned individuals and entities. But these search protocols 

often yield false positives or near positives. There are a lot of 

sources for these errors, including common names, names with 

multiple spellings, of course misspellings, the fact that foreign language names need to be translated and are sometimes 

mistranslated, not to mention cultural differences in naming conventions. As a result, U.S. businesses are left with a question: How 

close is too close? 

Now, why is this such a big problem? Because the OFAC sanctions are administered according to a strict liability standard, 

which means that good faith is not a defense. So a company could 

be doing everything in its power to comply with OFAC sanctions, 

but if it accidentally violates those sanctions, then it is still liable 

and the only question is: What will the penalty be? The government does take good-faith compliance into account when determining penalties, but, in the end, it is up to the government. In my 

opinion, this is not fair. But, in addition, it is not an effective 

means of enforcing sanctions. 

So I have two recommendations. One is abolish the 50 percent 

rule. And the other is I think that a good-faith exception to the 

strict liability standard should be established. This will enable the 

government to focus its attention on companies that are not acting 

in good faith which is really the focus of any law enforcement enterprise. 

Thank you. I look forward to your questions. 

[The prepared statement of Mr. Hall follows:]

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PREPARED TESTIMONY 

of 

David L. Hall 

Partner, Wiggin and Dana 

Before the 

Subcommittee on the Western Hemisphere 

Committee on Foreign Affairs 

United States House of Representatives 

"Examining the Effectiveness of the Kingpin Designation Act in the Western Hemisphere" 

November 8, 2017 

Chairman Cook, Ranking Members, and Members of the Committee: 

Thank you for the opportunity to appear before you today for this hearing "Examining the 

Effectiveness of the Kingpin Designation Act in the Western Hemisphere." 

My name is David L. Hall, and I am a partner at the law firm of Wiggin and Dana LLP. Prior to 

joining Wiggin and Dana, I served as an Assistant United States Attorney with the Department of Justice 

for 23 years. I am also a retired naval intelligence officer, having served in the Navy for thirty years, 

active and reserve. 

Opening Remarks 

The Office of Foreign Assets Control ("OFAC") administers numerous sanctions programs 

focused on foreign countries, rogue regimes, terrorist organizations, criminal organizations, and other 

persons and entities that pose a threat to U.S national security and U.S. foreign policy objectives. While 

some of these programs place prohibitions on specified activities with persons and entities in targeted 

foreign countries, others, like the Foreign Narcotics Kingpin Designation Act (the "Kingpin Act") target 

individuals and entities involved in criminal enterprises such as narcotics trafficking. Collectively, these 

individuals and entities make up the Specially Designated Nationals and Blocked Persons List (the "SON 

List"). The SON List is a 1,054 page document identifying more than 5,000 individuals and entities 

blocked under an OFAC sanctions program-' With rare exceptions, U.S. persons are prohibited from 

engaging in transactions with any individuals or entities on the SON List. 

The objective of the Kingpin Act, as with other sanctions programs, is to cut off known bad 

actors (in this case foreign narcotics traffickers and their criminal organizations) from access to U.S. 

financial markets, thus crippling their ability to reap the rewards of their criminal actions and to weaken 

their ability to fund their criminal enterprise. The strength of these programs lies in the Government's 

ability to ensure that non-government actors in the United States, primarily financial institutions and 

U.S. businesses, act as gatekeepers to prevent these bad actors from moving funds, making investments, 

and purchasing goods and services. While law enforcement agencies are responsible for apprehending 

1 ln addition to the SON List, OFAC administers a list of persons and entities subject to Sectoral Sanctions 

{Russia/Ukraine Sanctions Program) and Foreign Sanctions Evaders. The Department of Commerce similarly 

publishes a list of entities and individuals subject to export restrictions regulated by the Bureau of Industry and 

Security ("BIS"). OFAC maintains a Consolidated Sanctions List which includes the following data files: Foreign 

Sanctions Evaders (FSE} List; Sectoral Sanctions Identifications (SSI} List; Palestinian Legislative Councii(NS-PLC} 

List; The List of Foreign Financial Institutions Subject to Part 561 (the Part 561 List}; Non-SDN Iranian Sanctions Act 

(NS-ISA} List; and the List of Persons Identified as Blocked Solely Pursuant to Executive Order 13599 (the 13599 

List}. 
16


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the bad actors and stopping the movement of narcotics into the United States, DFAC aims for the pursestrings of these criminal organizations. 

From the perspective of U.S. businesses, the Kingpin Act does not impose compliance burdens 

substantially different from those of other sanctions programs. Today, 1 will address practical 

compliance challenges that U.S. businesses, in their role as gatekeepers, face in navigating U.S. sanctions 

programs overall, including those originating with the Kingpin Act. 

As a former prosecutor and a former naval intelligence officer, I consider sanctions programs to 

be important arrows in the national security quiver. My comments are offered in the hope that the 

effectiveness and fairness of these programs can be improved. 

Businesses face many challenges in sanctions compliance, and my testimony focuses on just 

two. First, I will address OFAC's "50 Percent Rule," which imposes significant burdens and undue risk on 

U.S. business- and also subverts the purpose of the rule itself. Second, I will attempt to shed some light 

on the practical challenges companies face in attempting to comply with U.S. sanctions programs, in 

order to demonstrate the pitfalls of a strict liability approach to violations of U.S. sanctions. 

The OFAC "50 Percent Rule" 

Property blocked pursuant to an Executive Order or regulations administered by OFAC is broadly 

·defined to include any property or interest in property, tangible or intangible, including "present, future 

or contingent interests."' DFAC has taken the position that an entity owned 50 percent or more in the 

aggregate, directly or indirectly, by one or more blocked persons is itself considered to be blocked even 

where that entity is not on the SDN List.3 

How is a widget manufacturer in Wisconsin supposed to deal with this? As you are aware, many 

sanctioned individuals-- including Kingpins- exert significant effort to become invisible, precisely in 

order to avoid the effects of U.S. sanctions. These bad actors often hide behind front companies, with 

complex and anonymous ownership structures. As a practical matter, most U.S. companies, particularly 

small businesses, do not have the resources to uncover the ownership structures of all their customers 

and business partners. This is particularly true when their customers- for good reasons or bad- want 

that information to be confidential. 

Placing the burden on U.S. businesses to uncover these connections is not fair or practical. 

Through the 50 Percent Rule, which tasks U.S. businesses with determining whether any potential 

business transactions involve entities owned 50 percent or more by a blocked party, the government 

has outsourced a fundamental national security function to the private sector. This is effective in 

reducing government accountability, but is not effective as a means of accomplishing the goals of U.S. 

sanctions programs_ 

The 50 Percent Rule almost guarantees that the U.S. Government will fail in achieving its own 

objectives. U.S. businesses ordinarily do not have access to the kind of granular information that would 

2 See Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked, 

Department of Treasury (Aug. 13, 2014) ("OFAC 50 Percent Rule Guidance"), available at 

https://www.treasury.gov/resource~center/sanctions/Documents/licensing guidance.pdf. Specifically, the Kingpin 

Act defines blocked property to mean uany account or property subject to [a blocking action under the Act] held in 

[the name of a designated person], or in which a [designated person] has an interest, and with respect to which 

payments, transfers, exportations, withdrawals, or other dealings may not be made or effected except pursuant to 

an authorization or license from the Office of Foreign Assets Control authorizing such action.'' 31 C.F.R. § 598.301. 

3 OFAC 50 Percent Rule Guidance (Aug. 13, 2014). 

2 
17


27514b-3.eps

enable them to determine SO percent ownership of customers and business partners. Furthermore, 

even if a U.S. business is able to identify a secret owner of an entity, that information is not typically 

shared, so the rest of the private sector-- and the government itself- does not benefit from that 

discovery. 

In addition to having access to the same publicly available information on which U.S. businesses 

must rely, the U.S. Government has access to intelligence and law enforcement information and 

resources dedicated to identifying entities and individuals acting for or on behalf of targeted countries 

and individuals. Since the government has more reliable and efficient means to identify downstream 

ownership, it should identify and sanction the appropriate parties. 

Compliance Challenges and Strict Liability 

The sanctions regime seems simple. The government publishes a list of names. U.S. businesses 

are charged with the duty of reading the list and blocking transactions with anyone on the list. And 

sometimes it is exactly that simple. But not always. 

Search protocols frequently result in false positives or near positives• This is particularly true in 

the case of common names, or in the case of names with multiple spellings. The situation is further 

exacerbated by foreign language and translation issues, including transliteration of names from nonRoman alphabets, identifying surnames versus given names, or cultural differences in naming 

conventions. A number of screening tools are available to businesses, which offer analytics and other 

support senvices to reduce uncertainty and provide more accurate results. However, in many cases, 

determining whether there is a true match between a potential customer or business partner and a 

designated party is based on a judgment call made with incomplete information. It is in these areas of 

uncertainty that businesses take on significant risk, which they cannot reduce by further research 

because they do not have access to the kind of information that would definitively resolve the matter. 

U.S. businesses are thus left with the question of how close is too close? 

OFAC offers its own free search database, which allows users to search against several OFAC 

sanctions lists. Users can run searches for "exact matches" or employ fuzzy logic to capture a wider 

range of potential matches.' OFAC does not recommend any particular approach or search strategy, but 

rather advises that users "must make their own determinations based upon their own internal risk 

assessments and established practices."6 

4 A recent informal testing of several third party screening vendors resulted in vastly divergent false hit rates. The 

test involved a sample of over 100 entries consisting of a pre-determined mix of previously conf1rmed denied 

parties {SDNs) and unlisted persons. The likelihood of false positives (where an unlisted person appears as a 

potential match to an SDN) ranged from approximately 2% to 82%. The likelihood of false negatives {where an 

SDN match was missed) ranged from approximately 9% to 75%. The false hit rate increased dramatically when 

misspellings or common transliteration errors were introduced. 

5 OFAC has published frequently asked questions (FAQs) regarding how its search database works and how scores 

are calculated. These FAQs are available at https://www.treasury.gov/resource-ccnter/sanctions/SDNList/Pages/fuzzy log[c:~iill'~· 

6 !d. In some instances, a company may determine that its risk profile does not warrant implementing an expensive 

third party screening program. Even if that determination is made based on a good faith evaluation of the 

company's risk of doing business with prohibited parties, the company is still subject to heavy penalties. In a 

recent OFAC enforcement action, a retail jewelry business entered a settlement agreeing to pay $333,800 as a 

result of engaging in four transactions involving the shipment of jewelry to an SDN identified under the Kingpin 

Sanctions. See Enforcement Information for September 26, 2017, available at https://www.treasury.gov/resourcecenter~c:tlQm/CivPen/Pages/civpen-index2.aspx. 

3 
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How does this work in practice? By way of illustration, Muhammad Ali- "the Greatest of All 

Time"-- is a 100% match. Another example: a very nice Georgetown bakery is an 84% match to an 

entity recently designated under the Kingpin sanctions. This does not mean that there is an 84% 

likelihood that the bakery and the Kingpin are connected, but rather that they have 84% similarity based 

on the algorithms of OFAC's search tool. What is the Wisconsin widget maker to do with this 

information? Further research might resolve the issue, as in the case of Muhammad Ali. But it might 

not, illustrating how easily a business can be faced with the conundrum of how, with incomplete 

information, to meet its responsibility to determine if a business partner is a bad actor. 

Why is this such a big problem? Because a violation of OFAC regulations is a strict liability 

offense and the maximum penalties are substantial 7 So, regardless of a company's good faith intention 

to comply with the law, it can be held liable for any transaction with a designated party, and subjected 

to severe penalties. In making penalty determinations, the government does consider mitigating factors 

such as an effective compliance program, the lack of willfulness, proactive disclosures to the 

government, and cooperation with an investigation. But the company is still liable, and, in the end, the 

penalty is up to the government. 

In theory, it makes sense to impose a strict liability standard on a program designed to protect 

our national security. That's because national security is important, existentially so. But as a practical 

matter, the strict liability standard cannot itself guarantee enhanced national security. And it can be 

brutally unfair. Consider the small company that fails- after trying in good faith-- to determine that a 

sanctioned person is a SO percent owner, through an anonymous front company, of one of its 

customers. Should that company be strictly liable for fines and penalties? I don't think so. I don't think 

that's fair. 

Recommendations 

I was trained in the Navy that every problem has a solution. In that spirit, I offer these 

recommendations: 

Abolish the SO Percent Rule. Put the burden of identifying sanctioned individuals and entities on 

the government. Or, in the alternative, create a safe harbor where a company can submit 

names to the government for review. 

Create a good faith exception to the strict liability standard. This will allow compliant companies 

that are doing their best to satisfy the requirements of sanctions programs to avoid unfair 

penalties. And it will preserve the ability of the government to pursue penalties against 

companies that are not acting in good faith- which is the real problem the government should 

address. 

Thank you very much for your attention. 

7 The maximum civil penalty for an OFAC penalty under the International Emergency Economic Powers Act 

("IEEPA") is currently $289,238 (or twice the amount of the underlying transaction, whichever is greater). 82 Fed. 

Reg. 10434 (Feb. 10, 2017). The maximum civil penalty under the Kingpin Act is $1,437,153 per violation. 31 CFR 

598.701. 

4 
19

Mr. COOK. Thank you, Mr. Hall. 

Next let me introduce Dr. Emanuele Ottolenghi. Close? 

Mr. OTTOLENGHI. Very close. Perfect. 

Mr. COOK. This gentleman is a senior fellow at the Foundation 

for the Defense of Democracies and an expert at its Center on 

Sanctions and Illicit Finance focusing on Iran. 

Sir, I want to thank you for joining us today. You are now recognized for 5 minutes. 

STATEMENT OF EMANUELE OTTOLENGHI, PH.D., SENIOR FELLOW, CENTER ON SANCTIONS AND ILLICIT FINANCE, FOUNDATION FOR DEFENSE OF DEMOCRACIES 

Mr. OTTOLENGHI. Chairman Cook, allow me first to congratulate 

you on your recent appointment as the new chairman of this subcommittee. 

Mr. COOK. Thank you. 

Mr. OTTOLENGHI. Mr. Chairman, Ranking Member Sires, members of the subcommittee, I thank you for the opportunity to testify. 

Hezbollah’s growing involvement in transnational organized 

crime is a multibillion dollar global enterprise endorsed and coordinated by the group’s top leaders not a side business operated by 

greedy operatives gone rogue. Increasing quantities of cocaine invade the U.S. and Europe from Latin America. Cocaine consumption is as much a national epidemic as opioids and Hezbollah helps 

make it available to U.S. consumers. Take the recent extradition 

from Paraguay to Miami of suspected Hezbollah drug trafficker Ali 

Chamas. Court documents show that he was part of a larger network likely based in Colombia. At the time of his arrest, he was 

conspiring to export as many as 100 kilograms of cocaine a month 

to the U.S. by air cargo. 

The U.S. has remarkably sharp and effective tools to counteract 

Hezbollah’s terrifying threat, though it is not always using them as 

vigorously as it should. To illustrate the problem, let me offer two 

examples which I discuss at length in my written statement. 

In 2011, the DEA indicted Ayman Joumaa, a Lebanese-Colombian dual national who operated a global network of companies 

laundering drug money from Mexican and Colombian cartels to the 

tune of $200 million a month. Joumaa worked with Hezbollah as 

the kingpin in one of its many global networks. A DEA official discussing the case said that Hezbollah operated like ‘‘the Gambinos 

on steroids.’’ As the combination of numerous coordinated actions 

which included kingpin designations, the Joumaa case illustrates 

the effect of the Kingpin Act. 

Hezbollah’s use of the tri-border area of Argentina, Brazil, and 

Paraguay, or TBA, both to launder money from illicit traffics, and 

as a staging ground for its drug runners shows you a sanctions policy current shortcomings. In my written statement I offer evidence 

of the TBA’s importance too Hezbollah’s global illicit trade. Lack of 

U.S.-sanction enforcement against Hezbollah TBA operatives since 

their terror finance designation in 2004 and 2006, coupled with 

light or no penalties for sanctioned violators, have allowed 

Hezbollah to strengthen its presence and increase revenues from illicit traffics including cocaine. 

20

Unless U.S. sanctions are constantly updated and vigorously enforced, targeted individuals and entities can soon elude them and 

shrug off their effects, especially if they can count on local corrupt 

authorities to collude with them as it is the case with Hezbollah 

and the TBA. 

Both successful cases I mention in my written statement involved a sanctions and a law enforcement component. They also relied on unprecedented intelligence sharing and interagency coordination, cooperation with foreign law enforcement and intel agencies 

from allied countries, and the reliance on a panoply of tools drawn 

from the sanctions arsenal and in the Joumma case, the PATRIOT 

Act as well. 

The Kingpin Act shares the same strengths and limitations of 

other sanctions programs. When combined with other tools and leverage as a basis for prosecution is very effective. That is why I 

strongly recommend that the U.S. administration designate 

Hezbollah and its senior leadership as both a transnational criminal organization and a global kingpin. U.S. sanctions occasionally 

stumble upon the reluctance or refusal by regional governments to 

cooperate. No Latin American country has so far designated 

Hezbollah as a terrorist organization. Its terror financiers are not 

being prosecuted as such. U.S. requests to arrest, prosecute, and 

extradite them might be easier if they are under kingpin designations as well. Kingpin designations can also punish Hezbollah’s 

enablers. Were the U.S. to target the Latin American financial institution involved in facilitating Hezbollah’s drug transactions, the 

impact would be devastating. 

Global Magnitsky Act designations should also be considered for 

those whom Hezbollah bribes and corrupts for access, influence, favors, and collusion in its criminal activities. 

Requests that the President investigate cases of corruption by 

foreign officials can come from chairpersons and ranking members 

of relevant committees in Congress. Such requests would put the 

spotlight on narcoterrorism’s worst enablers. Kingpin designations 

have had salutary effects. They have named and shamed individuals, companies, and organizations, led to asset seizures, cut off 

their entities from the U.S. financial systems, nudged U.S. allies 

and the global corporate and financial sectors into compliance. Nevertheless, there are enough countries that disagree with, or disregard, U.S. policy. Hezbollah operatives find a haven where U.S. 

sanctions alone have limited reach. 

And, finally, Mr. Chairman, to run an effective policy, we need 

people and resources in place. First and foremost, the U.S. urgently 

needs a new DEA administrator with the vision and experience to 

go after transnational criminal organizations such as Hezbollah 

and with the skills to coordinate government agencies, navigate bureaucracy, and build friendships and international alliances. 

OFAC also cannot work cases through the sytem without access 

to more resources that can enable the bureaucracy to work faster 

and cast its net wider. 

Now, these are just some of my recommendations, Mr. Chairman, 

and I very much look forward to your questions. Thank you. 

[The prepared statement of Mr. Ottolenghi follows:]

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22


27514c-2.eps

Emanuele Ottolenghi November 8, 2017 

Chairman Cook, allow me first to congratulate you on your recent appointment as the new 

chairman of this subcommittee. Mr. Chairman, Ranking Member Sires, members of the 

subcommittee, thank you for the opportunity to testify on behalf of the Foundation for Defense of 

Democracies and its Center on Sanctions and Illicit Finance. 

In 201 I, the U.S. Drug Enforcement Administration (DEA) indicted Ayman Saied Joumaa, a 

Lebanese-Colombian dual national whose global network of companies operating out of Latin 

America, West Africa, and Lebanon laundered money for Mexican and Colombian cartels to the 

tune of $200 million a month of drug proceeds. 1 Joumaa worked with Hezbollah as the kingpin in 

one of many networks Hezbollah runs globally to sustain its financial needs. When his case came 

to light, the New York Times quoted a DEA official as saying that Hezbollah operated like "the 

Gambinos on steroids." 2 

The United States cannot continue to combat a threat of such magnitude unless it leverages all its 

tools of statecraft in a combined, sustained, and coordinated fashion. Over the past decade, 

Hezbollah's terror finance outside Lebanon has evolved from a relatively small fundraising 

operation involving trade-based money laundering and charitable donations into a multi-billion 

dollar global criminal enterprise. 

Increasing quantities of Schedule 2 drugs like cocaine invade the U.S. from Latin America, adding 

fuel to the opioid pandemic that has already cost so many lives 3 Cocaine consumption is as much 

a national epidemic as opioids, Mr. Chairman, and Hezbollah helps make it available to U.S. 

consumers. 

This makes Hezbollah, its senior leadership, and its numerous operatives involved in running illicit 

drug-trafficking and money-laundering operations on a global scale the perfect candidates for 

Kingpin and Transnational Crime Organization designations, in addition to the terrorism and terror 

finance designations already in place. 

The U.S government has, over the years, developed remarkably sharp and effective tools to 

counteract Hezbollah's terror finance threat, but is not using them as vigorously as it should. The 

Kingpin Act is one such instrument But like all other instruments of statecraft, its impact would 

be much greater if used consistently and in conjunction with other tools. The challenge for 

Congress, the executive branch, the intelligence community, and law enforcement agencies is to 

leverage these tools in a manner that will outsmart Hezbollah and disrupt its cash flows enough to 

inflict irreparable damage to the terror group's finances. 

1 U.S. Department of the Treasury. Press Release. --Treasury Targets Major Lebanese-Based Drug Trafficking and 

Money Laundering Network," January 26, 201 L \!!l•U&.li.ll..ll.C~c.!~ii"''!.D..hl.'l.Lld!£'C'-'"''"-!l'<'li~'.S'c!t: 

rclc:.'-lscs/l.:_g:ICs/tgl(!2_~): sec also: U.S. Department Treasury, Alleged 

Lebanese Dmg Kingpin \Vith Latmdering Drug Proceeds for Mexican and Colombian Dntg Cartels, December 13, 

2011. ( h~_LQS/1\~_\~ t\ jJJ_~ti9~_,gQyift:a:c_hj_~~-t;[~_~<}Q{\_fi_Q/tlC~_;;,i;(U_ t.'J)i~_(!__l _l _l_~JJj Q_W_llilUUJJnmJ) 

'Jo Becker. "Beirut Bank Seen as a Hub ofHe;.bollah's •· The Xew York Times, December 13. 20 II. 

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In pursuit of this goal, America needs to better coordinate the application and enforcement of all 

instruments available from the fonnidable toolbox created overthe past two decades by legislation 

and executive orders, including leveraging Executive Orders 13581 and 13773 on combating 

transnational organized crime, Executive Order 13224 on combating sources of terror finance, the 

1999 Foreign Narcotics Kingpin Designation Act, the 2015 Hezbollah International Financing 

Prevention Act (HlFPA), the Global Magnitsky Human Rights Accountability Act of2016, and 

soon the Hezbollah International Financing Prevention Act Amendment of 2017, which is now 

awaiting reconciliation between its House and Senate versions and which will, once approved, 

expand on HIFPA. 

In doing so, it should focus significantly on the Western Hemisphere, where Hezbollah's global 

footprint, especially in Latin America, is most menacing. 

Hezbollah's regional operations are part of a global network of illicit financial and commercial 

enterprises whose goal is to fund Hezbollah's activities in the Middle East. Where and when 

needed, these networks can also be activated to provide logistical support to operatives engaged in 

planning terror attacks. The United States therefore needs to think and act global! y to disrupt 

Hezbollah's illicit finance networks. Latin America is a very good place to start doing that. 

ln the remainder of my testimony, 1 will discuss evidence demonstrating the magnitude of the 

threat posed by Hezbollah's terror finance to the national security of the United States. 1 will also 

provide evidence of the high-ranking nature ofHezbollah's operatives in Latin America- a sure 

sign of the importance ofHezbollah's Latin American networks to the organization's budget. And 

T will discuss the impact of U.S. policy and actions on disrupting Hezbollah's terror finance 

activities. The evidence 1 am presenting today, hopefully, will highlight both strengths and 

weaknesses of present U.S. policy and offer ways to improve results. 

HEZBOLLAH'S LATIN AMERICAN NETWORKS: DEFINING THE PROBLEM 

Hezbollah's involvement in Latin America's drug trade is significant and expanding. The groupoften referred to as the "A-Team" of international terrorism- has reportedly formed partnerships 

with several of the region's most notorious crime syndicates, including Mexico's Zetas,4 

Columbia's FARC,' and Brazil's Primeiro Comando de la Capital 6 Drug trafficking cases 

involving Lebanese with suspected ties to Hezbollah are increasingly frequent. Evidence indicates 

that Hezbollah has ties that span the entire illicit narcotics supply chain. U.S. sanctions, as well as 

court cases in the United States and overseas, have targeted Hezbollah-linked operatives acting as 

4 Terence Rosenthal, "Los Zetas and Hezbollah, a Deadly Alliance of Terror and Vice," 

July 10, 2013. 

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Emanuele Ottolenghi November 8, 2017 

logistical and financial service providers,7 traffickers, 8 drug barons,9 distributors, 10 and, most 

recently, suppliers of precursor chemicals used to refine cocaine. 11 It seems only a matter of time 

before Hezbollah-run drug labs emerge, too - the kind that have long been at the center of the 

group's operations in Lebanon's Bekaa Valley. 12 

Hezbollah's operatives in Latin America play a central role in a new landscape where drug and 

human trafficking, gun running, illicit cigarette trade, trade-based money laundering, and terror 

finance can no longer be treated as distinct phenomena. Terror organizations like Hezbollah help 

criminal cartels and local mafias move merchandise to their markets. They then launder revenues 

through sales of consumer goods. The profits fund terrorist activities. 

Hezbollah's services come with a fee - and the money collected for acting as the cartels' 

middlemen fuels their war machine in Syria, their anns buildup in South Lebanon, and their efforts 

to carry out terrorist plots abroad. Targets include both Latin America and the U.S., as illustrated 

by at least two known, recent cases. 

First, Peruvian authorities arrested a suspected Hezbollah member, Muhammad Amadar, in 

October 2014. 13 Though his trial did not lead to a conviction for terrorism- in April 2017 he was 

sentenced to six years in prison for falsifying his immigration papers 14 - Amadar was identified 

by the U.S. Department of the Treasury as a Hezbollah operative and sanctioned in 201615 

According to Matthew Levitt of the Washington Institute for Near East Policy, Amadar's handler 

for operational planning was Salman al-Reda, aka Salman RaoufSalman, the Lebanese-Colombian 

dual national and Hezbollah member who was the on-the-ground coordinator for the I 994 terror 

v. lahya Laitar, No.liS-123 (RMC) (D.D.C. filed January 13, 2015). 

Gill11i/iv.it \\ .comtlhtcncr.com'pdf/20! 5/0 !/ J J/nnitcct stales v. l.altar.tHH) 9 U.S. Department of the Treasurv, Press Release. "Recent OF AC Actions." June 1. 2006. 

de cocain..1 en acropucrto Guarani (Lebanese of cocaine in 

Guarani airport)_-- !.a \Facion (Argentim), August 19, 2016. (J:l1Jll;li:tYYiJ:':::J£!11(J£LQJL92!lU':J.il~lJ..6J.QB1J.2L9!.~mllil: 

~:t'.QllJ.l!;'rtO-L'l.iill]llli-miug.J..:J.,;.llaZlJ£) 

11 Daniel Gallo, '·Acopiaban mas de 80 toneladas de precursores a metros de Ia frontera (Collected more than 80 

tons of precursors a fe\v meters from the border):· La Xacion July 25. 20 lG. 

!lgJR:illllii~1::i2i~) 

1

' "Prcsunto micmbro de Hczbollah fnc dctcnido en Surquillo 

.. RPP Noticias (Pem). October 29. 201~. (l!UQ:.i!'ullU~illlll'liil\;~illl!J!£\ill.lill![l;;;lllllil.:lllli:l.Dl2llL"~icl!Wllil!~"\lt. 

·'Absuclvcn a acusado de tcrrorismo dctcnido en 

Surquillo is acquitted)." El Co mercia (Pem), April21. 2017. Cllt!P5".!l.,•l££'llll:El9..I!s:lililllJL1Jl2.l©l'l!.lli:illlilll!l0.:1Ji:11Sil£lQc 

lcnojjsJlJJ)-det~n]..QQ:;.;nn..ruill.o --+ 1 :;g;Jt /) 

"U.S. Department of the Treaslll}'. "f'mn,teoo_Ten.e'i'"" CleSJlgnatHlllS. 

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attack on the AMIA building in Buenos Aires. 16 Amadar met al-Reda numerous times to plan the 

attack in Peru, which was eventually foiled by his arrest. 

On June 1, 2017, U.S. law enforcement authorities arrested Ali Kourani and Samer el Debek, both 

U.S. citizens, for scouting targets in Panama and the United States, with a view of plotting terror 

attacks. Potential targets included critical infrastructure such as the Panama Canal, and military 

and law enforcement facilities in the U.S. Both individuals were identified as members of 

Hezbollah's 1slamic Jihad Organization, a Hezbollah component in charge of overseas 

operations. 17 

Hezbollah has not only been involved in plotting terror attacks and facilitating drug traffic. lt has 

also fueled the type of rampant corruption that the Global Magnitsky Act was designed to counter. 

To ensure its operations' success in the region, Hezbollah operatives in Latin America routinely 

buy off local politicians, judges, prosecutors, immigration authorities, border control officers, 

customs officials, and police. They enjoy considerable political access and impunity from justice, 

thanks to corrupt and conniving political elites in key Latin American countries. These operatives 

also rely on a vast network of complicit expatriates who collude in illicit and highly profitable 

schemes, motivated by a varying mix of familial loyalties, greed, religious zeal, patriotism, and 

opportunism. 

Hezbollah's documented involvement in drug trafficking, the illicit cigarette and tobacco trade, 18 

illicit timber19 and blood diamond trades, 20 counterfeit and pirated goods, 21 and possibly in human 

and organ trafficking22 is not the work of rogue members or of people who, while possibly 

sympathizing and even actively making charitable donations to Hezbollah, are not part of the terror 

group. 

Mr. Chairman, Hezbollah's growing involvement in global crime is not a side business operated 

by greedy operatives gone rogue. It is part of a deliberate strategy endorsed by Hezbollah 's highest 

authorities and managed in hierarchical and highly structured fashion through Hezbollah's 

16 Mall hew Lcyitt. "He,.bollah's Growing Threat Against U.S. National Security Interests in the Middle East.'' The 

Wm.hmgton JnstJtute.fhr ?•lear Hast Poll('v'. March 22,2016. 

(ill1;p~J.L\V\\'"\\' };yastnngtorrinsti!llibQ .. Q;{lilllQlL4~!LC1lmer!t~t.91l!nonY/LesittT'estllit~:.m-20 lo~~ill) 1

' U.S. Department of Justice. Press Release. "Two Men Arrested for Terrorist ActiYitics on Belmlf of HiLbullah's 

Islamic Jihad Organization," June S, 2017. Ch1tll2l::_TI::~:LU~.Jl&.tJ..GJ.:_,_gq_y!QD£12l:!J~so:]nefli:l.I!.:..~~d-te..rrori_st-3ctiYltLC_'i: 

Pelrctlf-14zh:lU!.!l1'i:i?.la~::,t.i_lllisl:.ill.g<.JJllZ::ttion) 

16 A 2016 report published by Israel's ministry of health on tobacco issued in Israel states that "illicit trade of 

tobacco constitutes an important source of funding for Hezbollah." Ismel :rvlinistry of Health, .. 71' mK,lJ.;! l:V n"n 

2015 7K'IO"J jl<O"Yii (Report of the Mirristcrof Health on Smoking in Israel)." May 2016. page 134. 19 "US Consumers Buving Millions ofDollars-Worth ofLuxurv Timber Linked to Hezbollah Financiers, Global 

Witness Reveals," Global Witness. 9, 2017. 

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Executive Council and the External Security Organization's Business Affairs Component, which 

acts under the directions of the Executive Council. 

Still, important questions, as far as policymaking is concerned, are: How much does Hezbollah 

earn" Does Hezbollah still mainly rely on Iran for its funding" How large is its overall operating 

budget, and how much of it comprises revenue from Hezbollah's illicit activities overseas" 

The U.S. Department of the Treasury thought that overseas contributions to Hezbollah from illicit 

trade were significant enough to pursue. ln 2004,23 and then again in 2006,2

• it sanctioned 

Hezbollah operatives in the Tri-Border Area of Argentina, Brazil and Paraguay, or TBA, who were 

engaged in a variety of criminal activities to finance the terror group. Their activities included drug 

trafficking, currency counterfeiting, and racketeering. 

At the time, it was estimated that revenue generated through trade-based money laundering and 

other illicit activities in the TBA yielded rough! y $10 million for Hezbollah, out of an estimated 

budget of $100 million a year. A 2004 Naval War College study assessed that "Hezbollah, whose 

annual operating budget is roughly one hundred million dollars, raises roughly a tenth of that in 

Paraguay."25 A 2009 RAND study doubled the estimate of money raised mainly in the TBA to $20 

million26 Regardless of the accuracy of these estimates, Hezbollah's operating expenses have 

mushroomed since the early 2000s. Hezbollah's financial needs have grown significantly since 

then, mainly due to the damage suffered in its 2006 war with Israel and, since 2011, due to its 

deepening involvement in the Syrian civil war. 27 Iran's funding has grown along with Hezbollah 's 

needs, but the ebbs and flows of Iranian support,28 combined with pressure from U.S. measures 

that began hitting Hezbollah's finances in Lebanon in 2015, have meant that Hezbollah's reliance 

on alternative funding streams has become more critical to its operational needs. 

After the 2006 war with Israel, Hezbollah 's highest authorities instructed their followers to engage 

in criminal activity to restore the organization's fighting abilities. Multiple media and law 

enforcement sources confirm this religious endorsement29 According to U.S. law enforcement 

"U.S. Department oft he Treasury, Press Release. 

SnpportingHizballah in Tri-Border Area:· June 10. 

L~£.~_£i/P:.~gCs/j s 1 '22il.illi;lli) 

" U.S. Department of the Treasury, Press Release. 'Treasury 

Frontier of Argentina. Brazil. and Paraguay:· December 6, 2006. (ill.tlli:!!~cl.':'!D_re..!!s.ll!'.U:Q.\J !lli;§S::<&.nts:r!Jl.!li5J>.: 

.lTI~nt!..esiP;!~1mJ.2QJ.!~PX) 

~~Paul D. Taylor, .. Latin American Security Challenges: 

War College Newport Papers. accessed May 6. 2017. U!!lJ;>iiJ.l5.ill'!Ll'iill'~c.~:yJ:'llli!Ll,l;,C![lQlJ.!{l:illl:'ll.:.2'i'!!I:_\:Qlli;:[;.".: 

l'~i;:l:D0lP..9.I.\.::J~..c'lliCrsd)JlCtl rncnt?/2 J -Jill.Cil:m_o"i) 6 Gregory F. Treverton et aL "Film Piracy, Orgnnized Crime, and Terrorism," R.·l?v'TJ Corporation, 2009. 

{l]Jl"[{L'!YH-vY.ffi~td.out~Qilli:Jl@~~-pJr;m£llmlbs/ll1Ql:l:Q.gnl~QD2.!Jh.'\~~D l\_1(l7124Jill) 

'" MalliJe" Levitt. ·'The CrackdO\vn onHeLbollah's Financial Network,'' lhe Wall Street Journal, June 27,2016. 

(ht1ps: 1/b !ogs. wsJ. co m/wn <;h'IY.~ rc/2DJ2::~ll /2 7..1l!f..::£f:J£b-il£m:n:Qn-hcTbq t b hs-flf!iJncing-nctv;QJJs.D 

"Oren Kessler & Rubert Sutton, "Hezbollah threatened by Iran· s Financial Woes ... World Affairs Journal. June 3. 

201-1-. (hllR~L/:.!_)~'I_L~Qr)QqJTa(r~i<;HJ_:cttJ1LVr.w]r_tj9leDJt~·~rb_Qlj_;;~h-Jb-t~0_ir;'_n~d-ir:alt~SA:"~~-·!·~~~rl?,~?-~_9s::'{i_n;JJ!-~i~J::-~'--QGS) 

29 Marco Vem1schi. "The Cocaine Coast." Virginia Quarterf:v Online. Winter 2010. 

GltU2:1;vY;vv:.-_,2JJronlinc.o.(g~.i§f.IT:LCOGlHl~ .. .::;oa:n). According to tllis report, "Most ofHezbollah·s support comes from 

dmg tmfficking. a major moneymaker endorsed by the mullahs through a particular fat\va. In addition to the 

production and trade of heroin in the Middle East, Hezbollah facilitates. for a fee, the trafficking for other dmgsmuggling networks. such as the F ARC and its cocaine trade_·· 

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Emanuele Ottolenghi November 8, 2017 

authorities, "since in or around 2006, such narcotics trailicking has been condoned through the 

issuance offatwas by radical Islamic clerics."3

° Fonner U.S. officials familiar with Hezbollah drug 

trailicking cases told me, under condition of anonymity, that evidence seized in one instance 

included a written copy of a fatwa by a senior Hezbollah cleric endorsing the drug trade as a 

legitimate source of funding for the "resistance" - a code word for Hezbollah 31 

In 2016, the Drug Enforcement Administration (DEA) identified a coherent, hierarchical structure 

inside Hezbollah that has been in charge of its illicit operations since as early as 2007. The DEA 

named it the BAC -an acronym for the Business Affairs Component of Hezbollah's External 

Security Organization - likely another name for the Islamic Jihad Organization. As stated in a 

February 2016 DEA press release: 

This global network, referred to by law enforcement as the Lebanese Hizballah 

External Security Organization Business Affairs Component (BAC), was founded 

by deceased Hizballah Senior Leader lmad Mughniyah and currently operates 

under the control of Abdallah Safieddine and recent U.S.-designated Specially 

Designated Global Terrorist (SDGT) Adham Tabaja. Members of the Hizballah 

BAC have established business relationships with South American drug cartels, 

such as La Oficina de Envigado, responsible for supplying large quantities of 

cocaine to the European and United States drug markets. Further, the Hizballah 

BAC continues to launder significant drug proceeds as part of a trade based money 

laundering scheme known as the Black Market Peso Exchange32 

Cases implicating the BAC give a sense of the global footprint ofHezbollah's illicit activities and 

offer a glimpse into the size of these operations. They also offer a blueprint for a strong and 

effective US. response to this threat. 

Tn the first case, Treasury sanctioned the Tajideen brothers and their business network, operating 

mainly out of West Africa, in 2009-B and then again in 2010 34 In its initial designation, Treasury 

accused Kassem Tajideen of having contributed "tens of millions of dollars" to Hezbollah. 

Tajideen was eventually arrested in March 2017 in Morocco and extradited to the United States 

where he will stand trial. His initial indictment details $27 million in transactions with US.-based 

companies, where the corporate identity ofTajideen's business network was concealed3 ' 

Conversation with the author, October 2~, 2017. 

United States Drug Enforcement Administratioll Press Release. "DEA and European Authorities Uncover 

Massive Hi7ballah Dmg and Money Laundering Scheme,'' Febmarv 1, 2016. 

Grllil~Lb1r":r"v .dl:a. l!OY/Q.iiihlQns/hy/20 1 (!/hoQ£.0Jj_Q ~html) 

33 U.S. Department of the Treasury, Press Release. Network." May 27. 2009. 

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In 2011, Treasury targeted the aforementioned Ayman Joumaa. According to Treasury, Joumaa 

and his network - which extended to South and Central America, West Africa, and Lebanon -

laundered "as much as $200 million per month" in drug proceeds for Latin American drug cartels36 

Joumaa was eventually indicted37 but remains at large. 

On February 1, 2016 the Drug Enforcement Administration announced multiple Hezbollah arrests 

in an operation involving seven countries 38 The operation disrupted a ring responsible for moving 

large quantities of cocaine to the United States and Europe. According to a former U.S. official 

familiar with the case, the ring involved shipments of cocaine to Europe, which were paid for in 

Euros, and were then transferred to the Middle East by couriers. Hezbollah made more than €20 

million a month selling its own cocaine in Europe. lt also laundered tens of millions of Euros of 

cocaine proceeds on behalf of the cartels via the Black Market Peso Exchange, retaining a fee. 

During multiple arrests conducted across Europe, authorities seized €500,000 in cash, luxury 

watches worth $9 million that Hezbollah couriers intended to transport to the Middle East for sales 

at inflated prices, and property worth millions 39 Money from drug sales was used to buy weapons 

for Hezbollah in Syria and to fund projects in Iraq run by Adham Tabaja- himself sanctioned in 

June 2015 for managing investment projects in Lebanon and Iraq on behalf of Hezbollah40 

In September 2016, the DEA indicted three Hezbollah members- one, Hassan Mohsen Mansour, 

was arrested in Paris- who were laundering cocaine proceeds for Colombian cartels. The charges 

against one of them, Mohammad Am mar, who was extradited to Miami, involved moving half a 

million dollars of drug money to U.S. banks in order to launder it, but the cash value of their 

operation was much larger41 

All these cases involved a sanctions and a law enforcement component. They also relied on 

unprecedented intelligence sharing and interagency coordination, cooperation with foreign law 

enforcement and intelligence agencies from allied countries, and the reliance on a panoply of tools 

drawn from the sanctions arsenal and the USA PA TRTOT Act. The platform for this successful 

model was Project Cassandra, a decade-long operation run by the DEA through the Special 

Operations Division, a multi-agency coordination center that enables stakeholders from the law 

of U.S. sanctions, prosecutions, and financial restrictions on the bank eventually crippled Joumaa 's network. Jmmma 

\vas indicted in December 2011 but remains at large. 3' Indictment United States oj~.Jmerica v. Avman Joumaa. No. I: 11-CR-560 (TSE). (EDVA November 23, 2011). 

Cb11Jl.[;L{.Luu.r:J.D..l.9.~ilgruh_~1~J,_pn::~/do9!:rr.~.lf.f.S:::lli~- doc.?[ l g 56 .J)sl-D ~~ United States Dmg Enforcement Administration, Press Release, "DEA and Europenn Authorities Uncover 

Massive Hizballah Dmg and Money Laundering Scheme:· Feb mary L 2016. 

Q:_Ups :/ib:_~lt_,Ji~iL£9.::idi \ .llii.Q.!~lCJL~~~ i l~~l~n,Q]Jl J 1 Cl sh.tmD 9 Information obtained from a former U.S. official familiar 'vith the investigation. Sec also: David Asher, 

"Attacking Hezbollah's Financial Nehvork: Options," Testimon_v befOre House Foreign Affi7irs Committee, 

June 8, 2017. (lJ([p i/<JC>CS.llO,USC.llO·J/llle(JUnLgs/Y 

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enforcement and intelligence community to share infonnation and cooperate more etl'ectively. 

This organizational model, and the outcomes it yielded through successful investigations, should 

be revived and resourced, moving forward, to ensure that U.S. success against Hezbollah 

operations is not merely tactical 42 

Other suspected cases, if links to Hezbollah are confinned, indicate how large the drug trafficking 

networks are in Latin America. ln some cases, these networks intend to sell drugs inside the United 

States- a clear sign of how close to home the threat ofHezbollah's terror finance networks is. 

In July 2016, Brazilian authorities arrested Fadi Hassan Nabha, a former Hezbollah Special Forces 

member wanted for drug trafficking. Brazil did not comment on his Hezbollah links, nor was he 

prosecuted under terrorism charges, since Brazil does not consider Hezbollah to be a terror group. 

Nevertheless, Nabha had a long history of drug trafficking- he was first arrested in 2003, in Sao 

Paulo, Brazil, in an operation where 42 kilos of cocaine were seized43 Media reports quoting police 

sources said at the time of the arrest Nabha's group was moving between 400 kilos and one ton of 

cocaine per month, which he and his associates bought, on the Brazilian side of the TBA, at $2,000 

per kilo and sold in Brazil for $4,500 or in Lebanon for $60,000- these are 2003 prices44 

In June 2017, U.S. authorities extradited Lebanese-Paraguayan national Ali lssa Cham as to Miami 

on charges of conspiring to ship cocaine to the United States. At the time of his arrest in Paraguay, 

Chamas was dispatching a shipment of 39 kilograms of cocaine to Turkey from the Guarani 

International Airport outside Ciudad Del Este in the TBA. Court documents4

' show that Cham as 

was part of a larger network of drug traffickers, likely based in Colombia. Had he not been arrested, 

Cham as would have dispatched a test run ofthree kilos of cocaine to a business partner in Houston. 

Upon successful receipt of the test run, Cham as promised his partner as many as I 00 kilos of 

cocaine a month could be shipped, by air cargo, to the U.S. He noted that "it would take 4 to 5 

days to Houston, 2 to 3 days to Miami, 4 days to Toronto, Canada" and indicated that air cargo 

was the method of transport46 

Cham as' arrest eventually led to the detention, by Paraguayan authorities, of three of his associates. 

On February 4, 2017 two Turkish nationals were detained in their TBA apartment. 47 There, police 

found a press, believed to serve the purpose of liquefying cocaine, and 65 large shampoo bottles, 

A detailed description of Project Cassandra and its achievement can be found in: Derek Maltz, "Attacking 

Hezbollah·s Financial Network: " Committee, Jtme 8. 2017. 

Change of Pica. Uniied S'tafes r~f.lmerica v .. Hi Jssa 

Otamas. No. 16-20913-Williams (November 2~. 2017). ClJlliri:!,ls:;;,(tl.:;\l.nscou~w/dQ.c:.l.!Q51LBL{OSI\.I:il 

~ ·'Senad detiene ados turcos con cocaina liquida en CDE" (Senad arrests two Turkish nationls \Vith liquid cocaine 

in Ciudad Del Este):· Ultima Hora (Paraguay), February 6. 2017. (http://www.tlltimahora.com/senad-detiene-dosturcos-cocaina-liquida-cde-nlOG0868.htnll). 

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which investigators believe were meant to be used to carry the drugs48 One of the two individuals 

arrested had photographs of cocaine powder and packaged cocaine in his mobile phone. On April 

6, 2017, a fourth individual, also a Lebanese national, was detained in his Ciudad Del Este 

apartment, while in the company of two others. Media and police reports independently obtained 

from local sources indicate that Chamas and his associates are suspected of being part of the same 

trafficking network and to have ties to Hezbollah49 

Hezbollah may also have been linked to Latin American drug baron Rafaat Jorge Toumani, a 

Brazilian national of Syrian descent who was gunned down in the Paraguay-Brazil frontier town 

of Pedro Juan Caballero in June 2016 50 Toumani, at the time, was involved in a $30-million real 

estate project with Lebanese partners suspected of links with Hezbollah 51 The real estate project 

-a large commercial mall on the border of Paraguay and Brazil -was likely a money-laundering 

scheme for drug proceeds and floundered once Toumani was assassinated. 

Toumani was considered the heir to Fahd Jamil-Georges, 52 a Lebanese-Brazilian drug lord who 

controlled much of the Paraguay-Brazil drug transportation land route and whom the United States 

designated in 2006 under the Kingpin Act53 The U.S. government considered Jamil-Georges, 

alongside four other Lebanese clans well rooted in the Brazil-Paraguay border towns, to be "the 

major actors in drugs and other large-scale crimes;" 54 the other four families have 

well-established links to Hezbollah. Despite his Kingpin designation dating back to 

2006, Jamii-Georges remains at large and is rumored to live just across the Brazilian border, 

inside Paraguay, in the city where Toumani was gunned down. Local sources allege that he lives 

off proceeds from a large local real estate development. 

Cham as was in charge of shipping hundreds of kilos of cocaine a month. His associates were also 

handling significant quantities of cocaine. Toumani was also handling billions worth of cocaine 

07ASCNC10N688 a, August 20, 2007. 

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transactions. Assuming links to Hezbollah can be confinned in all these cases, this is another piece 

of the puzzle that is Hezbollah's multi-billion dollar drug and money-laundering empire in Latin 

America. 

Mr. Chairman, combating this growing risk to the American homeland needs to be a U.S. policy 

priority, especially when one considers the scale of Hezbollah's revenues from its global 

involvement in criminal activities. A September 2017 assessment of Hezbollah finances published 

by two of my colleagues concluded that Hezbollah's overseas financial networks' contributions to 

its budget have mushroomed to an estimated 20-30 percent of their overall operating budget, which 

my colleagues conservatively estimated to be around $1 billion a year." 

An exact figure is hard to come by without access to classified information and knowledge of 

ongoing investigations. Regardless, it is fair to conclude that proceeds from criminal activities 

have become a vital source of income for Hezbollah, especially when one looks at available 

evidence. The cases the U.S. prosecuted in recent years as part of Project Cassandra reveal that 

Hezbollah was implicated in laundering billions of drug money and moving large quantities of 

drugs globally. 

America needs to recognize the magnitude and scale of this problem and dedicate its best resources 

to fighting it. This is a direct threat to the homeland and all tools need to be leveraged in a combined 

fashion to yield the desired results. 

Mr. Chairman, 1 have discussed the nature and magnitude of the threat of Hezbollah in Latin 

America. This panel seeks to determine whether the Kingpin Act is being effective in the Western 

Hemisphere. 1n Latin America, Hezbollah has certainly benefited from the lack of U.S. 

enforcement of its own sanctions coupled with a permissive environment where corrupt local 

officials connive with Hezbollah 's illicit finance schemes for their own personal gain. 

Actions taken by the U.S. to update and enforce its own existing sanctions against Hezbollah 

terror-finance networks would be a first step to reverse this situation. That would naturally have 

to include Kingpin designations. But much more is needed. 

HEZBOLLAH'S IMPUNITY IN LATIN AMERICA: THE CASE OF UNENFORCED U.S. 

SANCTIONS 

Starting in 2004, the U.S. Department of the Treasury periodically sanctioned Hezbollah-linked 

individuals and entities in the TBA 56 Treasury cited their involvement in raising funds for 

Hezbollah, often through illicit finance and trade activities, as a key reason for sanctions. To date, 

the U.S. has only sanctioned 11 individuals and 4 companies in the TBA for their involvement 

with Hezbollah's terror-finance networks. Despite recognizing the importance of the TBA for 

55 Yay a l Farmsie and Ale.\. EntL, '·HeLbollah Filk1ncial Assessment." Foundalion fiw Defense of Democracif>s. 

September 20 I 7. ClillDdDlllJL9_cfctl\iQ&lnnG.I:3flAll];!f:Oni.gJlJmJ0ad<;/J~K:JJ rnc1J12./.(SJl~IfBrLtkA2ill.llilHJ~ID 56 U.S. Department of the Treasury, Press Release. 'Treasury Targets Hizballah Ftmdraising Network in the Triple 

Frontier of Argentin:.t Brazil, and Parab'llay ... December 6. 2006. (1Jttps:I/I.Y\Y\Y.:..1lJ~11'ill~~~s-<.:t;;_:U!.£0JKS1i: 

mt_ei)sesl)'"'l&).lflilll2JL!!SD:0: U.S. Department of the Treasury. Press Release. ·'TreasllJY Targets Hizballah Financial 

Net\vorlc .. December 9. 2010. (il1tp••·f/n'iY\Y.treaslnT.!;o"'~,-/prcs'-'-center/mes''~·relc:!ses/Pag.es/tE097 asDx) 

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Hezbollah's terror finance in 2004, the U.S. government has not leveraged U.S. sanctions and 

designations as effectively and aggressively as it could and has not gone after additional members 

of the Hezbollah TBA networks. For over a decade since designations occurred, the TBA has only 

seen one law enforcement case, in 2010, when U.S.-based businesses were caught shipping 

merchandise to these sanctioned entities and faced prosecution, convictions, and fines. 

If anything, the area remains an important center of Hezbollah's activities, as I have previously 

documented in a June 2016 testimony to the House Financial Services Committee57 and a May 

2017 testimony to the Senate Foreign Relations Committee. 58 Evidence of its importance emerges 

from multiple reports from local sources of the arrival of senior Hezbollah operatives in the area 

since 201659 and the recent death of Samer Ibrahim Atoui, 60 a senior Hezbollah commander. Atoui 

may well have been a memberofHezbollah's BAC. Though he died in Eastern Syria while driving 

with another senior Hezbollah Special Forces commander,61 thousands of miles away from Latin 

America, Atoui held both Brazilian and Paraguayan citizenships. 

Extractji·om Brazil's C!fficial records showtng ,)'amer Ibrahim Atoui's naturalization in 1998 

5' Emanuele Ottolenghi, ··rhe Enemy in our Backyard: Examining Terror Ftmding Streams from South America" 

TeslimoJ~V before llouse Commlllee on Financial ,Services, June 8. 2016. 

0JJtJLi/y;:"'\V"\Y.defcnddc!l!fLC.flL9:_:.9f£"/contentiup!oadsrJ:locuQN.l!lli~Qnp!cnghi The Encnw in our DAclwar_Q_dllif) 

s::; Emanuele Ottolenghi, ··rhe Enemy in our Backyard: Examining Terror Ftmding Streams from South America" 

llouse Commlllee on Financial S'enJices, June 8. 2016. 

:)~(Pictures: K1k1}yamdeposed martyr Samer Ibrahim 

2017. 

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Emanuele Ottolenghi 

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Official Record ofSamer Jhrahirn.1toui in Paragu£~y, shmring his Jdenti~v rard was is:;;ued in /993. five years 

before he ll'as granled Brazilian citizf'nship 

Based on public records of his dual citizenship, we assess that Atoui spent at least five years in the 

TBA during the early 1990s. Based on evidence available on social media, including the fact that 

the Imam Khomeini mosque in Foz do Iguazu, on the Brazilian side of the TBA, commemorated 

him four days after his death, 62 we also assess that he had close family ties in Latin America and 

maintained close relations with Hezbollah TBA Specially Designated Global Terrorists (SDGT) 

and other prominent members of the TBA-based Hezbollah network63 

These ties suggest that the TBA remains a high priority for Hezbollah's funding operations. US. 

sanctions clearly failed to deter Hezbollah in the TBA In fact, evidence of people who have 

previously been identified as senior Hezbollah operatives focusing on the TBA and, even more so, 

relocating there permanently, suggests that the opposite is true. 

"'Mohanmd Molm Ali. Facehook. October 6, 2017. accessed November 1. 2017. 

Cbttns.:Lh.Ywv;·. !iiJ~£!/QQ}<.ccurJlill.lP10.J!JID.:!.llli!t~LZ.Lll9..:B52.:VJ.Lil±..Q.:sct~.<l-i2J.lUJj_7_1_2if?1l.lQ.n.l-Ll_~25 J .. QQQ.12Q1JQ 

:.:.u35ll9&Jype=3&t1J.eatcr) 

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Emanuele Ottolenghi November 8, 2017 

As a result ofTreasury's actions, sanctioned individuals and their businesses should have been cut 

off from the U.S. financial system. Since November 2015, Congressional legislation targeting 

Hezbollah's global financial networks should also have made them the object of secondary 

sanctions, extending penalties to those providing them material support. Evidence available from 

open sources, particularly social media, suggests that despite U.S. measures, many sanctioned 

Hezbollah operatives remain active in trade and finance, are able to travel abroad, and must 

therefore enjoy significant access to the global financial system. 

Lack of enforcement is not because the TBA is no longer important to Hezbollah' s terror finance. 

According to the June 2017 Department of State's Bureau of Counterterrorism and Countering 

Violent Extremism's Country Reports on Terrorism 2016: 

The Tri-Border Area continued to be attractive to individuals seeking to engage in 

terrorist financing, as the minimal police and military presence along these borders 

allowed for a largely unregulated flow of people, licit and illicit goods, and money. 

Paraguay's efforts to provide more effective law enforcement and border security 

were hampered by a lack of interagency cooperation and information sharing, as 

well as pervasive corruption within security, border control, and judicial 

institutions64 

The U.S. can and should seek to prevent SDGTs under E.O. 13224 from accessing the global 

financial system and punish those who offer them material support. Local circumstances at least 

partially explain the failure of U.S. sanctions to affect these individuals and entities. 

As the March 2017 Department of State's International Narcotics Control Strategy Report 

explains: 

Paraguay is a drug transit country and money laundering center. The Tri-Border 

Area .. is home to a multi-billion dollar contraband trade that facilitates much 

of the money laundering in Paraguay. Transnational criminal organizations 

operating in these three countries are believed to launder the proceeds from 

narcotics trafficking and other illicit activities through banks and non-bank 

financial sector entities. Paraguay's progress in combating money laundering is 

impeded by widespread corruption, burdensome bureaucracy, and the fear of 

reprisal against regulatory and supervisory authorities65 

The counterterrorism Country Report on Paraguay for 2016 also highlights inadequate 

enforcement. In the Paraguay section, the report states that "Paraguay has counterterrorist 

financing legislation and the ability to freeze without delay and confiscate terrorist assets, although 

there were no terrorist financing convictions or actions to freeze in 2016"66 

64 U.S Department of State, "Chapter 2. 

2016, Julv 2017. 

<'>')U.S. D~partmcnt Bureau Narcotics and La\v Enforcement Affairs. "Tntcmational 

Narcotics Control Strategy Report: Volume II: Money Laundering and Financial Crimes," March 2017. 

{ll.!.Ufj_Jtiill1:L;itl1kJJp_Ldocullle.!1,Tht~Qig;!JJimtioH/'1fili\1.2 ... ti@ 06 U.S Deparunent of State. "Chapter 2. Western Hemisphere," Countrv Reports on Terromm 

2016. July 20 17. (l];!;r&.;/JJl:\l}jc.sl:Jk.!;Q'~:;!/Ib!<;TIL;lliJ.2!1Tiilllru.ll) 

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Emanuele Ottolenghi November 8, 2017 

All sanctioned Hezbollah operatives to date operate from the TBA, run Paraguay-registered 

businesses, and hold Paraguayan citizenship. Many reside in Brazil. Some hold dual nationality or 

penn anent residency in both countries. Their ability to move freely between these two jurisdictions 

is a testimony to the inetiectiveness of U.S. measures when not matched by local authorities' 

cooperation. The following evidence for six individuals and one entity under U.S. sanctions makes 

it abundantly clearthat, as a result of this permissive environment, SDGTs can shrug off the effects 

of U.S. Treasury designations. 

J. Sohhi Mahmoud Fayad 

Sobhi Mahmoud Fayad was designated by the U.S. Treasury Department in 2006 for serving as a 

liaison with the Iranian embassy on behalf of the Hezbollah community in the TBA. According to 

Treasury, he was involved in drug trafficking and in counterfeiting U.S. currency. He was also 

sentenced to six and a half years of prison in Paraguay for tax evasion. 67 

Despite U.S. sanctions and a Paraguayan prison sentence (which he served in full), evidence posted 

by Fayad himself on his Facebook account provides abundant evidence of his travels and activities. 

His extensive travel also suggests he retains access to financial tools to pay for his needs - an 

indication that local banks are unlikely to be enforcing U.S. sanctions against him68 

In a September 2016 trip to fulfill the Islamic pilgrimage obligation, or the Haji, in Saudi Arabia, 

for example, Fayad flew from Foz do Igua9u to Sao Paulo, Brazil, where he boarded an Ethiopian 

airlines flight to Addis Ababa (via Togo). From Addis Ababa he connected to Beirut, where he 

spent at least a day," before joining a group of Lebanese pilgrims heading to Saudi Arabia. While 

in Saudi Arabia, he posted infonnation regarding his whereabouts, including the hotel where he 

was staying."' Upon completion of the Haji, Fayad returned to Lebanon and then, eventually, the 

TBA. 

6 ' U.S. Department of the Treasury·, Press Release. "Treasury Targets Hezbollah FundraisingNetwork in the Triple 

Frontier of Argentina. Brazil and Pardt,'lJay," December 6, 2006. (h_tUl§./\•/\Y\\ .tre.ill,illl}:.~J.£.?S-cclnc@~~ 

.D?Jeasi2~/Pi]g££/@J2Q.J!§!L'i) 

6s According to §566.60 1 of the Department of the Treasury· s Hezbollah Financial Sanctions regulations issued in 

April2016: ·'(a) A foreign financial institulion engages in an activity described in this paragraph if. in any location 

or currency, the foreign financinl institution, on or after December 18, 2015, know-ingly: (I) Facilitates a significant 

transaction or tnmsactions for Hizballah: (2) Facilitates a significant transaction or transactions of a person identified 

on OF AC's Specially Desigrmted Natiomls and Blocked Persons List (SDN List), the property and interests in 

property of which arc blocked pursuant to the Tnternationnl Emcrgencv Economic Powers Act (50 U.S. C. 170 I et 

seq.) (JEEP A) for acting on behalf of or at the direction of, or being owned or controlled by, Hizballah." Hizballah 

Filk1ncial Sanctions 31 e-C.F.R November 2, 2017. 

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Emanuele Ottolenghi November 8, 2017 

He returned to Saudi Arabia this year, 71 t1ying tram Rio de Janeiro to Beirut, Lebanon before 

landing in Mecca72 He also recently visited Damascus. 73 

Fayad appears to be traveling on a valid Paraguayan passport, which he posted on his Facebook 

account'' to show a visa to Iraq, in December 2015, when he went to Karbala on pilgrimage. 

According to information Fayad posted on the same day,'' he bought a ticket on an Iraqi Airways 

t1ight to Najaffrom Beirut from the airline's Beirut office and paid in dollars. 

These details are important because Treasury identified Fayad as a Hezbollah operative in the 

TBA. According to the 2004 Treasury designation ofFayad's boss, Assaad Ahmad Barakat, Fayad 

at the time was a known Hezbollah senior operative and weapons and explosives expert. According 

to Treasury,76 Fayad, "a high-ranking Hizballah official in Lebanon in the 1980s," supported 

Hezbollah operations in the TBA. ln its subsequent 2006 designation ofFayad, Treasury noted his 

regular trips to Lebanon and Iran to coordinate with Hezbollah leaders 77 

J! Rilal Mohsen Wehhe 

Bilal Mohsen Wehbe was sanctioned in 2010 for being Hezbollah's "chief representative in South 

America.''78 He is one of the leading sheiks in Brazil's Centro lslamico do Brasil (Islamic Center 

of Brazil) and regularly participates in prayers, educational events, 79 and meetings. In 2015, he 

was photographed at a public meeting with Hassan Khomeini, the grandson of Islamic Republic 

oflran's founder Ayatollah Khomeini, on his trip to Brazil and Paraguay alongside various other 

rdc.-~scs/Png-~s/is l720.a~J;rs) 

r; ' U.S. Department of the Treasury·, Press Release, 'Treasury Targets Hizballah Fundraising N et\vork in the Triple 

Frontier of Argentilk1, BraL.il and Paraguay," December 6, 2006. (llUP?/b_\_\}_H __ ct~i~'StJ1)_._gpy/gg~ss-~9J1l~t/_p:r:~M~­

I£1:;asc" i~£g£s.1lpj_~2i}_,lllili2J 

'

8 U.S Deparunent of the Treasury, Press Release. -Treasury Targets Hizballah Financial Network." December 9. 

2010. (htU:l.b.;//1"'\YI.Y 1@~~~_gmj;rr_~s-ceJlt~lCI,JS-r~Jea<.;e~i);Jt:~~,/.asn~J 

''Lecture atthe Brazilian Association oflslarnic Bilal Wehbe. Facebook. May 2. 2017. 

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Emanuele Ottolenghi November 8, 2017 

TBA religious and political tiguresgo In February 2017, he welcomed the Iraqi ambassador to 

Brazil, H.E. Mr. Arshad Omar Esmaeel, to Arresala, 81 an Islamic cultural center based in Sao 

Paulo. Wehbe continues to operate in Brazil, where authorities have not interfered with his 

activities. 

JJJ. Hatem Barakat 

Treasury sanctioned Hatem Barakat and two other family members in 2006g2 Nevertheless, he 

appears to remain active in business. Hatem lists his current employment at a store named lnfomet 

Princesa83 The store is located in Luanda, Angola and sells electronics, children's toys, and 

accessories. 84 

IV Hamze Ahmad Barakat 

Hamze Ahmad Barakat was arrested in Curitiba, Brazil in May 2013 for operating a "fraudulent 

scheme in the clothing industry" after his 2006 designation by the U.S. Treasury for his 

membership with, and financing of, Hezbollahg5 According to social media evidence, Hamze 

appears to continue to operate businesses in the Brazilian clothing industry86 The store that was 

originally designated along with him and his brother since 2006, Casa Hamze, appears to no longer 

exist. Commercial registry entries show that Hamze Barakat is listed as the owner and/or 

"Bilal Wchbc. Face!JOok, March 23. 2015. 

Department of the Treasury, Press Release. "Tre(lsm:-· 

Frontier of Argentina, Bnv.iL and Pamgua) ,''December 6, 

I:~lG£§.t~.P;:Jti~Jh.R..l .. ?Jt.rr~n~ 83 HatemBar.:tkat Facebook. accessed November 1, 2017. 

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Emanuele Ottolenghi November 8, 2017 

administrator of at least four other businesses: Habhab & Barakat L IDA, 7 Minimundo Comercio 

de Artigos do Vestuario Ltda- ME d.b.a. Minimundo lmportacao e Exportacao,~~ H.H Yassine & 

Cia Ltda,~9 and M V de Almeida e Cia Ltda d.b.a. Gold Shoes90 

V. Mohammad l(n'(lbain Chamas 

Sanctioned in 2006 with the Barakat brothers, Mohammad Tarabain Chamas was named by 

Treasury as the administrator ofGaleria Page. 91 He was also named as proprietor and vice president 

ofHi-Tech Digital Technology S.A. in 2005. It is unclear whether the business is still active92 As 

of 2011, Tarabain Chamas has been running a parking garage in Foz de Igua9u named Cars 

Estacionamento93 According to a local source, Tarabain Chamas has also moved to Galeria 

Conquistador, a shopping mall in Ciudad Del Este adjacent to Galeria Page, where he has been 

appointed administrator94 

Ru.-.·iness card (~f.\fohammad Tara/win listed as administrator of(/aleria ( 'onqui5:tadorji·om June ]0/61rith Kemel 

1'arabain. 95 

Yassine & Cia Ltda, da Jl:mpresw• Fconodata, accessed November6, 2017. 

(http:/ /www.econodata.eom.br/lista -empresas/P ARAN A/CU R!TIBA/H/05 5 59600000108 -H -H-Y ASS!NE-C!ALTDA-EPP) 

9() ·'Gold Shoes," (.'P.-:-.u Rrasil, accessed September 19,2016. Cl1Ill2~lY.1!:1LQlill\!.rD~-;_Us.QJlli~..D!li/11:0ld·­

;;_!loes/0_2l_'/ll:Hil100 1_~1)) 

" 1 U.S. Department of the Treasury, Press Release. "Treasury Targets Hizballah FundraisingNehvork in the Triple 

Fronteir of Argentina. Brazil and Paraguay," December 6. 2006. Cb .. ti]).ti1L:Yrv;w. trc~lli.®~:Wif:.~~-:-:.fS:U~rcssJJ219£::~%1?lill.¢.2£1ill.1 9\l.f~) 92 Parag1my Gabinete Civil de In Presidencia. '·Gaceta Oficial de In Rep!Jblica del Pamguav (Official Gazette oft he 

Republic ofPamgtmy), .. Febmary 23,2006. Ch1U2Ji.TI:..IDL&.J&J1:~I9JlQale:ov.1U1Jn'lu;~@l.QJ-.l/:014il2:: 

l±Lg;;~<;l;L}l.:!IL.tllf;Q)}ll!\J;JlKQK,i&'ilJID~b['!.:1c\I::GillJGGKCDI2JHI3GH~.Q\LD The PDF lms been removed 

from ParaglJay's Official Gazette. FDD has a copv. which is available upon 93 ·'Cars Estacionamento Mohamed Tambain Chamas- Me," CP.:.V.! InfO 

Foundation for Defense of Democracies 17 

July 17. 

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Emanuele Ottolenghi November 8, 2017 

Vi. Mohammad Fayez Barakat 

Mohammad Fayez Barakat was also sanctioned in 2006 for his involvement in moving funds to 

Hezbollah from the TBA.% Since then, he has remained a prominent and influential figure in the 

Lebanese community of Paraguay. According to official Paraguay records, he continues to own 

Big Boss International Import Export, a store located inside the U.S.-sanctioned Galeria Page97 

Asuncion. Paragua.v.ws 

%U.S. Department of the Treasury, Press Release. "Treasury 

Fmnteir of Argentina. Brazil and Paraguay," December 6. 2006. (!J.!lmi.J!.lm:\U[!;c1>illU&JC!Jln~>:J&:ill£liJlff.'i'i.:: 

111QJses/P:.J e6s[tml21 1 .asp~) 

"' Paraguay official records. 98 Photo obtained from a local source 

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Emanuele Ottolenghi November 8, 2017 

In 2014, Barakat was interviewed as a witness of the brutal beating of an individual in the Galeria 

Page, where his store "Big Boss" is located99 Big Boss International Import Export stands accused 

of suspicious activity, including in 2008, when Mohamad Fayez and his brother Ali Fayez were 

investigated for allegedly transferring $88,480 through Banco Amambay in 2005 and 2006. 100 

Nonetheless, Barakat remains active in Paraguay and so does his business. 

HI. Ga1eria Page aka Ga1eria Uniamerica 

The Ciudad Del Este shopping mall, Galeria Page was sanctioned in 2006 as a source of funding 

for Hezbollah-linked activities. Renamed as Shopping Uniamerica, the mall, which is still under 

U.S. sanctions, continues to operate today. 101 Shopping Uniamerica hosts stores and offices owned 

by Lebanese merchants, some of whom are themselves under U.S. sanctions due to their affiliation 

with Hezbollah in the TBA. Due to U.S. sanctions against the mall, all its shops are automatically 

blocked from doing business with U.S. persons and corporate entities. If proven to be transacting 

with and offering material support to Galeria Page, they are also liable to secondary U.S. sanctions. 

99 ·'fiscalia pectin\ peritaje de lihrwci6n de brutal golpiza en Ciudad Del Estc (Prosecutor's Office will request expert 

assessment of the video showing brutal in Ciudad Del Este):· :IRC Color June 3. 2014. 

prccos: - produto ~gal Page -tipo todos ~gal Page 

-type: all):· Compras no Paraguai (Brazil). accessed November 2, 2017. 

(J;1tQ.:f/-..-';;'y';r;:.@lJl1rasrlQll.~1W.QlilL~.mnLpn;cos tl!Ju.:2m;pt=g;!l-~J.~!!g_~); U.S. Department of the Treasury. Press Release. 

"Treasury Targets Hizballah Fundraising Network in the Triple Frontier of Argentim. Brazil and Paraguay:· 

December 6. 2006. (llttn::..i!Yt\n1/ .!reasutT. gov/prcss-celJtcr/prcss-rdc~l"c~;/Pat!6s/hp l YU.a<:;p:'>~) 

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Emanuele Ottolenghi November 8, 2017 

Through research conducted jointly with Sayari Analytics, FDD was able to identify 66 businesses 

and shops inside Galena Page. Of these 66, we could only find otlicial records proving their 

presence in or association with the Galena for nine of them. Some of the records, however, are old 

and while they prove these companies were located in the Galena after it was sanctioned, they do 

not always constitute conclusive evidence that they are still located there. 

We also found six companies which, on their websites or Facebook pages, listed Galena Page as 

their address. 

There is a significant discrepancy between the numbers of actual businesses advertised inside the 

Galena on commercial platforms, through their Facebook pages, on their website, and the ones 

identifiable through up-to-date tax records, official gazette entries, and trademark registrations. 

And as indicated, some entries appear to have been deleted or are blocked to viewers. 

TI~o do Persona [~f~~~':.. }1 

RUC :n1i1i£ii'~~j 

Dtgite Vcrffie-OOor [D 

,)'creenshot (~lcal!celled entJ~V fOr ,)'ohhi _,\fahmoud Payad102 

According to a Paraguayan official speaking to us on the condition of anonymity, the absence of 

businesses tram the public registry of Paraguay's ministry of industry is deliberately made 

inaccessible through bribes103 It is impossible to independently verify this allegation. 

This obfuscation attempt, if true, violates U.S. law and is liable to penalties under U.S. Treasury's 

Hezbollah financial regulations. !0-l 

w2 Paraguay official records. 103 Conversation with the author. October 31. 2017. 104 U.S. Department of the Treasury's Hizballah Financial Ret,'liiations section 566.602 state tru1t "(a) Any 

transaction on or after the effective date t!Jat evades or avoids. has the purpose of evading or avoiding. causes a 

violation of or attempts to violate any of the prohibitions set forth in this part is prohibited. (b) Any conspiracy 

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The evidence shown indicates that unless U.S. sanctions are followed by constant update and 

vigorous enforcement, targeted individuals and entities can soon elude them and shrug otT their 

effects, especially if they can count on local corrupt authorities to collude with them. It is important 

that U.S. action be undertaken to rectify this state of atiairs for two reasons. SDGTs may continue 

to engage in nefarious activities, and the U.S. should update their designations to disrupt their 

efforts. Lack of sanctions enforcement could be interpreted to mean that U.S. countenneasures 

may be short lived. U.S. credibility and deterrence are at stake. 

CONCLUSION AND RECOMMENDATIONS 

Mr. Chairman, sanctions and designations alone cannot be expected to put an end to Hezbollah's 

financial operations in the Western Hemisphere. However, they help, especially when combined 

with other tools. 

1. Hit Hezbollah with the full arsenal of U.S. sanctions and law enforcement tools. 

Congress should swiftly reconcile the House and Senate version of HIFPAA 2017 and send the 

bill to the president. HIFPAA is an excellent tool because it combines and complements in one bill 

all existing tools, including sanctions, designations, and prosecutions. By passing HIFPAA 2017, 

Congress will make the Kingpin Act and other existing tools more effective. 

2. Sanction Hezbollah and its senior leadership with TCO and Kingpin designations. 

Hezbollah is a terror organization. But it also runs a global criminal enterprise that trades illicit 

drugs. On this ground, T strongly recommend that the U.S. administration designate Hezbollah as 

both a Transnational Criminal Organization and a Global Kingpin. Both designations should not 

stop at the organizational level but should be extended to Hezbollah's senior leadership involved 

in deciding, endorsing, religiously justifying, coordinating, and benefiting from the traffic of illicit 

substances. 

3. Couple Hezbollah terror finance designations with TCO and Kingpin designations. 

My next recommendation is to couple terror finance designations, such as the ones used in 2004 

and 2006 against Hezbollah TBA operatives, with Kingpin designations. It is important to 

emphasize the fact that designated terror-finance operatives for Hezbollah are involved in criminal 

activities on behalf of a global criminal franchise. They should carry this multiple stigma. 

Such designations have other practical implications, especially in countries where Hezbollah is not 

considered a terrorist organization, which is the case with all countries in Latin America. Local 

governments will be reluctant to prosecute terror financiers but may respond more positively to 

U.S. requests to arrest, prosecute, and extradite individuals implicated in drug trafficking and 

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Emanuele Ottolenghi November 8, 2017 

organized crime. Even if designations alone cannot achieve much, they can create the groundwork 

for successful law enforcement prosecutions. 

4. Target enablers with Global Magnitsky and HIFPAA. 

Mr. Chairman, a large factor explaining Hezbollah 's success is its reliance on influence and access 

to local politicians, law enforcement, judges and prosecutors, airport security, and other officials 

in Latin American countries to buy their silence and complicity. If proven true, the U.S. 

government can rely on the Global Magnitsky Act of2016 to punish a foreign dignitary's corrupt 

practices. The legislation specifically empowers the chairperson and ranking member of a 

committee from either house of Congress to request that the president investigates, within 120 

days, cases of corruption by government officials. Such a request, with regards to for example 

certain officials in the Tri-Border Area and other jurisdictions where Hezbollah is active, would 

be entirely appropriate and within the authorities granted to Congress by the Global Magnitsky 

Act. 

The new Hezbollah bill, currently being reconciled, would also enable the administration to punish 

this official, and others engaged in similarly corrupt practices, with additional measures. Indeed, 

corruption and complicity through the provision of services can now be punished with a variety of 

measures, including the denial or revocation of visas to the United States. 

HTFPAA also would reduce the threshold for designations to extend to those who, while not 

conclusively proven to be members of Hezbollah, are clearly facilitators and enablers of its 

activities. This measure would perrnit U.S. authorities to go after companies, financial institutions, 

accounting and legal firms, virtual office service providers, and others who enable Hezbollah 's 

terror finance. For these actors, it will be more difficult to continue to operate outside the financial 

system once the U.S. slaps sanctions on them. 

5. Impose a 311 designation on financial institutions known to be assisting Hezbollah in 

Latin America. 

Mr. Chairman, the continuing business activities of individuals and entities sanctioned by the 

United States occur because local governments are either reluctant to implement U.S. sanctions or 

actively cooperate with the terrorists. The administration should demand that they either comply 

or face consequences. These should include imposing 311 designations 105 on financial institutions 

known to be used by Hezbollah financiers to move their revenues, designating banking sectors of 

countries that facilitate Hezbollah's terror finance as zones of primary money laundering concern, 

and working within international forums like the Financial Action Task Force to have such 

countries blacklisted. 

6. Empower law enforcement to go after Hezbollah's global financial networks. 

Mr. Chairman, sanctions have had some salutary effect. They have named and shamed individuals, 

companies, and organizations. They have cut off terror entities from the U.S. financial system. 

H•' U.S. Department of the Treasury, Press Release. ··fact Sheet: Overview of Section 311 of !he USA PATRIOT 

Act. .. February 10. 2011. (llttps://YiiiY\v.tn:;tsnlJ:' .e:O\'/presc;;-cellter/prcss-rel!.:;lscs!Pngcsftg 1 ())(,.~hpx) 

Foundation for Defense of Democracies 22 www.defenddemocracy.org 
44


27514c-24.eps

Emanuele Ottolenghi November 8, 2017 

They have nudged U.S. allies and the global financial system into compliance. Nevertheless, there 

are enough countries that disagree with or disregard U.S. policy. Hezbollah terrorists find a haven 

where U.S. sanctions alone have limited reach. 

Law enforcement has demonstrated how it can complement sanctions. The cases I mentioned in 

my written statement all involve a balance of sanctions and prosecution. The combination of tools 

always works as a force multiplier with coordination among agencies, and a shared goal of 

disrupting Hezbollah's cash flows drive policy. 

Step one, then, must surely be to appoint a new DEA administrator. In the midst of an opioid crisis 

and with cocaine from Latin America flooding the U.S., it should be a high priority for the 

administration to appoint a strong candidate who has the vision and the experience to go after 

transnational criminal organizations such as Hezbollah and has the skills to coordinate government 

agencies, navigate bureaucracy, and build friendships and alliances internationally to be able to 

rely on foreign agencies' cooperation in running international investigations. 

As understanding the full scope of this complicated global network is difficult for even the most 

seasoned investigators. step two should be to empower the new DEA administrator with the 

necessary tools and resources to create specialized units with skillsets to aggressively apply all 

tools available to law enforcement. Simultaneously, those teams could work with sanctioning 

entities and allied foreign governments for a comprehensive US.-Ied approach in dismantling 

regional sub-networks tor overall impact. 

7. Give more resources to Treasury. 

Finally, Mr. Chairman, Treasury needs more resources. OF AC cannot work cases through the 

system without access to more resources that can enable the bureaucracy to work faster and cast 

its net wider. 

Hezbollah, Mr. Chairman, is a global threat. As John Feltman and Daniel Benjamin said in a joint 

testimony to the Senate Foreign Relations Committee's subcommittee on Near Eastern and South 

and Central Asian Affairs in June 2010: 

Hezbollah has broadened its sources of financial support in recent years. 

Hezbollah is now heavily involved in a wide range of criminal activity, including 

the drug trade and smuggling. It also receives funds from both legitimate and illicit 

businesses that its members operate, from NGOs under its control, and from 

donations from its supporters throughout the world. 106 

The U.S., too, needs to broaden its tools to confront this multifaceted enemy. All tools oftradecraft 

are needed to confront this threat. 

Thank you for the opportunity to testify. I look forward to the committee's questions. 

Foundation for Defense of Democracies 23 www.defenddemocracy.org 
45

Mr. COOK. Thank you, very much, Doctor. 

Finally, let me introduce Mr. Eric Olson. Mr. Olson is deputy director of the Latin American Program and senior adviser to the 

Mexican Institute at the Woodrow Wilson International Center for 

Scholars in Washington, DC. Thank you for joining us today. You 

are recognized for 5 minutes. 

STATEMENT OF MR. ERIC L. OLSON, DEPUTY DIRECTOR, 

LATIN AMERICAN PROGRAM, WOODROW WILSON CENTER 

Mr. OLSON. Thank you, Chairman Cook, and congratulations on 

your appointment. And thank you to Ranking Member Sires and 

the other members of the committee for this opportunity to appear 

before you today on behalf of the Wilson Center. 

Given the limited time I have, I would like to focus my remarks 

on the policy ideas and suggestions I set forward in my written testimony which I have submitted for the record. 

To begin, I want to make clear that I believe the Foreign Narcotics Kingpin Designation Act of 1991 is one of the most important 

and powerful instruments the United States has in its quiver to 

fight organized crime and illicit financing in the region. It has been 

used to good effect against powerful criminal organizations and 

persons in countries such as Colombia Venezuela, Mexico, and 

throughout Central America. Since implementation began in 2000, 

there have been approximately 1800 persons and entities designated and sanctioned under the act. The vast majority, as you 

pointed out, are in the Western Hemisphere. 

While the use has been far-reaching, a full review of the effectiveness of this program and policy has not been conducted yet. As 

far as I know, neither the Treasury Department’s Office of Inspector General, nor the Government Accountability Office, has conducted a full analysis nor has there been a full policy review within 

Treasury. As far as I know, this hearing is the first attempt to look 

broadly at this policy and whether it is effective or not. 

The time is right to request a full, objective, and data-driven 

evaluation of the act’s effectiveness. It has been nearly 17 years 

since it has been first implemented. So it is time to do a cost-benefit analysis and to find out if the act is as effective as anecdotes 

might suggest it is. And we all have good and positive anecdotes 

about its effectiveness, but it is time for a broad analysis and evaluation. 

Questions that must be answered include whether the Kingpin 

Act is effectively dismantling criminal organizations or simply 

splitting them up and fragmenting them. Is it having any measurable impact on accountability for criminal networks and their 

bosses in the region? We can point to prosecutions and convictions 

in the United States. But, as the Honduras example that has been 

referred to here, and I talk about it in my written testimony, suggest, involving the Rosenthal family and Continental Bank, there 

really has not been much accountability for them in Honduras. 

Secondly, we need to use this powerful tool in a focused and careful way, seeking to avoid damage to legitimate elements of financial systems and economies in our drive to root out criminals. This 

is particularly the case, again, in small, weak countries such as 

46

Honduras where sudden designations can put at risk entire financial systems and economies. 

The designation of the Rosenthal family in Honduras and the 

Continental Bank is a case in point. There is overwhelming evidence that the bank and Rosenthal family were involved in money 

laundering on behalf of the Cachiros criminal group. But since this 

was the first time a bank itself was designated under the act, it 

caused near panic within the country’s financial system, with many 

people refusing to conduct even permitted transactions with other 

banks for fear of somehow crossing the line and putting themselves 

and their business in jeopardy. And I think this refers a little bit 

to what Mr. Hall was talking about, this strict liability provision, 

good faith not being good enough. People panic and worry not 

about Banco Continental, which deserved to be dismantled, but 

broader financial issues and questions in that country. 

Third, we need to use the leverage provided by the Kingpin Act 

to ensure that countries undertake broader reforms of their financial and judicial systems. Sanctioning individuals and entities are 

powerful tools. But if we can use the leverage that comes with the 

sanctions to push for broader reforms, greater transparency, and 

accountability, the benefits can be immense. 

Fourth, we should continue investing in efforts to strengthen the 

capacity of financial oversight and regulatory institutions in the region. It was an open secret in Honduras that the Rosenthal family 

and Continental Bank were allegedly involved in money laundering 

activities. Everybody talked about it. It was even published in the 

newspaper. But nothing happened. And the Honduran National 

Commission for Banks and Insurance claimed to be completely surprised by this designation. So we need to do more to improve their 

capacity to do oversight and not just depend on our action. 

I know I am out of time, but I have two really quick more recommendations. One, top down, high-value target strategies can be 

valuable when confronting organized crime but they often lead to 

fragmentation of criminal networks that metastasize, often forming 

new criminal groups or joining others in the process. And we need 

to view this as one amongst many instruments to attack organized 

crime. 

And, finally, as this tool has become the centerpiece of the administration’s strategy for countering transnational organized 

crime, Congress needs to make sure there are adequate resources 

and trained personnel to conduct the investigations and enforce the 

sanctions that form the backbone of these designations under the 

act. 

Thank you very much. 

[The prepared statement of Mr. Olson follows:]

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27514d-1.eps

Statement By 

Eric L. Olson 

Deputy Director, Latin American Program 

Senior Advisor, Mexico Institute 

Woodrow Wilson International Center for Scholars 

Subcommittee on Western Hemisphere 

House Committee on Foreign Affairs 

United States House of Representatives 

November 8, 2017 

"Examining the Effectiveness of the Kingpin Designation Act 

in the Western Hemisphere" 

1 
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27514d-2.eps

Good afternoon, Chairman Cook, Ranking Member Sires, and Members of the Committee. Thank 

you for the opportunity to appear before you today on behalf of the Woodrow Wilson Center. 

As you may know, the Wilson Center was created by an act of Congress as our nation's 

living memorial to President Woodrow Wilson. In the words of Vice President Pence, 

the Wilson Center is "an institution of independent research and open dialogue and 

actionable ideas, truly a bi-partisan stalwart here in Washington D.C." 

With that in mind, I offer the following thoughts and suggestions regarding the 

effectiveness of the Foreign Narcotics Kingpin Designation Act: 

To begin, I believe Kingpin Designation Act of 1999 is one of the most important and 

powerful instruments the United States has in its quiver to fight organized crime 

networks and illicit financing in the region. Since the Treasury Department's Office 

of Foreign Assets Control issued the Foreign Narcotics Kingpin Sanctions 

Regulations in 2000 there have been approximately 1800 persons and entities 

designated and sanctioned under the act. The vast majority of these are from the 

Western Hemisphere. 

The act is intended to paralyze a criminal group by going after its illicit properties 

and proceeds with the goal to take the "benefit" out of their illicit activities. One of 

the intended byproducts of a Kingpin designation is to produce a pariah effect to 

dissuade legitimate businesses from becoming enmeshed in illicit activity, or seen 

another way, to make it more difficult for criminal organizations to launder their 

illicit proceeds through legitimate businesses. 

While its use has been far reaching, and many ofthe region's most important drug 

traffickers and money launders have been sanctioned under its authority, there has 

not been, to my knowledge, a full review of the effectiveness of the program and 

policy. In 2007, the Office of Foreign Assets Control conducted its own internal 

review of the Colombia-specific narcotics-sanctions program, but this was not a 

comprehensive review of the Act or an independent review. When the Kingpin Act 

was enacted it also created a Foreign Assets Judicial Review Commission that looks 

into legal questions related to the Act's implementation. But I'm unaware of any 

public report from the Commission. Furthermore, there has been no analysis from 

the Treasury Department's Office of Inspector General, and nothing from the 

Government Accountability Office. 

So an initial recommendation might be to encourage a full policy review and 

objective evaluation of what has been a widely used and presumably successful 

element of United States policy and strategy to counter transnational organized 

crime. 

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27514d-3.eps

Speaking anecdotally, there is no question that the Act has been used to good effect 

in several countries such as Venezuela, Colombia, and Mexico. It has also been used 

in Central America on several occasions and in particular Honduras where I would 

like to focus my comments. While I have not conducted a full review of the 

effectiveness of the Act's use in the Western Hemisphere, I believe there are some 

important insights to glean from the Honduras case. 

Background on the Banco Continental and Rosenthal family case 

On October 7, 2015, the Treasury Department's Office of Foreign Assets Control 

designated three members of the Rosenthal family of Honduras, the country's sixth 

largest Bank (Banco Continental), and several related businesses under the Kingpin 

Act. According to the Office of Foreign Assets Control it was the first time a bank 

had been designated under the Act. 

jaime Rosenthal Oliva, one of Honduras's richest and most powerful men, headed 

the Rosenthal family businesses. Not only did he and his family control Banco 

Continental, but he is the former Vice President Honduras, and owner of one of the 

country's most important national newspapers- El Tiempo. 

As part of the same designation, Mr. Rosenthal's son, Yani Rosenthal, and nephew, 

Yankel Rosenthal Coello, were also named. All three were sanctioned for "playing 

a significant role in international narcotics trafficking ... including providing money 

laundering and other services ... " to several Central American drug trafficking and 

criminal organizations, most notably the so-called "Cachiros." The Cachiros had 

previously been designated under the Act in September 2013. 

Again, it's worth noting that these are not just alleged criminal actors but powerful 

political characters in their own right. Yani Rosenthal served as a member ofthe 

Honduran Congress from 2010 to 2014, and before that was Minister of the 

Presidency from 2006 to 2007. He was a candidate for President of Honduras in 

both the 2009 and 2013 elections. Yanke! Rosenthal Coello, was Honduras's 

Minister of Investment until june 2015 and was president of Marathon, one of 

Honduras's strongest soccer clubs. 

Yani Rosenthal plead guilty to money laundering in New York's Southern District 

Court on july 26, 2017, and Yanke! Rosenthal Coello plead guilty to attempted 

money laundering in New York Southern District Court on August 29,2017. 

Sentencing is scheduled for january 2018. 

According to their indictment by the U.S. Department of justice, The Rosenthals 

allegedly used a variety of mechanisms to launder Cachiros' money, including using 

Banco Continental to issue loans to the Cachiros, which were paid back with drug 

money. Banco Continental also allegedly helped Cachiros leaders establish other 

businesses, including the joya Grande Zoo, and to buy equipment for construction, 

mining, and African palm oil companies. Some of the money laundered by the 

3 
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27514d-4.eps

Cachiros through the Bank allegedly came from the Government of Honduras in 

payment for infrastructure projects. 

jaime Rosenthal remains in Honduras, where he is on trial for unrelated charges of 

fraud that stem back to 2004. The United States issued a request for his extradition 

at the end of December 2015, but the Supreme Court of Honduras ruled that 

Rosenthal's charges in Honduras must be resolved before he can be extradited to 

the United States. Although the case against him in Honduras dates back to 2004, 

Rosenthal's trial has been postponed multiple times, and is currently scheduled to 

resume on November 30, 2017. I would point out that Honduras holds national 

elections on November 26'h. 

Benefits of the Rosenthal Money Laundering Organization Designation. 

So what are the benefits of this designation for the fight against criminal 

organizations, corruption, and impunity in Honduras? 

• While final court determinations have yet to be made, it's clear that this 

designation struck a powerful blow not only against the Rosenthal family's 

alleged criminal enterprises, but also against the Cachiros and other criminal 

networks in Honduras and throughout Central America. One of the linchpins 

of their criminal enterprise was crippled and destroyed. 

• A number of very powerful but corrupt economic and political actors in 

Honduras where taken off the playing field, and their ability to manipulate 

and distort Honduran governance, the economy, and society was seriously 

weakened. 

• This was a wakeup call to Honduran agencies charged with fighting money 

laundering and organized crime- especially the Honduran National Bank 

and Insurance Commission. 

What can be gleaned from this experience? 

One of the troubling aspects of the Banco Continental case is that the alleged links 

between the Bank, the Rosenthal family, Honduran politicians, and criminal 

organizations such as the Cachiros had long been an open secret. Not only did I 

hear often about these links but investigative journalists where writing and 

publishing reports and stories about this apparent link. For example, see "Insight 

Crime's" report: Honduras Elites and Organized Crime: The Cachiros. April 9, 

2016. 

Despite this and other evidence, Honduras's bank oversight board and Attorney's 

General Office did not take action until the designation was made by the Office of 

Foreign Assets Control. 

4 
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27514d-5.eps

In contrast to Mexico and Colombia, Honduras is a small and fragile country with 

weak governance capacity and a tiny economy. There are many ways in which the 

line between organized crime and the state have become blurred. Economic and 

political elite can become vehicles for corruption that have lasting impact on the 

country's governance. 

So designations such as these in Honduras have the potential to create broader 

uncertainty, even a sense of panic that could potentially undermine a country's 

entire economy. As mentioned, the designation included a bank that (corrupt or 

not) was enmeshed in a broader financial system, so sanctioning and dissolving the 

Banco Continental, as happened in this case, had the potential to bring down a lot of 

people and financial institutions whether they were part of a criminal conspiracy or 

not. This is less likely to be the case when individuals and businesses are sanctioned 

and in larger countries like Colombia and Mexico. 

While there is good reason for Treasury to employ the element of surprise, in part 

because our counterparts are not always reliable, as suggested above, there are also 

risks. In this specific case the sudden announcement of sanctions by the Treasury 

Department against an important national bank created a sense of uncertainty 

within the Honduran financial system and legitimate depositors over whether 

further actions by Treasury could be expected. 

Furthermore, even though the Kingpin Act's reach is largely limited to U.S. persons, 

many foreign citizens can refuse to engage in transactions that have been prohibited 

for U.S. persons. 1 According to this analysis, "even if a foreign entity can engage in 

certain business, if that business is sensitive for U.S. persons because ofOFAC 

regulations, then oftentimes the foreign entity will want nothing to do with the 

transaction."Z For this reason, the Treasury Department had to issue a clarification 

on their action on October 11th so that legitimate transactions by non-U.S. persons 

would not become paralyzed in the process, and thus put at risk the broader 

financial system.3 

Bottom line, while the tool is powerful and legitimate, it carries with it the risk of 

collateral damage that can potentially undermine legitimate sectors of the financial 

system and ultimately the economy. 

1 See "OFAC Clarifies its Position on a Foreign Bank: What fhis Says about 3rd Country Actors," blog 

post by Farhad Alavi, October 11, 2015, in Ussanctions.com. Access here: 

https: I jussanc tio ns.com /2 0 15 I 1 0 I 11 I a lac-clarifies-its-positi an -on -a-fa reign-bank-the-case-a l' 

banco-continental/ 

'Ibid. 

'Department of the Treasury, Office of Foreign Assets Control: Statement of Proposed Liquidation of 

Banco Continental. See here: https:f jwww.treasury.govjresourcecen ter I sanctions /Programs/Documents /banco_ con tinental_1 0112 015. pdf 

5 
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27514d-6.eps

Policy Options for the Future: 

Based on this case and consultations with many experts I would offer the following 

options for consideration by the Subcommittee and Congress. 

1) The time is right to request a full, objective, data driven evaluation ofthe 

effectiveness of the Kingpin Act. It's now been nearly seventeen years since it was 

first implemented and it is time to do a cost benefit analysis, and to find out if the 

Act is as effective as anecdotes might suggest it is. Questions that must be answered 

include whether the Kingpin Act is having any measurable impact on accountability 

for criminal networks and their bosses in the region? We can point to prosecutions 

and convictions in the United States but as the Rosenthal case suggestion, we may 

not be seeing greater accountability in the region. 

2) We need to use this powerful tool in a focused and careful way, seeking to avoid 

damaging the legitimate elements of financial systems and economies in our drive to 

root out criminals. 

3) We need to use the leverage provided by the Kingpin Act to ensure that countries 

undertake broader reforms of their financial and judicial systems. Sanctioning 

individuals and entities are powerful tools but if we can use the leverage that comes 

with the sanctions to push for broader reforms, the benefits can be immense. 

4) We need to continue investing in efforts to strengthen the capacity of financial 

oversight institutions in the region. The apparent lack of action and urgency in the 

Honduran National Commission for Banks and Insurance is deeply troubling. Some 

inaction is due to lack of capacity, but in can also be the result of lack of political will 

to address the obvious problems of penetration of the state by powerful criminal, 

economic, and political leaders. 

5) Top down high value target strategies can be valuable when confronting 

organized crime but they often lead to the fragmentation of criminal networks that 

metastasize, often forming new criminal groups or joining others. These can lead to 

increased competition between rival criminal groups increasing violence, insecurity, 

and instability. In our zeal to capture the big fish, we should not overlook the 

benefits of building security from the bottom-up, closing off space for criminal 

groups to work at the local level, cutting off their access to political, economic, and 

social control in villages, towns, and small cities that form the foundation of their 

enterprise. 

6) Finally, as this tool has become the centerpiece of the Administration's strategy 

for countering transnational organized crime, Congress needs to make sure there 

are adequate resources and trained personnel to conduct the investigations and 

enforce the sanctions that form the backbone of the designations under the Kingpin 

Act. 

Thank you and I am happy to take your questions. 

6 
53

Mr. COOK. Thank you, very much, sir. 

I want to thank the panel for being very good on time. It goes 

fast, doesn’t it? And I don’t have this clock up here where I speed 

it up. I don’t cheat, really. So, anyway, I do want to compliment 

you, and I didn’t want to start off my first meeting being the bad 

guy. 

Anyway, I yield myself 5 minutes to ask some questions. And, 

full disclosure, you know, today we had a birthday ceremony for 

the Marine Corps birthday. It is 242 years old. And I am old, but 

I am not that old. But, anyway, when I was listening to the testimony, I always remember the terrorist incident in Lebanon where 

my own battalion, First Battalion Eighth Marines, had over 200 

Marines, soldiers and sailors, that were killed, many more wounded, and the question of international terrorism. 

And a couple of the gentlemen referred to Hezbollah and its activities. I think when you talk to the average American on the 

street, they don’t think of that organization being in the Western 

Hemisphere. They think of it as being in the Middle East, maybe 

North Africa or what have you. And this opens up a whole new 

area. 

And if you mention that, but I wanted to see if anyone was going 

to mention on how we can do more and suggestions on how we can 

implement that in terms of that organization obviously being international and to be under the Kingpin Act. Anyone? Yes, sir? 

Mr. OTTOLENGHI. If I may. Thank you for your question. 

I mean, the amount of actions that could be taken is very significant. Their presence all over the Western Hemisphere is very important and growing. Hezbollah’s assessed estimated annual operating budget is in the ballpark of at least $1 billion and at least 

30 percent of that comes from global illicit activities, chiefly drug 

trading. It is one of the principal sources of cocaine both in Europe 

and increasingly in the United States as a middleman for the cartels. That is why it is so important and directly impacting, I think, 

to U.S. national interests. 

And just one point of the many things that I would note is that 

Hezbollah is active in Latin America. I mentioned the tri-border 

area of Argentina, Brazil, Paraguay. There is also significant activity in Venezuela, in the Caribbean islands, in Panama, and elsewhere. In many of these places, Hezbollah operatives manage to acquire, through corruption or because of lax immigration schemes, 

dual nationalities from those countries which allow them to operate 

a lot more freely in the financial systems and in the jurisdictions 

in which they find themselves. So working with regional allies to 

look into the way that these criminals are easily acquiring citizenship in those countries would be one step forward. 

Thank you. 

Mr. COOK. Thank you. 

Anyone else want to comment on that? Sir? 

Mr. SEMESKY. Yes. Mr. Chairman, I would add, first of all, I 

would agree with everything that Dr. Ottolenghi just stated and 

also point out that when Hezbollah started to become a global organization, it already had somewhat of an infrastructure in place in 

the Lebanese diaspora around the world, and especially in the free 

trade zones in Latin America. If you look at the Panama free trade 

54

zone, the trade zones in Chile and Peru, all throughout Latin 

America, and the tri-border, as the doctor mentioned, many businessmen and many that have been connected as financiers or contributors, sympathizers. 

So the fact of free trade zones are especially alarming in that 

trade goods, illicit goods, weapons of mass destruction, can move 

through those trade zones almost unnoticed in those countries with 

very weak infrastructure. So I think to the extent that the U.S. can 

stay on top of the trade movement throughout Latin America, that 

would be a recommendation. 

Mr. COOK. I just want to make a comment before I recognize the 

ranking member. You know, 2 years ago, 1 year ago, we were talking about ISIS, Daesh, or ISIL, whatever you want to call them, 

but the fact that the corruption and the illegal smuggling of, or 

selling oil on the black market, all those things, I think that variable was highlighted in different organizations, task force went 

after that, and I am just thinking hopefully we can capitalize on 

some of those lessons learned and use in this war against some of 

these organizations. 

So my time has expired. And, Mr. Sires, you are recognized. 

Mr. SIRES. Thank you, Mr. Chairman. 

When we designate a senior member of a criminal organization, 

does that shed any light on the connection between the organization and the corrupt government officials that they work with? Mr. 

Semesky? Looks like nobody else wants to——

Mr. SEMESKY. It sheds light, sir, in that it helps as the information and the data is gathered, embedded through the interagency, 

and different agencies start taking other agencies’ information and 

running it through their systems, the knowledge of the organization actually expands. And a lot of times those designations cause 

investigations or are the result of investigations, which then could 

bring to light government corruption connected to those drug cartels or money laundering organizations. 

Mr. OTTOLENGHI. If I may add one point which applies to 

Hezbollah, but I guess in general to other criminal organizations. 

Generally speaking, a lot of these transnational organized crime activities, chiefly the moving of illicit substances, require the complicity and the collusions of a significant number of public officials 

at all levels, whether it is customs, or, you know, airport security 

officials, border police, prosecutors, judges. And organized crime 

across the world has the habit of buying access and influence at the 

highest levels of power in order to facilitate these activities. 

Now, corruption is rampant in Latin America. So I think that the 

use of these instruments does not only facilitate the exposure of the 

connection between crime and power, but it also opens up the possibility that the United States can use instruments such as the 

Kingpin Act, such as the Global Magnitsky, to go after corrupt officials who are the enablers of crime when we cannot go after the 

criminals themselves. 

Mr. SIRES. Thank you. 

I am dying to ask this question. Because we had a meeting with 

the President of Colombia, and they were working on a deal with 

the FARC, and I asked him have they found any money hidden of 

the FARC. And he told us no, there is no money. Does anybody—

55

all four of you, do you believe that or am I just being a little skeptical I guess? 

Mr. SEMESKY. Congressman Sires, your skepticism is well placed. 

There is money. And we are continually working with the Colombian Government and the interagency to identify it. Because the 

FARC is a guerrilla organization, because they do operate in the 

jungles, and do operate with cash, it is very difficult until it hits 

the financial system. And then you have to find it. Their biggest 

expense, obviously, is their infrastructure and payment for their 

soldiers. And they do spend a lot of their revenue through that requirement. 

But we do believe there are hundreds of millions, or billions, of 

dollars in their hands which we are constantly trying to identify. 

Mr. SIRES. Well, the reason I ask that question is because now 

these people are allowed to participate in the process of the election 

in the future. And, quite frankly, if you have that money hidden, 

you can actually buy the election in the future with all of the 

money. So we win the battle and lose the war. So I was quite disappointed, you know, with that response. 

And the question is, if you get on the list, how do you get off it? 

Mr. OLSON. I will defer to them, because I think they know exactly much more how to do that. 

Mr. SEMESKY. Congressman, there is a process in place to be removed from the list. And OFAC had taken quite a few people off 

the list over the years. Typically, a tier one designee is the actual 

kingpin. Under that kingpin are associated entities which could be 

individuals or businesses. And, typically, it is almost impossible for 

a tier 1 entity to be removed from the list. However, if an individual or a business can prove to OFAC, that they have severed 

ties, they are no longer associating, and have divested themselves 

of their assets in joint financial endeavors, OFAC will remove them 

from the list. And they do advertise that. 

Mr. SIRES. Thank you, Mr. Chairman. My time is up. 

Mr. COOK. Thank you, very much. 

I am now going to recognize Congressman Donovan from New 

York. 

Mr. DONOVAN. Thank you, Mr. Chairman. 

And thank you for your enlightened testimony. I was a drug 

prosecutor in New York City for 8 years, and then I was the elected 

district attorney, chief prosecutor, one of the five in New York City, 

before I came to Congress. Much of our success was the seizing of 

assets of the people who we were pursuing. I guess it was part of 

their trade when they knew they were going to lose product. But 

it was when we took their assets that we really harmed them. 

How successful do you think we are being in identifying assets 

and in cases seizing them with the people who are on the list that 

you have provided for us? 

Mr. SEMESKY. As far as the people on the list, I would say overall 

not very successful. I will say that when a country follows the 

list—in Colombia it is known as the Clinton list because President 

Clinton signed the initial legislation. And it is also known as civil 

death. If you are on the list, you do not have access to the financial 

system. And as I pointed out, the Rodriguez Orejuelas turned 

56

themselves in specifically to get their families removed from the 

list. 

At DEA, what we have done is when we investigate financial 

cases, we have a money flow strategy where we use money more 

as a weapon against the cartels than as a tool for asset forfeiture, 

although we do take as much money as we can identify, and that 

is the money flows back toward sources of supply. The drugs flow 

toward the abusers. Our investigations prioritize the flow of money 

back to the sources of supply so we can identify command and control of those organizations. 

And it also helps us infiltrate the organizations. The panel members mentioned the case with Ayman Joumaa. That started with a 

DEA money laundering investigation where we provided services. 

We infiltrated the organization, and we ended up taking down 

quite a few drug traffickers, money launderers, and a bank in Lebanon. 

Mr. OLSON. I would just add to that—I don’t know if I am on 

here. I would just add to that that one of the reasons I think it is 

important—and I include it in my recommendations—that we work 

with our partners in the region to strengthen their own capacity 

is that a lot of times we are dealing with Attorney Generals offices 

that are weak. We are dealing with other bank oversight commissions that are weak in the region. And it limits what we can do 

from a law enforcement point of view and from an effectiveness 

point of view. 

The Kingpin Act is strong, and it is good. There are ways to 

make it better. But it is one tool amongst many. And if our partner 

in our other countries aren’t strong, and capable, and honest, and 

transparent, it really weakens and undermines our own ability to 

go after the assets of, say, the FARC or other criminal organizations. Now, I would say Colombia has a pretty strong and improved 

financial system compared to other countries in the region. But, 

nevertheless, I think this is one of the things we can’t lose sight 

of. We have a strong tool but sometimes the countries don’t themselves. 

Some of the countries in Central America are just now adopting 

asset forfeiture laws and just beginning the process of implementing those laws. It is new to them. And so I think we can’t lose 

sight of that important aspect of this whole equation. 

Mr. DONOVAN. You hit on my second question. I only have a 

minute, so I offer it to the rest of the members of the panel. How 

can we improve the kingpin statute? What can we do to achieve 

our goals of the statute in a better way after it has been implemented and enacted nearly 20 years now? 

Mr. SEMESKY. Congressman, to me, it is a very effective statute 

and sanctions program. The most significant way you can improve 

it is to add more resources to the office that administers it. They 

are woefully understaffed. They do not have the people to do the 

investigations, to work with the agencies. They do to the extent 

they can, and I think the resources—if you looked—and I can’t tell 

you what they are. But I know that they are very, very much 

understaffed right now. So I think that would go a long way. When 

they have the people to do the work, it is a very effective program. 

57

Mr. DONOVAN. I thank you all. Mr. Chairman, my time has expired. Thank you. 

Mr. COOK. Thank you very much. 

Now I am going to recognize the gentlelady from Illinois. 

Ms. KELLY. Thank you, Mr. Chair. And I thank my colleague for 

letting me go ahead of her. 

Mr. Olson, you said something very interesting. You talked about 

we need to evaluate what we have been doing, and you talked 

about it really doing what it has said it is doing or is it just serving 

to dismantle and fragment the bad guys, I guess. And it made me 

think about—I represent the Chicagoland area, and that is the 

same thing that has been said about the gangs, that they put the 

head of the gangs in jail and now the gangs are fragmented and 

they are fighting for 2-block territories. And you see the chaos that 

has been in Chicago. 

But, Mr. Hall, you said that the 50 percent rule almost guarantees that the U.S. Government will fail in achieving its own goal. 

What would you change in order to balance the rule with the government’s goal? 

Mr. HALL. I would eliminate the rule in its entirety. I think what 

needs to happen—this blends into what we have just been talking 

about in terms of effectiveness. Because if you think about how, in 

reality, on the ground, sanctions rules get enforced in the United 

States, it is at the business level. It is at the individual business 

level. And the companies that are trying to comply don’t have the 

resources that the Federal Government has. And, actually, they 

rarely understand why a particular entity is even sanctioned. All 

they know is that it is and they are not supposed to deal with 

them. They are trying to figure out whether the person they are 

dealing with, who might have a similar name or similar business 

name is the same entity. 

So all that ambiguity leads to ineffectiveness in enforcement. 

And it leads companies to a position where they are just guessing. 

So, you know, the more granularity the government offers business 

in terms of identifying sanctioned individuals and entities, the 

more effective the program is going to be. By just sort of issuing 

a blanket edict that says, you know, any entity that is 50 percent 

owned by other—in the aggregate—other sanctioned entities that 

aren’t named, that is guaranteed to lead to failure. So that is what 

I meant by that. 

Ms. KELLY. Do you know how many businesses in the United 

States have been affected by the Rule? 

Mr. HALL. I am only aware of one enforcement action under the 

rule. And that was about 1 year ago. That was in 2016. Now, I 

don’t know why there has only been one. I guess it is not that old 

of a rule, for one thing. But, for another, you know, it makes me 

wonder if the government knows—if the government has spent 

enough time and resources figuring out the ownership structures of 

these 50 percent owned entities and whether they know which entities are 50 percent or more owned by an aggregation of other sanctioned entities. It is a hard problem to solve. But it is a problem 

that intelligence agencies and law enforcement agencies have the 

resources to address. 

58

Ms. KELLY. And is there anything you would put in its place or 

just forget about it? 

Mr. HALL. No. I would not replace it. I think the 50 percent rule 

is—it is just fundamentally the wrong approach to tell individual 

businesses, you have to figure this out. We are the Government, 

you know, we haven’t figured it out, we are going to put it on you, 

and then, if you make a mistake, we are going to enforce the sanctions against you on a strict liability basis with penalties, you 

know, on the—you know, of over $1⁄4 million per transaction, which 

adds up. 

Ms. KELLY. Okay. Well, I think the idea of a full and objective 

data-driven evaluation would be an excellent idea since you said 

nothing has been done in 17 years. And maybe that will get to your 

point. 

Mr. HALL. No, I think that is a really good recommendation. I 

was actually shocked to hear that. 

Ms. KELLY. Did you have—oh, I didn’t know if you were——

Mr. SEMESKY. I am sorry, Congresswoman. I was just going to 

add that I don’t completely agree with Mr. Hall on that point. And 

if I—the 50 percent rule is—I understand where he is coming from, 

and it is not fair to business. But also if OFAC discovers a business 

that is owned 50 percent and it isn’t on the list, if they didn’t have 

that rule, they wouldn’t be able to freeze its assets. 

Ms. KELLY. Okay. 

Mr. SEMESKY. Now, I do agree with the strict liability, the problem that creates for businesses. And it isn’t fair. Okay? There 

should be some type of mitigation guidelines in place that if you 

truly do not know, you cooperate once you discover it, you self-disclose, there shouldn’t be penalties. 

So, I mean, I would add that I don’t agree with the one but I do 

agree with the other. 

Ms. KELLY. Thank you. My time is out. 

Thank you. 

Mr. COOK. Thank you very much. 

I am now going to recognize the gentleman from Florida, Mr. 

Rooney. 

Mr. ROONEY. Thank you, Mr. Chairman. 

Mr. COOK. Thank you, sir. 

Mr. ROONEY. I might comment right quick about that, being a 

business guy. You know, there are self-disclosure procedures in the 

EPA and the DOJ for companies when they discover something like 

a blowout preventer failure on an oil well, or something, to immediately call them and say we have got this problem and that gets 

them out of the strict liability kind of thing. So it might be something to think about. 

I would like to ask Dr. Ottolenghi. If the EON and the AUC are 

both designated foreign terrorist organizations, how come we are 

not designating the ELN as well? 

Mr. OTTOLENGHI. First of all, thank you for your question. I 

wouldn’t be opposed, of course. I think that is a question for the 

administration, though, to be asked whether that organization 

should also fall under the sanctions program. 

If I may add a point about what you just said regarding ownership, which goes back to the activities of these organizations. By 

59

design, a lot of these companies will be opaque. There will be an 

intentional deliberate obfuscation of what these organizations are 

about. And that usually starts with ownership. And so effective 

control, which requires a lot of investigation on the parts of the 

Government to determine who really is behind these entities, I 

think would be the defining factor for listing and/or delisting entities. 

Mr. ROONEY. So is there anything to do with the FARC agreement and the Government of Colombia’s desires to make sure that 

thing proceeds forward and are not designating ELN, maybe for 

anybody that has an opinion. 

Mr. OLSON. I mean, I think the designation is up to the Treasury 

Department, so it doesn’t—it is not a matter of whether the Colombian Government wants it or not. 

Mr. ROONEY. Other than subtle——

Mr. OLSON. Well, yeah. I mean, I think there is obviously a desire to, on the part of the Colombian Government to bring this, you 

know, process to an end as quickly as possible. But I think it is 

up to the Treasury Department whether they would designate the 

ELN. And my understanding is, in the past, the assumption was 

that ELN, while a communist guerrilla group and all that sort of 

stuff, they were a little bit different than the FARC. And I am not 

taking sides here, but—in that they were less involved with drug 

trafficking. And that was what the Kingpin Act was designed to 

deal with. 

Now, that could very well have changed. There may be reason to 

reevaluate that. All those sorts of things could be true. But that 

would really be, you know, a Treasury and ultimately State Department involvement in that assessment, and DEA I am sure. 

Mr. ROONEY. Yeah. I don’t know. 

The other question I would like to ask Dr. Ottolenghi is about—

you have a lot in your report—very great report, by the way. Thank 

you. 

Mr. OTTOLENGHI. Thank you. 

Mr. ROONEY. I am going to say that—about the role of Hezbollah 

all throughout Latin America. And I just would figure that Iran is 

there everywhere Hezbollah is. I wonder if you would like to elaborate a little bit from your experience about the role of Iran backed 

Hezbollah in Latin America and some of the things Iran is doing 

independently of Hezbollah, like in Venezuela and Nicaragua. 

Mr. OTTOLENGHI. I have to entirely second what you just said. 

Wherever Hezbollah goes, there is Iran, and usually vice versa. 

And my understanding is that, in many of the illicit traffic networks that Hezbollah is running in Latin America, there is usually 

either a liaison person or some sort of a political commissar from 

Iran, and it doesn’t necessarily have to be an Iranian person. It 

could be a Lebanese member of Hezbollah that acts as an integrated member of the Quds force running that. So oftentimes we 

have to see these activities as integral to what Iran is doing in 

Latin America. 

Now, in addition to that, as you pointed out, Iran does things 

also independently of these traffics. And I think that, you know, 

Iran, in the case of Venezuela, as you mentioned, is very important, 

but in other countries as well. Iran has been trying, for 3, almost 

60

4 decades, to gain influence across the entire region. It does so by 

establishing alliances with like-minded political movements, and it 

is very pragmatic in the way it chooses interlocutors. They can be 

on pretty much the whole political spectrum. 

It provides them with financing, with assistance, with training in 

order eventually to gain access to political power if they eventually 

become parts of the government. 

It is spreading its influence through soft power tools, such as cultural centers, mosques. It is recruiting and indoctrinating locals 

through very aggressive conversion programs. It is working with all 

sorts of extreme NGOs. It has used Venezuela as a platform to connect with ALBA countries NGO across the continent. So in short, 

it is trying to use Venezuela and, more broadly, the continent as 

a forward operating base to expand its influence, push back against 

the United States influence, and potentially also create operational 

basis to act against the United States. 

Mr. ROONEY. Thank you, sir. 

Thank you, chairman. 

Mr. COOK. Thank you, sir. 

I now recognize Congresswoman Torres from California. 

Mrs. TORRES. Thank you, Mr. Chairman. And I believe congratulations are in order. This is your first meeting serving as the chairman of our subcommittee. Let me remind you that you have very 

big shoes to fill with our former chairman. We went on a trip to 

South America that I don’t think I really understood what we were 

getting into, and I am so happy that we were able to manage. 

Drug trafficking is obviously a very serious problem throughout 

our hemisphere. And our response to this epidemic has to start not 

just at home, but we have to look beyond that at cracking down 

on the illegal flow of narcotics and drugs. And we seem to be losing 

that battle, at least from the perspective of the Pacific Ocean and 

how—I don’t think that we have worked as closely as we could with 

our partners in both Central and South America to help them help 

us intercept the drugs that are coming north. 

We also need to work in the region to build up their criminal justice systems and fight corruption. Working to support groups like 

CICIG innovative approaches which has done so much work in 

Guatemala, very good work. We also need to work with our partners who seize the drug shipments and utilize tools that we have, 

sanctioning tools, including the Kingpin Act and the Magnitsky Act 

are very important tools that we could use. 

In Guatemala, we have supported the efforts of CICIG. And the 

Attorney General, to combat organized crime and corruption, they 

have made a lot of progress and have put dangerous criminals behind bars, corrupt politicians included. 

Now, it appears that CICIG and the Attorney General have become victims of their own success. They have faced threats, 

smeared campaigns, threw troll banks that have began a campaign 

effort to discredit their work in attempts to undermine the work 

that they do. 

Mr. Olson, is it true that drug cartels and other criminal organizations commonly finance political campaigns in Central America? 

And are you aware of any instances where these illicit actors have 

61

attempted to directly interfere in elections by supporting 

disinformation campaigns or troll banks, as I started to call them. 

Mr. OLSON. Thank you, Mrs. Torres, Representative Torres. I appreciate your interest and your work on Guatemala and Central 

America, which is often overlooked as an important part of our region. And in answer to your question, absolutely. You mentioned 

CICIG. CICIG did a major report on money laundering and attempts of the past President who is currently in prison to use his 

political party as a money laundering vehicle to run his campaign. 

And there has been evidence of other cases in Central America, 

in Mexico, often at a local level, where criminal organizations, not 

for ideological reasons, supporting a political party, but simply to 

gain access and guarantee their own impunity, use the weak campaign finance laws to manipulate and control the process. 

So for me, this is a little bit of the original sin for a lot of the 

people—governments in Latin America where people use weak 

campaign finance laws to begin the process of corruption that later 

allows for the burgeoning of criminal organizations and drug trafficking. And there is no question that they use modern communication techniques to influence that process. 

Mrs. TORRES. Mr. Semesky, I recently was made aware of a contract, a lobbying contract, that Guatemala officials signed to lobby 

against CICIG and the Attorney General, to lobby Members of Congress here. Since that contract, I guess, was discovered, it has been 

terminated. 

My office has inquired within our Attorney General’s office to investigate the third-party payer, which I believe to be tied to illicit 

activities. 

What are our options there? And I believe I ran out of time. I 

hope that maybe you can write back and answer to what are some 

of the options that we can do to approach that. 

Mr. SEMESKY. I will do that. 

Mrs. TORRES. Thank you. 

I yield back, Mr. Chairman. 

Mr. COOK. Thank you very much. 

I recognize the Congressman from Florida, Chairman Yoho. 

Mr. YOHO. Congratulations there, Colonel Cook, on your chairmanship. Good job. I appreciate you all being here. This is such an 

important hearing. I don’t know where to start. 

You know, we have seen the war on drugs since the 1990s, if not 

before, and we have spent trillions of dollars through foreign aid 

on the war on drugs. But as was mentioned here, the increased 

growth in Colombia, the increased growth of the poppy fields in Afghanistan, and then I am reading, in Mexico, cultivation of the 

opium poppy, a primary source of heroin in the United States is 

also increased to satisfy the increasing demand of the Americans 

and the rest of the world. 

And according to U.S. estimates, Mexico has experienced an increase of more than double of its opium poppy cultivation from 

12,000 hectares in 2011 to 28,000 in 2015. 28,000 hectares, if I do 

my math, it is probably close to 56,000, 60,000 acres in our southern neighbor. 

And, you know, I would like to have some of your input. You 

know, the war on drugs and with the initiatives that we have done 

62

have gone after the kingpins, but we have seen the kingpins kind 

of morph, change the organizations. And one of the questions I 

want to ask, just get your opinion, if we have a trading partner like 

Mexico in NAFTA, should we bring that into a trade negotiation 

and just say, You need to stop it? And I know that is not in the 

realm of this committee. And if you don’t want to weigh in on it, 

that is okay. If you want to write me a written response, that 

would be okay. 

But I would like to ask you just your opinion, because to do business with countries that are supplying a drug that has virtually no 

medicinal use and it creates the mayhem we see, what are your 

thoughts? If you want to start there, Mr. Semesky? 

Mr. SEMESKY. Congressman, first of all, let me reiterate that I 

am not here as a representative of the DEA. I am here as a private 

citizen. I am retired. 

Mr. YOHO. Okay. As a private citizen and probably a parent, 

maybe? 

Mr. SEMESKY. And a parent. And I agree with you completely. It 

should be part of any negotiations. But just as our demand reduction should be taken into account. 

Mr. YOHO. Well, that is something we have to deal with. I mean, 

we need to deal with that——

Mr. SEMESKY. I first got involved in narcotics investigations with 

the Organized Crime Drug Enforcement Task Force, or OCDETF, 

in 1983. And at that point, we were all told, Just put your thumb 

in the dike. We are going to take care of this on the demand side. 

Mr. YOHO. Right. Well, the dike is overflowing. 

Mr. SEMESKY. Exactly. 

Mr. YOHO. Let me move on to something else, because this is 

something that—you know, I have been in Congress 5 years now, 

and I have watched the development of the Iran nuclear deal, and 

I saw the billions of dollars being taken over there. 

Have you seen an increase in Hezbollah and/or Iran in the South 

American or Central American areas? Anybody want to weigh in on 

that. 

Mr. OTTOLENGHI. I do, sir. 

Mr. YOHO. That could be attributed to the increased cash flow. 

Mr. OTTOLENGHI. I think that the increased cash flow is helping. 

Mr. YOHO. Sure. 

Mr. OTTOLENGHI. But it is not the main driver. I think that the 

reason why you see an increased presence and activity in Latin 

America in conjunction with organized crime by Hezbollah is driven primarily by the fact that Hezbollah, since 2006, when—you 

know, it took a severe beating from Israel in the summer war the 

two sides had with each other, Hezbollah made a decision to shift 

a significant amount of its revenue sources from organized crime. 

And in this past decade, it has expanded dramatically to build 

a global empire which, according to some sources, at least that I 

have spoken to, may actually outweigh the contributions that come 

from Iran. So you have, certainly, an ascendant Iran with a lot 

more resources supporting Hezbollah, Hezbollah involved in significantly larger activities than it ever was, its involvement in the war 

in Syria cost an enormous amount of money, and the necessity to 

build alternative sources to fund that——

63

Mr. YOHO. All right. Let me move on to something else, and I appreciate your input on that. We talked about how the drug cartels 

have morphed. What way has the transnational criminal organization adapted to avoid sanctions or minimized the kingpin designation effectiveness? 

And has the U.S. sanctions regime related to the king regimen 

related to kingpin’s designation kept pace with the changes in drug 

trafficking? 

And, Mr. Hall, I want to specifically ask you. You mentioned the 

50 percent rule. What would you recommend? If you want to start 

off with those two questions. 

Mr. HALL. Thank you. 

In terms of the 50 percent rule, I don’t—and, again, this is just 

to clarify when we were talking about this before. I don’t have any 

problem with—and I don’t want to limit OFAC’s ability to identify 

sanctioned entities. What I am talking about is putting the burden 

under strict liability on individual businesses to do that for OFAC. 

That is what I think is ineffective. 

So to answer your question, the 50 percent rule, as it applies to 

businesses, shouldn’t exist. And I also think it also illustrates why 

there should be a safe harbor that is an escape for strict liability. 

Mr. YOHO. Thank you. I am over my time. 

Thank you, Mr. Chairman. 

Mr. COOK. Thank you, sir. 

Our last member is the next manager of the New York Yankees, 

Representative Espaillat. 

Mr. ESPAILLAT. Thank you. 

I asked for Girardi to go. 

Mr. COOK. I kind of figured that. 

No, no. We can’t lose you here. 

Congressman from New York. 

Mr. ESPAILLAT. Chairman, congratulations on your new appointment. And I hope you keep Mr. Sires in check. 

Mr. COOK. He is bigger than me. I will do the best I can. 

Mr. ESPAILLAT. I look forward to working with both of you as 

well. 

Mr. COOK. Thank you. 

Mr. ESPAILLAT. I did enjoy our codel to Europe. I had a good 

time. 

Like so many communities across the country, the district that 

I represent has seen increases in prescription pain killers, heroin. 

Particularly East Harlem continues to have a major problem with 

drug trafficking. And the impact of the Kingpin Act is critical. It 

touches on my district and my neighborhood as well. 

Just recently, the Trump administration declared the opioid crisis a national public health emergency. But there was one tiny 

major issue with that announcement. It had no funding and no 

backing aside from the acknowledgement of the epidemic itself. As 

this relates to Latin America of the tier one kingpin designation, 

which means they represent the most significant threats and concern with drug trafficking, 65 out of the 110 tier one designations 

are in the Western Hemisphere. So this committee must and will 

deal with that particular issue. 

64

To make matters worse, gangs in El Salvador, Honduras, Guatemala, and Nicaragua are profiting from these illicit drugs, and they 

are taking advantage of poor countries. Yet we saw that, 2 days 

ago, the Trump administration pulled the TPS for Nicaragua and 

only briefly extended it for Honduras. I feel that the lack of funding 

and pulling TPS and this misguided foreign policy direction by the 

Trump administration confer the cost, instability in the region. 

I am also concerned with human trafficking and drug trafficking 

in the Caribbean. That is why I commissioned a GAO study to analyze the impact of the Caribbean Basin Security Initiative, CBSI, 

which has been one of the U.S. main vehicles for countering drug 

trafficking in that region. I think we need to be investing more 

funding. I look forward to sharing that study with my colleagues 

and this committee once it comes out. 

Mr. Semesky, do you think that the Treasury Department’s office 

of foreign assets control should expand its designation program to 

target gangs such as MS-13 which operate in El Salvador, Honduras, Nicaragua, Mexico, and the United States? What is the role 

of the MS-13-type gangs with regards to kingpins and drug dealers 

in that region? Are they playing a more active role? We know they 

are very violent. And are they competing for territory? Or what is 

the status? 

Mr. SEMESKY. I am not an expert on the gangs. To the extent of 

my knowledge, and, again, I am not here representing the DEA, 

the gangs form alliances. If you take the Sinaloa Cartel as an example, their business model is not to try to overwhelm but it is to 

partner. So when they partner with gangs in cities like Chicago, 

cities like New York, it leverages manpower for them. It expands 

their distribution network, and they are able to control the drugs 

in an area by using a gang. The gangs can be—to the extent that 

they can be connected with an already designated cartel, they could 

be brought under that designation very quickly to the extent that 

they are designated themselves as kingpins as long as they meet 

the criteria for the Kingpin Act, yes, they should be designated. 

Mr. ESPAILLAT. Anybody else want to weigh in on the role of the 

gangs in the regions of Central America and——

Mr. OLSON. Well, the work we have done has looked at exactly 

what you are saying, the role in the region. And primarily, the 

gangs are focused on territorial control. Controlling neighborhoods, 

controlling streets and barrios. I was in a community in Honduras 

in May, a well-known community where six different groups—and 

people could go by and tell you which street was controlled by 

which group. Their business model, if you will, in those neighborhoods is primarily extortion, sale and resale of small amounts of 

marijuana or other kinds of drugs. But their reach and involvement 

in grand international trafficking of drugs is—I am not saying it 

is not existent, but it is not the same as when we think of big 

transnational organized crime groups like, at one point, the Zeta’s 

or Chapo Guzman’s group out of Sinaloa. So I think it is important, 

it behooves of us, I am not saying one is good and the other is bad. 

It just behooves us to understand fully and carefully what phenomenon we are dealing with and then how to address it, because 

they each require a response. They just may require different sorts 

of responses. 

65

Mr. ESPAILLAT. Thank you so much. 

Thank you, Mr. Chairman. 

Mr. COOK. Thank you, sir. 

I believe that is the last of our members here. I just want to 

thank everybody. I want to thank the speakers here. I think you 

have given us a lot. I know the staffs are—I think they are going 

to talk about some of these things where we can—this is not the 

first hearing. We are going to go down on kingpins, because—particularly with international terrorism and some of these other organizations, it is just too important, too dangerous. And we are probably going to have more on this. 

And thank you for taking the time and sharing your expertise 

with us. It is greatly appreciated. 

With that in mind, this meeting is now adjourned. 

[Whereupon, at 3:24 p.m., the subcommittee was adjourned.] 

(67)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE RECORD

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27514n.eps

SUBCOMMITTEE HEARING NOTICE 

COMMITTEE ON FOREIGN AFFAIRS 

U.S. HOUSE OF REPRESENTATIVES 

WASHINGTON, DC 20515-6128 

Subcommittee on the Western Hemisphere 

Paul Cook (CA-08), Chairman 

November 8, 2017 

TO: MEMBERS OF THE COMMITTEE ON FOREIGN AFFAIRS 

You are respectfully requested to attend an OPEN hearing of the Committee on Foreign Affairs, to be held 

by the Subcommittee on the Western Hemisphere in Room 2172 of the Rayburn House Office Building (and 

available live on the Committee website at http://·;.~~For~\tTairsJ:guse.rrov): 

DATE: 

TIME: 

SUBJECT: 

WITNESSES: 

Wednesday, November 8, 2017 

2:00p.m 

Examining the Effectiveness of the Kingpin Designation Act in the Western Hemisphere 

Mr. Donald C. Semesky Jr. 

(Former Chief,' (}jjice of Financial Operations, US Drug F:nforcement Administration) 

Mr David Hall 

Partner 

Wiggin and Dana LLP 

(Former Pro,ecutor, US. Department ofJustice) 

Emanuele Ottolenghi, PhD. 

Senior Fellow 

Center on Sanctions and 111icit Finance 

Foundation for Defense of Democracies 

Mr Eric L Olson 

Deputy Director 

Latin American Program 

Woodrow Wilson Center 

By Direction of the Chairman 
69

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27514m.eps

COMMITTEE ON I<'ORElGN AFFAIRS 

MINUTES OF SUBCOMMITTEE ON ________ w_es_re_n_• H_e_,_,;'c_'PI_w_re _______ HEARING 

Dny Werlnestluy Ilntc ___ -=1-=-lli'-'U'-'8'-'/1=-7:__ ___ Room ___ _:2:.:1_:_7.::2 __ _ 

Starting Time 2:00pm Ending Time 3:24pm 

Recesses [ u/a I ( __ to __ )( __ to __ ) L__to __ ) L__to __ ) L__to __ )( __ to __ ) 

Presiding Member(s) 

Clraintwn Cook 

Check all ojtllejo/lowing tllat app~J': 

O)Jen Session 0 Executive ~sed) Session D Televised I.ZI 

TITLE OF HEARING: 

Electronically Record!ll!..fla)Jed) 0 

Stenographic Heeord lLJ 

"Examining lite Effectiveness ojtfre Kingpin Designation Act in lite Western Hemisplrere" 

SUBCOMMITTEE MEMBERS PRESENT: 

R£•p. Brool<s, Rep. Yolw, Rep. Rooney, Rep. Sires, Rep. Espaillal, Rep. J(efly, Rep. Torres 

NON-:-JUDCOMMITTEE MEMBERS PRESENT: (f..1w·k with an *((I hey are not mum hers (dfill! commilfee) 

Rep.Donowm 

HEARING WITNESSES: Same as meeting notice attached? Yes m NoD 

(if "no", please list below and inclutle Jitle, agency. department, m· organizat;on.) 

STATEMENTS FORTH~ RECORU: (Li~·/ any stulemenls subnritled for the reconl.) 

Clrairma11 Cook QFR 's 

TIME SCHEDULED TO RECONVENE ___ _ 

or 

TIME ADJOURNED __ 1_._·2_4 __ 
70


27514e-1.eps

Donald C. Semesky, Jr. 

Questions for the Record 

WHliM Subcommittee Hearing: "'~xamining the Jiffectiveness of the Kingpin Designation Act in 

the Weslern HemL1phere" 

November 8, 2017 at 2:00p.m. in Rayburn Room 2172 

QUESTIONS FOR ALL WITNESSES: 

1. Value of Multiple Designations. There are several cases where an entity is designated under 

both Kingpin and terrorist sanctions programs. Is there evidence that a person designated under 

multiple sanctions programs would receive greater penalties for violations? In your view, 

which individuals or entities would benefit from being designated under multiple sanctions 

programs and how? How effective are sanctions when they are cross-designated? 

Answer: The impact and effectiveness of multiple designations against an individual 

or legal entity can be many. In my opinion, multiple designations of narco-terrorists 

and their organizations would derive the most impact for the following reasons. 

1. Depending on the authority under which a particular sanction was based, e.g. 

Ioternational Emergency Economic Powers Act as opposed to the statutory 

legislation of the Kingpin Act, the ability of the government to bring criminal 

charges such as money laundering, may ditler. 

u. Ditierent countries follow certain sanctions lists, and not others. Thus, a 

country may follow a Kingpin Act designation, but not a Foreign Terrorist 

Organization designation, and vice versa. Multiple designations against an 

individual or legal entity may be needed to guarantee that sanctioned entities 

are impacted in foreign jurisdictions. 

u1. Multiple sanctions will also allow for a wider designation of associated entities, 

many of which provide the funding, access to the financial system, and money 

laundering services for the Drug Kingpins or Foreign Terrorist Organization. 

Using only one type of designation may inhibit the reach of the sanctions to a 

number of these facilitating entities. 

2. Kingpin Process. When the U.S. designates an individual or an entity as a Kingpin, that triggers 

a block of all property and assets of designated entities and those who support them, prohibits 

U.S. transactions with designated entities, establishes an annual process for sanctioning the 

most significant foreign narcotics tratlickers, increases civil and criminal penalties, and 

prevents access to drug tratlickers' spouses and children to get visas to the U.S. To what extent 

can designated entities continue to operate outside of the U.S. tinancial system in informal 

economies? What can the U.S. and partner nations do to target the informal networks? 

Answer: Ioformal financial networks have been around for thousands of years, and 

always seem to be able to morph and reinvent themselves to answer any government 

intervention. For the most part, these networks did not originate as criminal financial 

networks; however, their dearth of recordkeeping, lack of government oversight, and 

ability to operate almost completely outside of formal financial systems, make them 

attractive and vulnerable to criminal exploitation. Like the criminal organizations who 
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exploit them, these informal financial networks depend heavily on communications to 

conduct their business activities. The ability of U.S and foreign law enforcement 

counterparts to intercept communications for violations of money laundering and Bank 

Secrecy Act (BSA), or similar reporting violations is important in tracking and 

assigning beneficial ownership to drug proceeds as it changes nature and form during 

its journey back to its beneficial owner(s). These intercepts are also the only way to 

document the knowledge and intent of the operators within the informal financial 

netv,rorks, which, in these types of investigations is the most difficult element of the 

money laundering crime to prove. Legislation, training, and funding are keys to being 

able to carry out these types of operations. There are also a number of areas that the 

U.S. and its partners could address that would have even more impact on Kingpins than 

trying to corral informal value transfer systems. 

1. Address corruption: The number one thing that every Kingpin needs in order to 

succeed is corruption. Foreign-based Kingpins need corrupt individuals in 

government and private sectors to carry on their operations. Unfortunately, 

many times, this corruption is coerced, and not invited. The U.S. needs to work 

with its foreign partners to come up with strategies and programs to address this 

problem tram a systemic and not an individual case approach. 

u. Address weak oversight of foreign financial sectors Most countries have 

enacted anti-money laundering legislation and suspicious activity reporting. 

However, these laws and regulations are only as good as the regulatory and 

enforcement etTorts behind them. If the tinancial institutions think they can 

operate freely without fear of being discovered and punished, they are more 

likely to become complicit and/or not address vulnerabilities. An aggravating 

factor that figures into this equation is the lack of resources and training that 

government reb'lllatory and enforcement agencies sutTer tram in most parts of 

the world. This needs to be addressed as well. 

u1. Address otTshore and domestic shell corporations and otTshore banking: To 

start with, Congress needs to pass H.R.3089- Corporate Transparency Act of 

2017, to begin the process of reining in the abuse of US domestic corporate 

structures, specifically LLCs, both here in the U.S. and abroad, for the 

purpose of money laundering. Once we have our own house in some 

semblance of order, we need to aggressively address the abuse of otTshore 

shell corporations and banks. The use of offshore havens to facilitate money 

laundering through opaque corporate and banking structures are one of the 

major keys in attacking the wealth of Drug Kingpins as well as the flow of 

licit and illicit funds that tinance and support terrorist and other criminal 

activity. 

IV. Share information from U.S. regulatory and enforcement activity against 

infonnal financial networks with foreign governments: Much of the illicit 

drug dollars that are laundered by Drug Kingpins is done so through the sale 

of those drug proceeds on infonnal black markets, i.e. The Black Market Peso 

Exchange (BMPE), both in Colombia and Mexico. FinCEN has executed two 

Geographic Targeting Orders (GTO) in the last several years against the U.S 

based businesses (Los Angeles Fashion District and the Miami Trade Zone) 
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that sell goods to Colombian and Mexican importers who buy these drug 

dollars to pay their trade debts. There is a mechanism for FinCEN to share 

this information with its foreign financial intelligence unit (FIU) counterparts 

in Colombia and Mexico through the "Egmont Group" sharing process. 

Congress should insure that this is being done; so, that those countries can 

follow up with regulatory enforcement actions against identified importers 

who are not accurately reporting the value of their imports. 

3. Kingpin Effectiveness Disrupting Networks. There are concerns that Kingpin designations are 

not effective in disrupting the entire transnational criminal networks but instead only achieve 

results by taking out the leaders, which then create voids that others subsequently fill. Would 

you agree? In your opinion, how effective have the Kingpin designations programs been in the 

fight against drug trafficking in the Western Hemisphere? 

Answer: Kingpin designations are not designed to "take out" anyone, in the sense that 

they lead to incarceration. They are designed to cripple the designee and his/her 

associated entities economically. There are two ways that Kingpin designations have 

been successful in impacting entire transnational criminal networks. OF AC has, at 

times, designated entire transnational criminal networks instead of just the leader(s). 

This allows any identified assets within U.S. jurisdiction, not just the leader(s), to be 

frozen. The naming of as many Tier Two, associated entities as possible accomplishes 

much the same thing. The other way in which Kingpin designations have been 

successful in impacting an entire transnational criminal network is when the OF AC 

sanction is done in conjunction with a law enforcement action. This allows for 

simultaneous arrest of organization members, and also the freezing and seizure of 

assets. Transnational criminal networks rarely keep their wealth within U.S. 

jurisdiction; so, impact is usually dependent on the country(ies), in which these 

transnational criminal networks operate, following the OFAC list. As I mentioned in 

my written and oral testimony, the OFAC designation has also become an effective law 

enforcement tool to reach transnational criminal networks that, for one reason or 

another, are beyond the reach of traditional law enforcement techniques. At times, it 

is the OF AC designation that brings the cartel or money laundering organization 

leaders to the table to negotiate their criminal culpability. 

QUESTIONS FOR DONALD SEMESKY 

1. State Department Role in Kingpin. The State Department and U.S. embassies play a significant 

role in ensuring that U.S. foreign policy is not disrupted by Kingpin designations and sanctions 

programs. How do you see the Treasury Department's Office of Foreign Assets Control's 

(OF AC) engagement with State and our embassies, especially in sensitive political situations 

like Venezuela? Is there anything missing that would make this process more effective and that 

would gamer greater joint support from countries where Kingpin designations occur? 

a. OFAC follows a two-stage process in bringing a Kingpin designation. The first is 

a formal written process during which the interagency, including the State 

Department, is notified of the intention to designate, and given a chance for input. 

The second stage involves on-the-ground meetings with affected agencies to set 
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time lines and plan the roll out of the designation. This would include briefings of 

State Department officials at the headquarters and embassy levels. My experience 

is that this is typically a seamless exercise. Obviously, the more sensitive the 

targeted designee, the longer the process may take before the roll out Again, my 

experience is that OF AC has always been willing to coordinate and work with 

agencies and departments whose interests will be affected by the designation. 

2. Criminal Group Adaptations. In the 1990s, the U.S objective was to combat drug traffickers 

by targeting their illicit wealth. Over the years, these groups have morphed into exploiting 

corrupt governments and business leaders in the region to wield far-reaching criminal 

enterprises. Some cartels have reorganized as more horizontal franchises that no longer have 

kingpin figures at the top. Has the U.S. sanctions regime related to Kingpin designations kept 

pace with the changes in drug tratllck:ing organizations? 

a. One of the great benefits of having OFAC investigators permanently assigned to 

DEA Headquarters and Special Operations Division (SOD) otllces, as well as the 

U.S embassies in Bogota and Mexico City, is that the OFAC investigators have 

complete access to DEA intelligence and targeting This enables OFAC to stay 

abreast of the constant evolution of the drug cartels and other drug trafficking and 

drug-money laundering organizations that pose the greatest risk to the United 

States. Two designations that point out OFAC's ability to apply the Kingpin Act to 

new drug trafficking risks and corruption are the July 29, 2014 designation of 

members of a synthetic drug trafficking organization led by Chinese national Zhang 

Lei (alk/a Eric Chang), and the February 13, 2017 designation of Venezuelan 

national and Vice President, Tareck Zaidan El Aissami Maddah. 
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DavidL.Hall 

Questions for the Record 

WHliM Subcommittee Hearing: ··~xamining the Jiffectiveness of the Kingpin Designation Act in 

the Weslern Hemi.1phere" 

November 8, 2017 at 2:00p.m. in Rayburn Room 2172 

Chairman Paul Cook 

TO: ALL WITNESSES 

1. Value of Multiple Designations. There are several cases where an entity is designated under 

both Kingpin and terrorist sanctions programs. Is there evidence that a person designated under 

multiple sanctions programs would receive greater penalties for violations? In your view, 

which individuals or entities would benefit from being designated under multiple sanctions 

programs and how? How effective are sanctions when they are cross-designated? 

David L. Hall Response: 

Thank you, Chairman Cook, for this additional opportunity to share my views with regard to the 

effectiveness of the Kingpin Designation Act (the "Kingpin Act") and other economic sanctions 

programs administered by the Department of Treasury, Office of Foreign Assets Control 

("OF AC"). As you know from my testimony before the Subcommittee, and my corresponding 

written statement, my focus is on the effect of sanctions programs on non-criminal U.S. businesses 

and multi -national businesses operating in the United States. While the primary goal of the 

Kingpin Act and other sanctions programs is to cripple the financial capabilities of criminal and 

terrorist organizations, the sanctions themselves are primarily enforced against non-criminal 

businesses that have inadvertently engaged in prohibited transactions with Specially Designated 

Nationals and Blocked Persons ("SDNs")- not the SDNs themselves. 

For most businesses, the particular sanctions program under which an SDN is identified is not 

especially relevant- and so it follows that most businesses are not focused on whether an SDN is 

identified under more than one sanctions program. Therefore, designation under multiple 

sanctions programs, in and of itself, is not likely to prevent a business from violating the law. 

While there are some variations among sanctions programs, a U.S. person is generally prohibited 

from engaging in nearly all transactions with an SDN regardless of the program under which the 

SDN was designated For a business subject to U.S. jurisdiction, two primary factors will 

determine the effectiveness of an SDN designation: 1) whether the business conducts third party 

screening as part of its own internal compliance program; and 2) whether the designated party is 

accurately identified during third party screening. If a business conducts third party screening and 

identifies an SON during its screening, it will likely suspend the transaction regardless of the 

specific SDN designation of the individual or entity. 

2. Kingpin Process. When the U.S. designates an individual or an entity as a Kingpin, that triggers 

a block of all property and assets of designated entities and those who support them, prohibits 

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US. transactions with designated entities, establishes an annual process for sanctioning the 

most significant foreign narcotics traffickers, increases civil and criminal penalties, and 

prevents access to drug trat1ickers' spouses and children to get visas to the US. To what extent 

can designated entities continue to operate outside of the US. financial system in informal 

economies? What can the US. and partner nations to do target the informal networks? 

David L. Hall Response: 

In practice, the e±Iect of economic sanctions designations on commerce is determined by the risk 

appetite of individual businesses- and businesses subject to US jurisdiction vary significantly in 

their risk appetites. As a result, not only do SDNs continue to have access to "informal economies'' 

located outside the United States, but they also have access to US. financial systems to the extent 

they are able to mask their true identities. They can do this by many means including establishing 

shell-companies that have not yet been identified as designated entities, dealing in cash 

transactions with smaller US. businesses, and utilizing nominees in banking transactions. 

In some cases, US. businesses manage risk by taking prophylactic ''de-risking" measures. In these 

cases, the business decides that the high cost of compliance and the potential for significant civil 

monetary penalties is untenable, and stops doing business in high risk regions and high risk 

business sectors categorically. In a 2016 article, Reuters provided an example of how de-risking 

can have unintended consequences, particularly in small countries like Belize. 1 The ultimate effect 

on affected nations is difticult to predict On the one hand, de-risking could cause them to 

strengthen their own anti -money laundering compliance regimes. On the other hand, the loss of 

access to the US. financial system could drive them out of the US. sphere of int1uence altogether, 

leading to increased business dealings with sanctioned entities. All of this is the result of OF AC' s 

strict liability standard and the severe potential penalties, which combine to impose enormous risk 

on businesses, including banks. The multi-million dollar penalties imposed against BNP Pari bas 

SA2 and HSBC Holdings3 illustrate the high cost of non-compliance. 

3. Kingpin Effectiveness Disrupting Networks. There are concerns that Kingpin designations are 

not e±Iective in disrupting the entire transnational criminal networks but instead only achieve 

results by taking out the leaders, which then create voids that others subsequently till. Would 

you agree? In your opinion, how effective have the Kingpin designations programs been in the 

tight against drug tratlick:ing in the Western Hemisphere? 

3,897 apparent violations of the Sudanese Sanctions Regulations, the Iranian Transactions and Sanctions 

Regulations, the Cuban Assets Control Regulations, and the Burmese Sanctions Regulations. See OFAC Web Notice 

of Enforcement Information for June 30, 2014, available at f.!1~~JIJW.t[eas.M .. DLE..QYir£'~OU[£S'..::. 

apparent violations of the Iran Transactions Regulations, the Burmese Sanctions Regulations, the Sudanese 

Sanctions Regulations, the Cuban Assets Control Regulations, and the Libyan Sanctions Regulations. See OFAC 

Web Notice of Enforcement Information for December 11, 2012, available at ht!12ii1/~YJ.i.Y.J.f.~ill.DLM.Y/resou_n::e~ 

5=ent~/sandiQns/Ci!LP~Q£YJJ~nts/12121.1Ji~(__p_gsting,QQf. 

Page 2 of4 
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David L. Hall Response: 

I cannot speak directly to the effectiveness of the Kingpin designations in disrupting 

transnational criminal networks. However, I do recommend that Congress request a 

comprehensive review by the United States Government Accountability Oft'ice of the 

effectiveness of the Specially Designated Nationals and Blocked Persons designations overall. 

As I understand from testimony at the Subcommittee hearing, no such study has been conducted. 

Given the significant cost imposed on US. businesses by sanctions programs, it seems advisable 

to undertake an evaluation of the benefits of such programs. 

TO: MR. HALL 

I. Kmgom Effect of Sanctwns on Pnvate Sector On August 13, 2014, the Treasury Department 

issued revised guidance on the so-called "50% rule," which clarifies that assets of an entity 

that is 50% or more owned, directly or indirectly, by a person, or persons in aggregate, on the 

Specially Designated Nationals (SDN) List are also blocked, even if that entity is not listed 

itself Can you describe how small and medium size businesses are impacted by the 

enforcement of these sanctions programs compared to large corporations and financial 

institutions? How does this impact banks in the Caribbean, which are often small? 

David L. Hall Response: 

To date, only one major enforcement action has identified violations of the "50 Percent Rule."4 

Nevertheless, the existence of the rule itself places a substantial compliance burden on companies 

-especially those with significant international business or operating in higher risk industries. The 

increased compliance burden is not justified by any increase in the effectiveness of the underlying 

sanctions program. This is because the 50 Percent Rule puts businesses in the position of acting 

as a stop-gap to identify entities owned by SDNs that the government has not been able to identify. 

Even companies with robust compliance programs that take into account the ownership structure 

of potential customers and vendors will likely fail at helping the government achieve this goal for 

the following reasons. 

First, businesses, especially small- to medium-sized businesses, have limited resources 

available for identifying ownership information. Private companies are not required to 

disclose ownership percentages to third parties or even to name individual owners on state 

incorporation documents. Determining ownership information for international companies 

is especially difficult when little public information is available or is only available in a 

4 1n February 2016, OFAC entered into a settlement agreement with UK bank Barclays Bank Pic for apparent 

violations of the Zimbabwe Sanctions Regulations. According to the settlement agreement, Barclays allegedly 

processed 159 U.S. dollar transactions totaling $3,375,617 on behalf of customers that were more than 50 percent 

owned by Industrial Development Corporation of Zimbabwe, an SON. See Tahlia Townsend, Dan Goren & Matthew 

Nettleton, OFAC Fines Foreign Bank for Violating 50 Percent Rule, Wiggin and Dana, Advisory (Feb. 9, 2016), 

httill\:::!Y£.Y:-L..\YJgg:in.conU.16374. 

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foreign language. In some cases, foreign business partners are not permitted by foreign 

law to provide such information. 

• Second, businesses conducting ownership due diligence do not typically share the results 

of their diligence with other businesses or with the government. While some businesses, 

such as banks, do file Suspicious Activity Reports with the government, these disclosures 

are not public documents. And in most cases, the internal compliance determinations of 

businesses are not reported to the government. Thus, when a business does identify an 

entity that is fifty percent owned by an SDN, in most cases, no one else learns about it. 

• Finally, transaction-based due diligence is expensive. Most companies- particularly small 

businesses- do not conduct this level of diligence. Those that do usually rely on high level 

searches of free or low-cost databases - that are not always current or accurate. The cost 

of using an outside investigative service or employees to conduct detailed searches of 

public databases is simply cost prohibitive for many businesses. 

Tf businesses are not successfully identifying upstream ownership, either because they are not 

conducting due diligence or because that diligence is not effective, the 50 Percent Rule becomes 

meaningless as a deterrent. 

OFAC sanctions are not surgical. Particularly blunt is the 50 Percent Rule, which does not even 

identify the target of sanctions. Leaving that to U.S. businesses is inherently ineffective. For this 

reason, the 50 Percent Rule should be eliminated. 

TO MR. SEMESKY 

1. State Department Role tn Ktngoin The State Department and U.S. embassies play a significant 

role in ensuring that U.S. foreign policy is not disrupted by Kingpin designations and sanctions 

programs. How do you see the Treasury Department's Office of Foreign Assets Control's 

(OF AC) engagement with State and our embassies, especially in sensitive political situations 

like Venezuela? ls there anything missing that would make this process more effective and that 

would garner greater joint support from countries where Kingpin designations occur? 

2. Criminal Group Adaptations. In the 1990s, the U.S objective was to combat drug traffickers 

by targeting their illicit wealth. Over the years, these groups have morphed into exploiting 

corrupt governments and business leaders in the region to wield far-reaching criminal 

enterprises. Some cartels have reorganized as more horizontal franchises that no longer have 

kingpin figures at the top. Has the U.S. sanctions regime related to Kingpin designations kept 

pace with the changes in drug trafficking organizations? 

Page 4 of4 
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Emanuele Ottolenghi 

Questions for the Record 

WHJ;;M Subcommittee Hearing: "J;;xamining the Fjji!Ctiveness of the Kingpin Designation Act in 

the Western Hemisphere" 

November 8, 2017 at 2:00p.m. in Rayburn Room 2172 

Chairman Paul Cook 

TO ALL WITNESSES 

1. Value of Multiple Designations. There are several cases where an entity is designated under 

both Kingpin and terrorist sanctions programs. Is there evidence that a person designated under 

multiple sanctions programs would receive greater penalties for violations? In your view, 

which individuals or entities would benefit from being designated under multiple sanctions 

programs and how? How effective are sanctions when they are cross-designated? 

EMANUELE OTTOLENGHI: There is value in double designations for mainly two reasons. 

A Kingpin designation extends penalties to spouses and children. Someone currently 

designated for terrorism, such as is the case with Latin America based Hezbollah operatives, 

can easily transfer the day to day handling of financial transactions and nominal ownership of 

their businesses to their family members. A Kingpin designation would further limit their room 

for maneuver. Also, U.S. partners may not always be willing to act on terrorism designations. 

A Kingpin designation against U.S. designated terrorists would provide the legal basis for 

allied countries to act against U.S. designated terrorists, albeit on criminal grounds. 

In tenns of which individuals or entities would be most suitable for multiple designations, I 

strongly recommend using multiple sanctions instruments against Hezbollah and Iran's Islamic 

Revolutionary Guards Corps, or IRGC. As indicated in my written testimony, Hezbollah draws 

a significant part of its operating budget from its participation in illicit activities that include 

drug trafficking. A Kingpin designation for Hezbollah and its leadership would send a 

powerful message to the world that Hezbollah is a criminal syndicate as well as a Global 

Terrorist Organization. 

As for the IRGC, the process should be similar. Treasury targeted Gholamreza Baghbani, a 

senior TRGC's Quds Force general, in 2012, for his role coordinating transfers of opium from 

Afghanistan through Iran. Linking the IRGC and senior members in its command structure to 

the drug trade through Kingpin designations highlights the proximity between the Iranian 

regime and its revolutionary institutions on the one hand, and international drug trafficking 

networks on the other. Tt creates a public stigma and helps the United States make a strong case 

about sanctioning the IRGC with allies who are reluctant to treat them as a terror organization. 

2. Kingpin Process. When the U.S. designates an individual or an entity as a Kingpin, that triggers 

a block of all property and assets of designated entities and those who support them, prohibits 

U.S. transactions with designated entities, establishes an annual process for sanctioning the 

most significant foreign narcotics traffickers, increases civil and criminal penalties, and 

Page I of3 
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prevents access to drug trat1ickers' spouses and children to get visas to the US. To what extent 

can designated entities continue to operate outside of the US. financial system in informal 

economies? What can the US. and partner nations to do target the informal networks? 

EMANUELE OTTOLENGHI: Designated entities can continue to operate, albeit at a 

significant premium cost and with considerable additional impediments, outside of the US. 

financial system. Informal economies can certainly make that task easier. That's why sanctions 

must be followed by US. diplomatic efforts with allies to persuade them to enforce them. They 

must be coupled with prosecutions. And where possible, they must be expanded to target local 

facilitators and enablers. 

Kingpin designated entities tend to be involved in the movement of large sums of money due 

to the nature of their illicit trade. However circuitous and convoluted their operations may be, 

they eventually require access to the global financial system in order to launder drug proceeds. 

A sustained efl'ort to target those facilitators and enablers around Kingpin designated entities 

would no doubt enhance the efiectiveness of this tool. The possible punishment of financial 

institutions in the process, through either sanctions, Patriot Act 311 designations, or civil 

forfeiture actions would also create strong incentives for allied countries to act against 

designated entities operating in their own jurisdiction. 

3. Kingpin Effectiveness Disrupting Networks. There are concerns that Kingpin designations are 

not efl'ective in disrupting the entire transnational criminal networks but instead only achieve 

results by taking out the leaders, which then create voids that others subsequently till. Would 

you agree? In your opinion, how efiective have the Kingpin designations programs been in the 

fight against drug traflicking in the Western Hemisphere? 

EMANUELE OTTOLENGHI: TO answer this question I would like to draw your attention to 

the Kingpin designation of the Waked money laundering organization announced by Treasury in 

May 2016. Since the designation happened, the US. has used the Kingpin Act to ensure that 

targeted entities would divest themselves of their assets. This has been the case already with several 

financial institutions that the Waked MLO controlled in Panama. US. pressure combined with 

cooperation with local authorities led to these assets being removed from the control of targeted 

entities. This is a clear example of how the threat of serious economic consequences spurs 

government to government cooperation and leads to positive results. Also, the same designation 

shows that while the Kingpin Act targets entities at the top of the pyramid, there is significant 

latitude to expand its impact In the case of the Waked MLO, Treasury was able to target dozens 

of companies and individuals. Treasury has the power to de-designate but also to add new entities 

to the same designation if follow-ups uncovered new evidence. In other words, the legislation is 

flexible enough. It leaves enough leeway to the executive to go after more than those who sit at 

the top of a criminal structure. 

TO MR. HALL 

1. Kmgom Efl'ect of SanctiOns on Private Sector On August 13, 2014, the Treasury Department 

issued revised guidance on the so-called "50% rule," which clarifies that assets of an entity 

that is 50% or more owned, directly or indirectly, by a person, or persons in aggregate, on the 

Page 2 of3 
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Specially Designated Nationals (SDN) List are also blocked, even if that entity is not listed 

itself Can you describe how small and medium size businesses are impacted by the 

enforcement of these sanctions programs compared to large corporations and financial 

institutions? How does this impact banks in the Caribbean, which are often small? 

TO: MR. SEMESKY 

I. State Department Role m Ktmmin The State Department and US embassies play a significant 

role in ensuring that US foreign policy is not disrupted by Kingpin designations and sanctions 

programs. How do you see the Treasury Department's Office of Foreign Assets Control's 

(OF AC) engagement with State and our embassies, especially in sensitive political situations 

like Venezuela? Is there anything missing that would make this process more effective and that 

would garner greater joint support from countries where Kingpin designations occur? 

2. Criminal Group Adaptations. In the 1990s, the US. objective was to combat drug traffickers 

by targeting their illicit wealth. Over the years, these groups have morphed into exploiting 

corrupt governments and business leaders in the region to wield far-reaching criminal 

enterprises. Some cartels have reorganized as more horizontal franchises that no longer have 

kingpin figures at the top. Has the US. sanctions regime related to Kingpin designations kept 

pace with the changes in drug tratlick:ing organizations? 

Page 3 of3 
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27514h-1.eps

Eric Olson 

Questions for the Record 

WHJ;;M Subcommittee Hearing: "J;;xamining the Fjji!Ctiveness of the Kingpin Designation Act in 

the Western Hemisphere" 

November 8, 2017 at 2:00p.m. in Rayburn Room 2172 

Chairman Paul Cook 

TO ALL WITNESSES 

1. Value of Multiple Designations. There are several cases where an entity is designated under 

both Kingpin and terrorist sanctions programs. Is there evidence that a person designated under 

multiple sanctions programs would receive greater penalties for violations? In your view, 

which individuals or entities would benefit from being designated under multiple sanctions 

programs and how? How effective are sanctions when they are cross-designated? 

OLSON: l haven't studied the issue of cross designation so do not have an informed opinion 

on this issue. As I said at the Hearing and in written testimony, it's time to request a systematic 

review of these sanction programs to ensure that they are effective. 

2. Kingpin Process. When the U.S. designates an individual or an entity as a Kingpin, that triggers 

a block of all property and assets of designated entities and those who support them, prohibits 

U.S. transactions with designated entities, establishes an annual process for sanctioning the 

most significant foreign narcotics traffickers, increases civil and criminal penalties, and 

prevents access to drug traffickers' spouses and children to get visas to the U.S. To what extent 

can designated entities continue to operate outside of the U.S. financial system in informal 

economies? What can the U.S. and partner nations to do target the informal networks? 

OLSON: Sanctions undoubtedly make it harder for the designated person to continue his/her 

illegal activities but a Kingpin designation does not make this impossible either. The 

effectiveness of the designation also has to do with the strength of the regulatory agencies and 

rule of law in the country where the sanctioned person lives or operates. For example, "EI 

Chapo" Guzman was designated under the Kingpin Act in June 2001 but continued operating 

until his third and final arrest in Mexico in January 2016 and subsequent extradition to the U.S. 

a year later. Compared to other countries in Central America, Mexico has much greater 

regulatory capacity and works collaboratively with the U.S. 

The problems become even more pronounced in countries with very weak regulatory 

frameworks, such as Honduras, and nearly impossible to control in countries where 

institutionality is almost entirely broken such as Venezuela. In the case of Venezuela 

government needs to interact with the international financial system because of its petroleum 

business, so a designation can complicate the life of individuals or entities that need to 

operation internationally. But this is not enough when the rule oflaw is non-existent, and where 

independent regulators, prosecutors, or courts do not exist. This is why simply relying on 

sanction regimes like the Kingpin Act is insufficient and must be complemented with efforts 

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to strent,>then the ret,>ulatory capacity in countries where there are sanctioned individuals and 

entities. 

3. Kingpin Effectiveness Disrupting Networks. There are concerns that Kingpin designations are 

not e±Iective in disrupting the entire transnational criminal networks but instead only achieve 

results by taking out the leaders, which then create voids that others subsequently fill. Would 

you agree? In your opinion, how effective have the Kingpin designations programs been in the 

fight against drug trafficking in the Western Hemisphere? 

OLSON: I agree that Kingpin designations only achieve partial results. This is not to say 

they have no value. The Act is one tool in the toolbox. Designations can make it more difficult 

for a criminal to benefit from their illicit business, but they can and do find ways around this. 

Even if a designation leads to the arrest of an individual, or the shuttering of their business, as 

in the Rosenthal/Banco Continental case in Honduras I cited in my testimony, the efiects are 

temporary. There isn't much evidence that overall drug trafficking (cocaine in particular) has 

fallen as a result. Drug trafficking is a business based on supply and demand. To think of it 

solely as dependent on specific criminal actors, is to miss the underlying factors that drive the 

business. I believe our main challenge is to think about how to more e±Iectively reduce demand 

and how to more effectively raise the cost of doing business. The Kingpin Act has been one 

tool in this process but we cannot assume it will solve the problem. 

TO: MR. HALL 

I. Kmu:om E±Iect of Sanctwns on Private Sector On Aut,>ust 13, 2014, the Treasury Department 

issued revised guidance on the so-called "50% rule," which clarifies that assets of an entity 

that is 50% or more owned, directly or indirectly, by a person, or persons in aggregate, on the 

Specially Designated Nationals (SDN) List are also blocked, even if that entity is not listed 

itself Can you describe how small and medium size businesses are impacted by the 

enforcement of these sanctions programs compared to large corporations and financial 

institutions? How does this impact banks in the Caribbean, which are often small? 

TO: MR. SEMESKY 

I. State Department Role m Kmu:oin The State Department and US embassies play a significant 

role in ensuring that US. foreign policy is not disrupted by Kingpin designations and sanctions 

programs. How do you see the Treasury Department's Office of Foreign Assets Control's 

(OF AC) engagement with State and our embassies, especially in sensitive political situations 

like Venezuela? Is there anything missing that would make this process more effective and that 

would garner greater joint support from countries where Kingpin designations occur? 

2. Criminal Group Adaptations. In the 1990s, the US. objective was to combat drug traffickers 

by targeting their illicit wealth. Over the years, these groups have morphed into exploiting 

corrupt governments and business leaders in the region to wield far-reaching criminal 

enterprises. Some cartels have reorganized as more horizontal franchises that no longer have 

kingpin figures at the top. Has the U.S. sanctions regime related to Kingpin designations kept 

pace with the changes in drug tra±licking organizations? 

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