[Federal Register Volume 62, Number 195 (Wednesday, October 8, 1997)]
[Rules and Regulations]
[Pages 52493-52501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26787]


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DEPARTMENT OF THE TREASURY

Office of Foreign Assets Control

31 CFR Parts 501 and 597


Reporting and Procedures Regulations; Foreign Terrorist 
Organizations Sanctions Regulations

AGENCY: Office of Foreign Assets Control, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Foreign Assets Control is issuing the Foreign 
Terrorist Organizations Sanctions Regulations to implement sections 302 
and 303 of the Antiterrorism and Effective Death Penalty Act as they 
relate to the Treasury Department. Conforming and technical amendments 
are made to the Reporting and Procedures Regulations.

EFFECTIVE DATE: October 6, 1997.

FOR FURTHER INFORMATION CONTACT: Office of Foreign Assets Control, 
Department of the Treasury, Washington, DC 20220; tel.: 202/622-2520.

SUPPLEMENTARY INFORMATION: 

Electronic and Facsimile Availability

    This document is available as an electronic file on The Federal 
Bulletin Board the day of publication in the Federal Register. By 
modem, dial 202/512-1387 and type ``/GO FAC,'' or call 202/512-1530 for 
disk or paper copies. This file is available for downloading without 
charge in WordPerfect 5.1, ASCII, and Adobe Acrobat<SUP>TM</SUP> 
readable (*.PDF) formats. For Internet access, the address for use with 
the World Wide Web (Home Page), Telnet, or FTP protocol is: 
fedbbs.access.gpo.gov. The document is also accessible for downloading 
in ASCII format without charge from Treasury's Electronic Library 
(``TEL'') in the ``Business, Trade and Labor Mall'' of the FedWorld 
bulletin board. By modem, dial 703/321-3339, and select the appropriate 
self-expanding file in TEL. For Internet access, use one of the 
following protocols: Telnet = fedworld.gov (192.239.93.3); World Wide 
Web (Home

[[Page 52494]]

Page) = http://www.fedworld.gov; FTP = ftp.fedworld.gov 
(192.239.92.205). Additional information concerning the programs of the 
Office of Foreign Assets Control (``OFAC'') is available for 
downloading from OFAC's Internet Home Page: <a href="http://www.ustreas.gov/
treasury/services/fac/fac.html">http://www.ustreas.gov/
treasury/services/fac/fac.html</a>, or in fax form through OFAC's 24-hour 
fax-on-demand service: call 202/622-0077 using a fax machine, fax 
modem, or (within the United States) a touch-tone telephone.

Background

    On April 24, 1996, President Clinton signed into law the 
Antiterrorism and Effective Death Penalty Act of 1996, Pub. L. 104-132, 
110 Stat. 1214-1319 (the ``Act''). Section 302 of the Act (new 8 U.S.C. 
1189) authorizes the Secretary of State, in consultation with the 
Secretary of the Treasury and the Attorney General, to designate 
organizations meeting stated requirements as foreign terrorist 
organizations, with prior notification to Congress of the intent to 
designate. Upon that notification to Congress, the Secretary of the 
Treasury may require U.S. financial institutions to block financial 
transactions involving assets in their possession or control of the 
foreign organizations proposed for designation.
    Section 303 of the Act (new 18 U.S.C. 2339B) prohibits persons 
within the United States or subject to U.S. jurisdiction from knowingly 
providing material support or resources to a designated foreign 
terrorist organization, and makes violations punishable by criminal 
penalties under title 18, United States Code. Additionally, except as 
authorized by the Treasury Department, financial institutions in 
possession or control of funds in which a foreign terrorist 
organization or its agent has an interest are required to block such 
funds and file reports in accordance with Treasury Department 
regulations. Financial institutions in violation of 18 U.S.C. 
2339B(a)(2) are subject to civil penalties administered by the Treasury 
Department. In implementation of sections 302 and 303 and the statutory 
purpose stated in section 301, the Treasury Department is issuing the 
Foreign Terrorist Organizations Sanctions Regulations (the 
``Regulations'').
    Transactions otherwise prohibited under this part but found to be 
consistent with U.S. policy may be authorized by a general license 
contained in subpart E or by a specific license issued pursuant to the 
procedures described in subpart D of part 501 of this chapter. 
Penalties for violations of the Regulations are described in subpart G.
    Conforming and technical amendments are also made to the Reporting 
and Procedures Regulations, 31 CFR Part 501. Since the Regulations 
involve a foreign affairs function, the provisions of Executive Order 
12866 and the Administrative Procedure Act (5 U.S.C. 553), requiring 
notice of proposed rulemaking, opportunity for public participation, 
and delay in effective date, are inapplicable. Because no notice of 
proposed rulemaking is required for this rule, the Regulatory 
Flexibility Act (5 U.S.C. 601-612) does not apply.

Paperwork Reduction Act

    The Regulations are being issued without prior notice and public 
comment procedure pursuant to the Administrative Procedure Act (5 
U.S.C. 553). The collections of information related to the Regulations 
are contained in part 501 of this chapter (the ``Reporting and 
Procedures Regulations''). Pursuant to the Paperwork Reduction Act of 
1995 (44 U.S.C. 3507), those collections of information have been 
approved by the Office of Management and Budget (``OMB'') under control 
number 1505-0164. An agency may not conduct or sponsor, and a person is 
not required to respond to, a collection of information unless the 
collection of information displays a valid control number.

List of Subjects

31 CFR Part 501
    Administrative practice and procedure, Banks, banking, Blocking of 
assets, Foreign trade, Reporting and recordkeeping requirements

31 CFR Part 597
    Administrative practice and procedure, Banks, banking, Blocking of 
assets, Foreign terrorist organizations, Penalties, Reporting and 
recordkeeping requirements, Terrorism, Transfer of assets.

    For the reasons set forth in the preamble, 31 CFR chapter V is 
amended as follows:

PART 501--REPORTING AND PROCEDURES REGULATIONS

    1. The authority citation for part 501 continues to read as 
follows:

    Authority: 22 U.S.C. 287c; 31 U.S.C. 321(b); 50 U.S.C. 1701-
1706; 50 U.S.C. App. 1-44.

    2. Section 501.101 is revised to read as follows:


Sec. 501.101  Relation of this part to other parts in this chapter.

    This part sets forth standard reporting and recordkeeping 
requirements and license application and other procedures governing 
transactions regulated pursuant to other parts codified in this 
chapter, as well as to economic sanctions programs for which 
implementation and administration are delegated to the Office of 
Foreign Assets Control. Substantive prohibitions and policies 
particular to each economic sanctions program are not contained in this 
part but are set forth in the particular part of this chapter dedicated 
to that program, or, in the case of economic sanctions programs not yet 
implemented in regulations, in the applicable executive order or other 
authority. License application procedures and reporting requirements 
set forth in this part govern transactions undertaken pursuant to 
general or specific licenses. The criteria for general and specific 
licenses pertaining to a particular economic sanctions program are set 
forth in subpart E of the individual parts in this chapter. Statements 
of licensing policy contained in subpart E of the individual parts in 
this chapter, however, may contain additional information collection 
provisions that require production of specified documentation unique to 
a given general license or statement of licensing policy.

    3. The following note is added to the end of Sec. 501.601 to read 
as follows:

    Note: See subpart F of part 597 for the relationship between 
this section and part 597.

    4. Section 501.602 is amended by revising the last sentence to read 
as follows, and by adding the following note to the end of the section:

Sec. 501.602  Reports to be furnished on demand.

    * * * Except as provided in parts 596 and 597, the Director may, 
through any person or agency, conduct investigations, hold hearings, 
administer oaths, examine witnesses, receive evidence, take 
depositions, and require by subpoena the attendance and testimony of 
witnesses and the production of all books, papers, and documents 
relating to any matter under investigation, regardless of whether any 
report has been required or filed in connection therewith.
    Note: See subpart F of part 597 for the relationship between 
this section and part 597.

    5. The following note is added to the end of Sec. 501.603 to read 
as follows:


[[Page 52495]]


    Note: See subpart F of part 597 for the relationship between 
this section and part 597.

    6. Section 501.806 is amended by revising paragraph (b) to read as 
follows:


Sec. 501.806  Procedures for unblocking funds believed to have been 
blocked due to mistaken identity.

* * * * *
    (b) Requests to release funds which a party believes to have been 
blocked due to mistaken identity must be made in writing and addressed 
to the Office of Foreign Assets Control, Compliance Programs Division, 
1500 Pennsylvania Avenue, NW--Annex, Washington, DC 20220, or sent by 
facsimile transmission to the Compliance Programs Division at 202/622-
1657.
* * * * *

    7. Section 501.807 is amended by revising paragraph (a) to read as 
follows:


Sec. 501.807  Procedures governing removal of names from appendices A, 
B, and C to this chapter.

* * * * *
    (a) A specially designated national (``SDN''), specially designated 
terrorist (``SDT''), specially designated narcotics trafficker 
(``SDNT''), or an agent of a foreign terrorist organization (``AFTO'') 
(collectively, a ``designated person''), or a person owning a majority 
interest in a blocked vessel, may request disclosure of the factual 
basis for designation and, subject to the limitations contained in 
paragraph (c) of this section, review factual materials relied upon by 
the Office of Foreign Assets Control in designating the person or 
vessel.

    8. Part 597 is added to read as follows:

PART 597--FOREIGN TERRORIST ORGANIZATIONS SANCTIONS REGULATIONS

Subpart A--Relation of This Part to Other Laws and Regulations

Sec.
597.101 Relation of this part to other laws and regulations.

Subpart B--Prohibitions

597.201 Prohibited transactions involving blocked assets or funds of 
foreign terrorist organizations or their agents.
597.202 Effect of transfers violating the provisions of this part.
597.203 Holding of funds in interest-bearing accounts; investment 
and reinvestment.
597.204 Evasions; attempts; conspiracies.

Subpart C--General Definitions

597.301 Agent.
597.302 Assets.
597.303 Blocked account; blocked funds.
597.304 Designation.
597.305 Effective date.
597.306 Entity.
597.307 Financial institution.
597.308 Financial transaction.
597.309 Foreign terrorist organization.
597.310 Funds.
597.311 General license.
597.312 Interest.
597.313 License.
597.314 Person.
597.315 Specific license.
597.316 Transaction.
597.317 Transfer.
597.318 United States.
597.319 U.S. financial institution.

Subpart D--Interpretations

597.401 Reference to amended sections.
597.402 Effect of amendment.
597.403 Termination and acquisition of an interest in blocked funds.
597.404 Setoffs prohibited.
597.405 Transactions incidental to a licensed transaction.
597.406 Offshore transactions.

Subpart E--Licenses, Authorizations and Statements of Licensing Policy

597.501 Effect of license or authorization.
597.502 Exclusion from licenses and authorizations.
597.503 Payments and transfers to blocked accounts in U.S. financial 
institutions.
597.504 Entries in certain accounts for normal service charges 
authorized.
597.505 Payment for certain legal services.

Subpart F--Reports

597.601 Records and reports.

Subpart G--Penalties

597.701 Penalties.
597.702 Prepenalty notice.
597.703 Response to prepenalty notice.
597.704 Penalty notice.
597.705 Administrative collection; referral to United States 
Department of Justice.

Subpart H--Procedures

597.801 Procedures.
597.802 Delegation by the Secretary of the Treasury.

Subpart I--Paperwork Reduction Act

597.901 Paperwork Reduction Act notice.

    Authority: 31 U.S.C. 321(b); Pub. L. 104-132, 110 Stat. 1214, 
1248-53 (8 U.S.C. 1189, 18 U.S.C. 2339B).

Subpart A--Relation of This Part to Other Laws andRegulations


Sec. 597.101  Relation of this part to other laws and regulations.

    (a) This part is separate from, and independent of, the other parts 
of this chapter, with the exception of part 501 of this chapter, the 
recordkeeping and reporting requirements and license application and 
other procedures of which apply to this part. Differing statutory 
authority and foreign policy and national security contexts may result 
in differing interpretations of similar language among the parts of 
this chapter. No license or authorization contained in or issued 
pursuant to those other parts authorizes any transaction prohibited by 
this part. No license or authorization contained in or issued pursuant 
to any other provision of law or regulation authorizes any transaction 
prohibited by this part.
    (b) No license or authorization contained in or issued pursuant to 
this part relieves the involved parties from complying with any other 
applicable laws or regulations. This part does not implement, construe, 
or limit the scope of any other part of this chapter, including (but 
not limited to) the Terrorism Sanctions Regulations, part 595 of this 
chapter, and does not excuse any person from complying with any other 
part of this chapter, including (but not limited to) part 595 of this 
chapter.
    (c) This part does not implement, construe, or limit the scope of 
any criminal statute, including (but not limited to) 18 U.S.C. 
2339B(a)(1) and 2339A, and does not excuse any person from complying 
with any criminal statute, including (but not limited to) 18 U.S.C. 
2339B(a)(1) and 18 U.S.C. 2339A.

Subpart B--Prohibitions


Sec. 597.201  Prohibited transactions involving blocked assets or funds 
of foreign terrorist organizations or their agents.

    (a) Upon notification to Congress of the Secretary of State's 
intent to designate an organization as a foreign terrorist organization 
pursuant to 8 U.S.C. 1189(a), until the publication in the Federal 
Register as described in paragraph (c) of this section, any U.S. 
financial institution receiving notice from the Secretary of the 
Treasury by means of order, directive, instruction, regulation, ruling, 
license, or otherwise shall, except as otherwise provided in such 
notice, block all financial transactions involving any assets of such 
organization within the possession or control of such U.S. financial 
institution until further directive from the Secretary of the Treasury, 
Act of Congress, or order of court.
    (b) Except as otherwise authorized by order, directive, 
instruction, regulation, ruling, license, or otherwise, from and after 
the designation of an organization as a foreign terrorist organization 
pursuant to 8 U.S.C. 1189(a), any U.S. financial institution that 
becomes aware that it has possession of or control over any funds in 
which the designated foreign terrorist organization or its agent has an 
interest shall:
    (1) Retain possession of or maintain control over such funds; and
    (2) Report to the Secretary of the Treasury the existence of such 
funds in accordance with Sec. 501.603 of this chapter.

[[Page 52496]]

    (c) Publication in the Federal Register of the designation of an 
organization as a foreign terrorist organization pursuant to 8 U.S.C. 
1189(a) shall be deemed to constitute a further directive from the 
Secretary of the Treasury for purposes of paragraph (a) of this 
section, and shall require the actions contained in paragraph (b) of 
this section.
    (d) The requirements of paragraph (b) of this section shall remain 
in effect until the effective date of an administrative, judicial, or 
legislative revocation of the designation of an organization as a 
foreign terrorist organization, or until the designation lapses, 
pursuant to 8 U.S.C. 1189.
    (e) When a transaction results in the blocking of funds at a 
financial institution pursuant to this section and a party to the 
transaction believes the funds have been blocked due to mistaken 
identity, that party may seek to have such funds unblocked pursuant to 
the administrative procedures set forth in Sec. 501.806 of this 
chapter. Requests for the unblocking of funds pursuant to Sec. 501.806 
must be submitted to the attention of the Compliance Programs Division.


Sec. 597.202  Effect of transfers violating the provisions of this 
part.

    (a) Any transfer after the effective date which is in violation of 
Sec. 597.201 or any other provision of this part or of any regulation, 
order, directive, ruling, instruction, license, or other authorization 
hereunder and involves any funds or assets held in the name of a 
foreign terrorist organization or its agent or in which a foreign 
terrorist organization or its agent has or has had an interest since 
such date, is null and void and shall not be the basis for the 
assertion or recognition of any interest in or right, remedy, power or 
privilege with respect to such funds or assets.
    (b) No transfer before the effective date shall be the basis for 
the assertion or recognition of any right, remedy, power, or privilege 
with respect to, or interest in, any funds or assets held in the name 
of a foreign terrorist organization or its agent or in which a foreign 
terrorist organization or its agent has an interest, or has had an 
interest since such date, unless the financial institution with whom 
such funds or assets are held or maintained, prior to such date, had 
written notice of the transfer or by any written evidence had 
recognized such transfer.
    (c) Unless otherwise provided, an appropriate license or other 
authorization issued by or pursuant to the direction or authorization 
of the Director of the Office of Foreign Assets Control before, during, 
or after a transfer shall validate such transfer or render it 
enforceable to the same extent that it would be valid or enforceable 
but for the provisions of this part, and any regulation, order, 
directive, ruling, instruction, or license issued hereunder.
    (d) Transfers of funds or assets which otherwise would be null and 
void or unenforceable by virtue of the provisions of this section shall 
not be deemed to be null and void or unenforceable as to any financial 
institution with whom such funds or assets were held or maintained (and 
as to such financial institution only) in cases in which such financial 
institution is able to establish to the satisfaction of the Director of 
the Office of Foreign Assets Control each of the following:
    (1) Such transfer did not represent a willful violation of the 
provisions of this part by the financial institution with whom such 
funds or assets were held or maintained;
    (2) The financial institution with which such funds or assets were 
held or maintained did not have reasonable cause to know or suspect, in 
view of all the facts and circumstances known or available to such 
institution, that such transfer required a license or authorization by 
or pursuant to this part and was not so licensed or authorized, or if a 
license or authorization did purport to cover the transfer, that such 
license or authorization had been obtained by misrepresentation of a 
third party or the withholding of material facts or was otherwise 
fraudulently obtained; and
    (3) The financial institution with which such funds or assets were 
held or maintained filed with the Office of Foreign Assets Control a 
report setting forth in full the circumstances relating to such 
transfer promptly upon discovery that:
    (i) Such transfer was in violation of the provisions of this part 
or any regulation, ruling, instruction, license, or other direction or 
authorization hereunder; or
    (ii) Such transfer was not licensed or authorized by the Director 
of the Office of Foreign Assets Control; or
    (iii) If a license did purport to cover the transfer, such license 
had been obtained by misrepresentation of a third party or the 
withholding of material facts or was otherwise fraudulently obtained.
    Note to paragraph (d): The filing of a report in accordance with 
the provisions of paragraph (d)(3) of this section shall not be 
deemed evidence that the terms of paragraphs (d)(1) and (2) of this 
section have been satisfied.
    (e) Except for exercises of judicial authority pursuant to 8 U.S.C. 
1189(b), unless licensed or authorized pursuant to this part, any 
attachment, judgment, decree, lien, execution, garnishment, or other 
judicial process is null and void with respect to any funds or assets 
which, on or since the effective date, were in the possession or 
control of a U.S. financial institution and were held in the name of a 
foreign terrorist organization or its agent or in which there existed 
an interest of a foreign terrorist organization or its agent.


Sec. 597.203  Holding of funds in interest-bearing accounts; investment 
and reinvestment.

    (a) Except as provided in paragraph (c) of this section, or as 
otherwise directed by the Office of Foreign Assets Control, any U.S. 
financial institution holding funds subject to Sec. 597.201(b) shall 
hold or place such funds in a blocked interest-bearing account which is 
in the name of the foreign terrorist organization or its agent and 
which is located in the United States.
    (b)(1) For purposes of this section, the term interest-bearing 
account means a blocked account:
    (i) in a federally-insured U.S. bank, thrift institution, or credit 
union, provided the funds are earning interest at rates which are 
commercially reasonable for the amount of funds in the account or 
certificate of deposit; or
    (ii) with a broker or dealer registered with the Securities and 
Exchange Commission under the Securities Exchange Act of 1934, provided 
the funds are invested in a money market fund or in U.S. Treasury 
Bills.
    (2) Funds held or placed in a blocked interest-bearing account 
pursuant to this paragraph may not be invested in instruments the 
maturity of which exceeds 180 days. If interest is credited to a 
separate blocked account or sub-account, the name of the account party 
on each account must be the same and must clearly indicate the foreign 
terrorist organization or agent having an interest in the accounts.
    (c) Blocked funds held as of the effective date in the form of 
stocks, bonds, debentures, letters of credit, or instruments which 
cannot be negotiated for the purpose of placing the funds in a blocked 
interest-bearing account pursuant to paragraph (a) may continue to be 
held in the form of the existing security or instrument until 
liquidation or maturity, provided that any dividends, interest income, 
or other proceeds derived therefrom are paid into a blocked interest-
bearing account in accordance with the requirements of this section.
    (d) Funds subject to this section may not be held, invested, or 
reinvested in

[[Page 52497]]

a manner in which an immediate financial or economic benefit or access 
accrues to the foreign terrorist organization or its agent.


Sec. 597.204  Evasions; attempts; conspiracies.

    Any transaction for the purpose of, or which has the effect of, 
evading or avoiding, or which facilitates the evasion or avoidance of, 
any of the prohibitions set forth in this part, is hereby prohibited. 
Any attempt to violate the prohibitions set forth in this part is 
hereby prohibited. Any conspiracy formed for the purpose of engaging in 
a transaction prohibited by this part is hereby prohibited.

Subpart C--General Definitions


Sec. 597.301  Agent.

    (a) The term agent means:
    (1) Any person owned or controlled by a foreign terrorist 
organization; or
    (2) Any person to the extent that such person is, or has been, or 
to the extent that there is reasonable cause to believe that such 
person is, or has been, since the effective date, acting or purporting 
to act directly or indirectly on behalf of a foreign terrorist 
organization.
    (b) The term agent includes, but is not limited to, any person 
determined by the Director of the Office of Foreign Assets Control to 
be an agent as defined in paragraph (a) of this section.
    Note to Sec. 597.301: Please refer to the appendices at the end 
of this chapter for listings of persons designated as foreign 
terrorist organizations or their agents. Section 501.807 of this 
chapter sets forth the procedures to be followed by a person seeking 
administrative reconsideration of a designation as an agent, or who 
wishes to assert that the circumstances resulting in the designation 
as an agent are no longer applicable.


Sec. 597.302  Assets.

    The term assets includes, but is not limited to, money, checks, 
drafts, bullion, bank deposits, savings accounts, debts, indebtedness, 
obligations, notes, guarantees, debentures, stocks, bonds, coupons, any 
other financial instruments, bankers acceptances, mortgages, pledges, 
liens or other rights in the nature of security, warehouse receipts, 
bills of lading, trust receipts, bills of sale, any other evidences of 
title, ownership or indebtedness, letters of credit and any documents 
relating to any rights or obligations thereunder, powers of attorney, 
goods, wares, merchandise, chattels, stocks on hand, ships, goods on 
ships, real estate mortgages, deeds of trust, vendors' sales 
agreements, land contracts, leaseholds, ground rents, real estate and 
any other interest therein, options, negotiable instruments, trade 
acceptances, royalties, book accounts, accounts payable, judgments, 
patents, trademarks or copyrights, insurance policies, safe deposit 
boxes and their contents, annuities, pooling agreements, services of 
any nature whatsoever, contracts of any nature whatsoever, and any 
other property, real, personal, or mixed, tangible or intangible, or 
interest or interests therein, present, future or contingent.


Sec. 597.303  Blocked account; blocked funds.

    The terms blocked account and blocked funds shall mean any account 
or funds subject to the prohibitions in Sec. 597.201 held in the name 
of a foreign terrorist organization or its agent or in which a foreign 
terrorist organization or its agent 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.


Sec. 597.304  Designation.

    The term designation includes both the designation and 
redesignation of a foreign terrorist organization pursuant to 8 U.S.C. 
1189.


Sec. 597.305  Effective date.

    Except as that term is used in Sec. 597.201(d), the term effective 
date refers to the effective date of the applicable prohibitions and 
directives contained in this part which is October 6, 1997, or, in the 
case of foreign terrorist organizations designated after that date and 
their agents, the earlier of the date on which a financial institution 
receives actual or constructive notice of such designation or of the 
Secretary of Treasury's exercise of his authority to block financial 
transactions pursuant to 8 U.S.C. 1189(a)(2)(C) and Sec. 597.201(a).


Sec. 597.306  Entity.

    The term entity includes a partnership, association, corporation, 
or other organization, group, or subgroup.


Sec. 597.307  Financial institution.

    The term financial institution shall have the definition given that 
term in 31 U.S.C. 5312(a)(2) as from time to time amended, 
notwithstanding the definition of that term in 31 CFR part 103.
    Note: The breadth of the statutory definition of financial 
institution precludes its reproduction in this section. Among the 
types of businesses covered are insured banks (as defined in 12 
U.S.C. 1813(h)), commercial banks or trust companies, private 
bankers, agencies or branches of a foreign bank in the United 
States, insured institutions (as defined in 12 U.S.C. 1724(a)), 
thrift institutions, brokers or dealers registered with the 
Securities and Exchange Commission under 15 U.S.C. 78a et seq., 
securities or commodities brokers and dealers, investment bankers or 
investment companies, currency exchanges, issuers, redeemers, or 
cashiers of traveler's checks, checks, money orders, or similar 
instruments, credit card system operators, insurance companies, 
dealers in precious metals, stones or jewels, pawnbrokers, loan or 
finance companies, travel agencies, licensed senders of money, 
telegraph companies, businesses engaged in vehicle sales, including 
automobile, airplane or boat sales, persons involved in real estate 
closings and settlements, the United States Postal Service, a 
casino, gambling casino, or gaming establishment with an annual 
gaming revenue of more than $1,000,000 as further described in 31 
U.S.C. 5312(a)(2), or agencies of the United States Government or of 
a State or local government carrying out a duty or power of any of 
the businesses described in 31 U.S.C. 5312(a)(2).


Sec. 597.308  Financial transaction.

    The term financial transaction means a transactioninvolving the 
transfer or movement of funds, whether by wire or other means.


Sec. 597.309  Foreign terrorist organization.

    The term foreign terrorist organization means an organization 
designated or redesignated as a foreign terrorist organization, or with 
respect to which the Secretary of State has notified Congress of the 
intention to designate as a foreign terrorist organization, under 8 
U.S.C. 1189(a).


Sec. 597.310  Funds.

    The term funds includes coin or currency of the United States or 
any other country, traveler's checks, personal checks, bank checks, 
money orders, stocks, bonds, debentures, drafts, letters of credit, any 
other negotiable instrument, and any electronic representation of any 
of the foregoing. An electronic representation of any of the foregoing 
includes any form of digital or electronic cash, coin, or currency in 
use currently or placed in use in the future.


Sec. 597.311  General license.

    The term general license means any license or authorization the 
terms of which are set forth in this part.


Sec. 597.312  Interest.

    Except as otherwise provided in this part, the term interest when 
used with respect to funds or assets (e.g., ``an interest in funds'') 
means an interest of any nature whatsoever, direct or indirect.

[[Page 52498]]

Sec. 597.313  License.

    Except as otherwise specified, the term license means any license 
or authorization contained in or issued pursuant to this part.


Sec. 597.314  Person.

    The term person means an individual or entity.


Sec. 597.315  Specific license.

    The term specific license means any license or authorization not 
set forth in this part but issued pursuant to this part.


Sec. 597.316  Transaction.

    The term transaction shall have the meaning set forth in 18 U.S.C. 
1956(c)(3), as from time to time amended. As of the effective date, 
this term includes a purchase, sale, loan, pledge, gift, transfer, 
delivery, or other disposition of any asset, and with respect to a 
financial institution includes a deposit, withdrawal, transfer between 
accounts, exchange of currency, loan, extension of credit, purchase or 
sale of any stock, bond, certificate of deposit, or other monetary 
instrument, use of a safe deposit box, or any other payment, transfer, 
or delivery by, through, or to a financial institution, by whatever 
means effected.


Sec. 597.317  Transfer.

    The term transfer means any actual or purported act or transaction, 
whether or not evidenced by writing, and whether or not done or 
performed within the United States, the purpose, intent, or effect of 
which is to create, surrender, release, convey, transfer, or alter, 
directly or indirectly, any right, remedy, power, privilege, or 
interest with respect to any property and, without limitation upon the 
foregoing, shall include the making, execution, or delivery of any 
assignment, power, conveyance, check, declaration, deed, deed of trust, 
power of attorney, power of appointment, bill of sale, mortgage, 
receipt, agreement, contract, certificate, gift, sale, affidavit, or 
statement; the making of any payment; the setting off of any obligation 
or credit; the appointment of any agent, trustee, or fiduciary; the 
creation or transfer of any lien; the issuance, docketing, filing, or 
levy of or under any judgment, decree, attachment, injunction, 
execution, or other judicial or administrative process or order, or the 
service of any garnishment; the acquisition of any interest of any 
nature whatsoever by reason of a judgment or decree of any foreign 
country; the fulfillment of any condition; the exercise of any power of 
appointment, power of attorney, or other power; or the acquisition, 
disposition, transportation, importation, exportation, or withdrawal of 
any security.


Sec. 597.318  United States.

    The term United States means the United States, its territories, 
states, commonwealths, districts, and possessions, and all areas under 
the jurisdiction or authority thereof.


Sec. 597.319  U.S. financial institution.

    The term U.S. financial institution means:
    (a) Any financial institution organized under the laws of the 
United States, including such financial institution's foreign branches;
    (b) Any financial institution operating or doing business in the 
United States; or
    (c) Those branches, offices and agencies of foreign financial 
institutions which are located in the United States, but not such 
foreign financial institutions' other foreign branches, offices, or 
agencies.

Subpart D--Interpretations


Sec. 597.401  Reference to amended sections.

    Except as otherwise specified, reference to any section of this 
part or to any regulation, ruling, order, instruction, direction, or 
license issued pursuant to this part shall be deemed to refer to the 
same as currently amended.


Sec. 597.402  Effect of amendment.

    Any amendment, modification, or revocation of any section of this 
part or of any order, regulation, ruling, instruction, or license 
issued by or under the direction of the Director of the Office of 
Foreign Assets Control shall not, unless otherwise specifically 
provided, be deemed to affect any act done or omitted to be done, or 
any civil or criminal suit or proceeding commenced or pending prior to 
such amendment, modification, or revocation. All penalties, 
forfeitures, and liabilities under any such order, regulation, ruling, 
instruction, or license shall continue and may be enforced as if such 
amendment, modification, or revocation had not been made.


Sec. 597.403  Termination and acquisition of an interest in blocked 
funds.

    (a) Whenever a transaction licensed or authorized by or pursuant to 
this part results in the transfer of funds (including any interest in 
funds) away from a foreign terrorist organization or its agent, such 
funds shall no longer be deemed to be funds in which the foreign 
terrorist organization or its agent has or has had an interest, or 
which are held in the name of a foreign terrorist organization or its 
agent, unless there exists in the funds another interest of a foreign 
terrorist organization or its agent, the transfer of which has not been 
effected pursuant to license or other authorization.
    (b) Unless otherwise specifically provided in a license or 
authorization issued pursuant to this part, if funds (including any 
interest in funds) are or at any time since the effective date have 
been held by a foreign terrorist organization or its agent, or at any 
time thereafter are transferred or attempted to be transferred to a 
foreign terrorist organization or its agent, including by the making of 
any contribution to or for the benefit of a foreign terrorist 
organization or its agent, such funds shall be deemed to be funds in 
which there exists an interest of the foreign terrorist organization or 
its agent.


Sec. 597.404  Setoffs prohibited.

    A setoff against blocked funds (including a blocked account) by a 
U.S. financial institution is a prohibited transaction under 
Sec. 597.201 if effected after the effective date.


Sec. 597.405  Transactions incidental to a licensed transaction.

    Any transaction ordinarily incident to a licensed transaction and 
necessary to give effect thereto is also authorized, except a 
transaction by an unlicensed, foreign terrorist organization or its 
agent or involving a debit to a blocked account or a transfer of 
blocked funds not explicitly authorized within the terms of the 
license.


Sec. 597.406  Offshore transactions.

    The prohibitions contained in Sec. 597.201 apply to transactions by 
U.S. financial institutions in locations outside the United States with 
respect to funds or assets which the U.S. financial institution knows, 
or becomes aware, are held in the name of a foreign terrorist 
organization or its agent, or in which the U.S. financial institution 
knows, or becomes aware that, a foreign terrorist organization or its 
agent has or has had an interest since the effective date.

Subpart E--Licenses, Authorizations, and Statements of Licensing 
Policy


Sec. 597.501  Effect of license or authorization.

    (a) No license or other authorization contained in this part, or 
otherwise issued by or under the direction of the Director of the 
Office of Foreign Assets Control, shall be deemed to authorize or 
validate any transaction effected prior to

[[Page 52499]]

the issuance of the license, unless specifically provided in such 
license or authorization.
    (b) No regulation, ruling, instruction, or license authorizes any 
transaction prohibited under this part unless the regulation, ruling, 
instruction, or license is issued by the Office of Foreign Assets 
Control and specifically refers to this part. No regulation, ruling, 
instruction, or license referring to this part shall be deemed to 
authorize any transaction prohibited by any provision of this chapter 
unless the regulation, ruling, instruction or license specifically 
refers to such provision.
    (c) Any regulation, ruling, instruction, or license authorizing any 
transaction otherwise prohibited under this part has the effect of 
removing a prohibition or prohibitions contained in this part from the 
transaction, but only to the extent specifically stated by its terms. 
Unless the regulation, ruling, instruction, or license otherwise 
specifies, such an authorization does not create any right, duty, 
obligation, claim, or interest in, or with respect to, any property 
which would not otherwise exist under ordinary principles of law.


Sec. 597.502  Exclusion from licenses and authorizations.

    The Director of the Office of Foreign Assets Control reserves the 
right to exclude any person, property, or transaction from the 
operation of any license, or from the privileges therein conferred, or 
to restrict the applicability thereof with respect to particular 
persons, property, transactions, or classes thereof. Such action shall 
be binding upon all persons receiving actual or constructive notice of 
such exclusion or restriction.


Sec. 597.503  Payments and transfers to blocked accounts in U.S. 
financial institutions.

    (a) Any payment of funds or transfer of credit or other financial 
or economic resources or assets by a financial institution into a 
blocked account in a U.S. financial institution is authorized, provided 
that a transfer from a blocked account pursuant to this authorization 
may only be made to another blocked account held in the same name on 
the books of the same U.S. financial institution.
    (b) This section does not authorize any transfer from a blocked 
account within the United States to an account held outside the United 
States.
    Note to Sec. 597.503: Please refer to Secs. 501.603 and 597.601 
of this chapter for mandatory reporting requirements regarding 
financial transfers.


Sec. 597.504  Entries in certain accounts for normal service charges 
authorized.

    (a) U.S. financial institutions are hereby authorized to debit any 
blocked account with such U.S. financial institution in payment or 
reimbursement for normal service charges owed to such U.S. financial 
institution by the owner of such blocked account.
    (b) As used in this section, the term normal service charge shall 
include charges in payment or reimbursement for interest due; cable, 
telegraph, or telephone charges; postage costs; custody fees; small 
adjustment charges to correct bookkeeping errors; and, but not by way 
of limitation, minimum balance charges, notary and protest fees, and 
charges for reference books, photostats, credit reports, transcripts of 
statements, registered mail insurance, stationery and supplies, check 
books, and other similar items.


Sec. 597.505  Payment for certain legal services.

    Specific licenses may be issued, on a case-by-case basis, 
authorizing receipt of payment of professional fees and reimbursement 
of incurred expenses through a U.S. financial institution for the 
following legal services by U.S. persons:
    (a) Provision of legal advice and counseling to a foreign terrorist 
organization or an agent thereof on the requirements of and compliance 
with the laws of any jurisdiction within the United States, provided 
that such advice and counseling is not provided to facilitate 
transactions in violation of any of the prohibitions of this part;
    (b) Representation of a foreign terrorist organization or an agent 
thereof when named as a defendant in or otherwise made a party to 
domestic U.S. legal, arbitration, or administrative proceedings;
    (c) Initiation and conduct of domestic U.S. legal, arbitration, or 
administrative proceedings on behalf of a foreign terrorist 
organization or an agent thereof;
    (d) Representation of a foreign terrorist organization or an agent 
thereof before any federal or state agency with respect to the 
imposition, administration, or enforcement of U.S. sanctions against a 
foreign terrorist organization or an agent thereof;
    (e) Provision of legal services to a foreign terrorist organization 
or an agent thereof in any other context in which prevailing U.S. law 
requires access to legal counsel at public expense; and
    (f) Representation of a foreign terrorist organization seeking 
judicial review of a designation before the United States Court of 
Appeals for the District of Columbia Circuit pursuant to 8 U.S.C. 
1189(b)(1).

Subpart F--Reports


Sec. 597.601  Records and reports.

    For provisions relating to records and reports, see subpart C of 
part 501 of this chapter; provided, however, that all of the powers 
afforded the Director pursuant to the first 3 sentences of Sec. 501.602 
of this chapter may also be exercised by the Attorney General in 
conducting administrative investigations pursuant to 18 U.S.C. 
2339B(e); provided further, that the investigative authority of the 
Director pursuant to Sec. 501.602 of this chapter shall be exercised in 
accordance with 18 U.S.C. 2339B(e); and provided further, that for 
purposes of this part no person other than a U.S. financial institution 
and its directors, officers, employees, and agents shall be required to 
maintain records or to file any reports or furnish any information 
under Secs. 501.601, 501.602, or 501.603 of this chapter.

Subpart G--Penalties


Sec. 597.701  Penalties.

    (a) Attention is directed to 18 U.S.C. 2339B(a)(1), as added by 
Public Law 104-132, 110 Stat. 1250-1253, section 303, which provides 
that whoever, within the United States or subject to the jurisdiction 
of the United States, knowingly provides material support or resources 
to a foreign terrorist organization, or attempts or conspires to do so, 
shall be fined under title 18, United States Code, or imprisoned for 
not more than 10 years, or both.
    (b) Attention is directed to 18 U.S.C. 2339B(b), as added by Public 
Law 104-132, 110 Stat. 1250-1253, section 303, which provides that, 
except as authorized by the Secretary of the Treasury, any financial 
institution that knowingly fails to retain possession of or maintain 
control over funds in which a foreign terrorist organization or its 
agent has an interest, or to report the existence of such funds in 
accordance with these regulations, shall be subject to a civil penalty 
in an amount that is the greater of $50,000 per violation, or twice the 
amount of which the financial institution was required to retain 
possession or control.
    (c) Attention is directed to 18 U.S.C. 1001, which provides that 
whoever, in any matter within the jurisdiction of the executive, 
legislative, or judicial branch of the Government of the United States, 
knowingly and willfully falsifies, conceals or covers up by any trick, 
scheme, or device a material fact, or

[[Page 52500]]

makes any materially false, fictitious or fraudulent statement or 
representation, or makes or uses any false writing or document knowing 
the same to contain any materially false, fictitious or fraudulent 
statement or entry, shall be fined under title 18, United States Code, 
or imprisoned not more than 5 years, or both.
    (d) Conduct covered by this part may also be subject to relevant 
provisions of other applicable laws.


Sec. 597.702  Prepenalty notice.

    (a) When required. If the Director of the Office of Foreign Assets 
Control has reasonable cause to believe that there has occurred a 
violation of any provision of this part or a violation of the 
provisions of any license, ruling, regulation, order, direction or 
instruction issued by or pursuant to the direction or authorization of 
the Secretary of the Treasury pursuant to this part, and the Director, 
acting in coordination with the Attorney General, determines that civil 
penalty proceedings are warranted, the Director shall issue to the 
person concerned a notice of intent to impose a monetary penalty. The 
prepenalty notice shall be issued whether or not another agency has 
taken any action with respect to this matter.
    (b) Contents.--(1) Facts of violation. The prepenalty notice shall 
describe the violation, specify the laws and regulations allegedly 
violated, and state the amount of the proposed monetary penalty.
    (2) Right to respond. The prepenalty notice also shall inform the 
respondent of respondent's right to respond within 30 days of mailing 
of the notice as to why a monetary penalty should not be imposed, or, 
if imposed, why it should be in a lesser amount than proposed.


Sec. 597.703  Response to prepenalty notice.

    (a) Time within which to respond. The respondent shall have 30 days 
from the date of mailing of the prepenalty notice to respond in writing 
to the Director of the Office of Foreign Assets Control.
    (b) Form and contents of written response. The written response 
need not be in any particular form, but shall contain information 
sufficient to indicate that it is in response to the prepenalty notice. 
It should respond to the allegations in the prepenalty notice and set 
forth the reasons why the respondent believes the penalty should not be 
imposed or, if imposed, why it should be in a lesser amount than 
proposed.
    (c) Informal settlement. In addition or as an alternative to a 
written response to a prepenalty notice pursuant to this section, the 
respondent or respondent's representative may contact the Office of 
Foreign Assets Control as advised in the prepenalty notice to propose 
the settlement of allegations contained in the prepenalty notice and 
related matters. In the event of settlement at the prepenalty stage, 
the prepenalty notice will be withdrawn, the respondent is not required 
to take a written position on allegations contained in the prepenalty 
notice, and the Office of Foreign Assets Control will make no final 
determination as to whether a violation occurred. The amount accepted 
in settlement of allegations in a prepenalty notice may vary from the 
civil penalty that might finally be imposed in the event of a formal 
determination of violation. In the event no settlement is reached, the 
30-day period specified in paragraph (a) of this section for written 
response to the prepenalty notice remains in effect unless additional 
time is granted by the Office of Foreign Assets Control.


Sec. 597.704  Penalty notice.

    (a) No violation. If, after considering any written response to the 
prepenalty notice and any relevant facts, the Director of the Office of 
Foreign Assets Control determines that there was no violation by the 
respondent, the Director promptly shall notify the respondent in 
writing of that determination and that no monetary penalty will be 
imposed.
    (b) Violation. (1) If, after considering any written response to 
the prepenalty notice and any relevant facts, the Director of the 
Office of Foreign Assets Control determines that there was a violation 
by the respondent, the Director promptly shall issue a written notice 
of the imposition of the monetary penalty on the respondent. The 
issuance of a written notice of the imposition of a monetary penalty 
shall constitute final agency action.
    (2) The penalty notice shall inform the respondent that payment of 
the assessed penalty must be made within 30 days of the mailing of the 
penalty notice.
    (3) The penalty notice shall inform the respondent of the 
requirement to furnish respondent's taxpayer identification number 
pursuant to 31 U.S.C. 7701 and that the Department intends to use such 
number for the purposes of collecting and reporting on any delinquent 
penalty amount in the event of a failure to pay the penalty imposed.


Sec. 597.705  Administrative collection; referral to United States 
Department of Justice.

    In the event that the respondent does not pay the penalty imposed 
pursuant to this part or make payment arrangements acceptable to the 
Director of the Office of Foreign Assets Control within 30 days of the 
mailing of the written notice of the imposition of the penalty, the 
matter may be referred for administrative collection measures by the 
Department of the Treasury or to the United States Department of 
Justice for appropriate action to recover the penalty in a civil suit 
in a Federal district court.

Subpart H--Procedures


Sec. 597.801  Procedures.

    For license application procedures and procedures relating to 
amendments, modifications, or revocations of licenses; administrative 
decisions; rulemaking; and requests for documents pursuant to the 
Freedom of Information and Privacy Acts (5 U.S.C. 552 and 552a), see 
subpart D of part 501 of this chapter.


Sec. 597.802  Delegation by the Secretary of the Treasury.

    Any action which the Secretary of the Treasury is authorized to 
take pursuant to 8 U.S.C. 1189 or 18 U.S.C. 2339B, as added by Public 
Law 104-132, 110 Stat. 1248-1253, sections 302 and 303, may be taken by 
the Director of the Office of Foreign Assets Control, or by any other 
person to whom the Secretary of the Treasury has delegated authority so 
to act.

Part I--Paperwork Reduction Act


Sec. 597.901  Paperwork Reduction Act notice.

    For approval by the Office of Management and Budget (``OMB'') under 
the Paperwork Reduction Act of information collections relating to 
recordkeeping and reporting requirements, to licensing procedures 
(including those pursuant to statements of licensing policy), and to 
other procedures, see Sec. 501.901 of this chapter. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a valid control number 
assigned by OMB.


[[Page 52501]]


    Dated: September 26, 1997.
Loren L. Dohm,
Acting Director, Office of Foreign Assets Control.
    Approved: September 30, 1997.
James E. Johnson,
Assistant Secretary (Enforcement).
[FR Doc. 97-26787 Filed 10-6-97; 2:22 pm]
BILLING CODE 4810-25-F