United States: Transactions With Palestinian Authority Subject to Terrorism Sanctions

On April 12, 2006, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that it had determined that Hamas has a property interest in the transactions of the Palestinian Authority. Because Hamas previously has been designated a terrorist entity whose property and interests are blocked under OFAC sanctions programs, OFAC’s determination means that, unless authorized, U.S. persons are prohibited from engaging in any new transactions and activities with the Palestinian Authority and must conclude any ongoing contracts or programs with the Palestinian Authority by May 12, 2006.

This OFAC determination was issued under the authority of three OFAC sanctions programs aimed at denying financial and material support to terrorists and terrorist organizations: the Global Terrorism Sanctions Regulations, 31 C.F.R. Part 594; the Terrorism Sanctions Regulations, 31 C.F.R. Part 595; and the Foreign Terrorist Organizations Sanctions Regulations, 31 C.F.R. Part 597.

President Clinton designated Hamas as a foreign terrorist organization in 1995 (Executive Order 12947) and Hamas currently is identified on the Specially Designated Nationals (SDN) List as a Foreign Terrorist Organization (FTO), Specially Designated Terrorist (SDT) and Specially Designated Global Terrorist (SDGT). These designations prohibit any transaction or dealing by United States persons or within the United States in property or interests in property of Hamas. The determination that Hamas has a property interest in transactions of the Palestinian Authority makes the Authority subject to these sanctions as well.

All transactions with the Palestinian Authority are prohibited unless authorized by specific license or one of six general licenses also issued on April 12, 2006. These general licenses provides authority to continue to engage in certain transactions and activities with the Palestinian Authority, provided the transaction does not involve a debit to an account of the Palestinian Authority on the books of a U.S. financial institution or any account blocked pursuant to the above antiterrorism sanctions programs.

• General License No. 1 (International Organizations) authorizes: (a) transactions and activities for the conduct of the official business of the United Nations, including the World Bank and International Monetary Fund, and (b) transactions and activities by U.S. persons who are employees of the governments of states bordering the West Bank or Gaza in support of the U.S. persons’ official duties, so long as the transactions or activities occur outside the United States.

• General License No. 2 (Travel) authorizes transactions ordinarily incident to travel to or from, or employment, residence or personal maintenance within, the jurisdiction of the Palestinian Authority, including, but not limited to, receipt of salaries, payment of living expenses and acquisition of goods or services for personal use.

• General License No. 3 (Taxes and Fees) authorizes payment of taxes or fees to, and purchase or receipt of permits or public utility services from, the Palestinian Authority where such transactions are necessary and ordinarily incident to such persons’ day-to-day operations.

• General License No. 4 (Palestinian President) authorizes transactions and activities with entities and individuals under the control of the Palestinian President and certain other entities, including among others, the Palestinian Authority Presidency; the Palestinian Judiciary; members of the Palestinian Legislative Council (PLC) who were not elected to the PLC on the party slate of Hamas or any other FTO, SDT or SDGT; and certain independent agencies. U.S. financial institutions are authorized to reject (i.e., not required to block) transactions with members of the PLC named on a list accompanying General License No. 4. who were elected to the PLC on the party slate of Hamas or any other FTO, SDT or SDGT, provided that any such individuals are not named on OFAC’s list of SDNs and Blocked Persons.

• General License No. 5 (Concluding Activities) authorizes concluding ongoing contracts or programs with the Palestinian Authority by May 12, 2006.

• General License No. 6 (Donations of Medicine) authorizes in-kind donations of medicine for nongovernmental organizations to provide to the Palestinian Authority Ministry of Health, provided that such donations are strictly for distribution in the West Bank or Gaza and not intended for resale.

Additional general licenses or statements of licensing policy may be issued to authorize transactions with the Palestinian Authority or to indicate limited circumstances under which other transactions may be considered for favorable licensing treatment on a case-by-case basis.

It is important to emphasize that the new OFAC prohibitions apply to transactions with the Palestinian Authority. These prohibitions do not generally apply to transactions between U.S. persons and non-governmental persons and entities within the West Bank or Gaza, and do not prohibit transactions with private sector banks within the region.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.