US Could Sanction More Hamas Front Companies, Former OFAC Official Says

The U.S. has little room to expand sanctions against Hamas, but it could look to track down and designate additional front companies the terror group uses to fund its activities, said Jason Prince, former chief counsel at the Office of Foreign Assets Control. Although OFAC has general licenses in place to authorize a broad range of humanitarian-related transactions involving Palestine, Hamas’ designation as a foreign terrorist organization could make some financial institutions less willing to approve those aid-related transactions, Prince said.

The U.S. already has a range of financial prohibitions in place against Hamas, the Gaza-based group that killed more than 1,200 people in a terror attack in Israel earlier this month.

Prince, in an Oct. 16 interview, said “it would be difficult to ramp up additional sanctions pressure” against Hamas, noting that Hamas is already listed as a Specially Designated Global Terrorist and an FTO. But he said OFAC could look to find and designate more front companies Hamas uses for funding. Experts have said Hamas and other terror groups use cryptocurrencies as a way to avoid the U.S. dollar and international sanctions (see 2106170029), and some U.S. lawmakers are pushing for more sanctions enforcement to close those funding loopholes.

The House Foreign Affairs Committee is set to mark up a bill this week that would require the president to report on and sanction foreign people, agencies or governments providing financial or material support to Hamas or its members. It also would require the president to report on whether foreign governments are taking “adequate measures” to freeze Hamas’ assets and “disrupt” its money laundering activities.

Prince, a sanctions lawyer with Crowell & Moring, noted the U.S. has increasingly targeted cryptocurrency platforms and actors in recent years, including those that have helped sanctioned groups launder money. OFAC in May announced a $7.5 million settlement with cryptocurrency trading platform Poloniex for allegedly allowing customers in sanctioned jurisdictions to trade, deposit and withdraw digital assets (see 2305010059), and DOJ in August indicted two co-founders of virtual currency mixer Tornado Cash, which it said facilitated more than $1 billion in money laundering transactions for the Lazarus Group, the sanctioned North Korean cybercrime organization (see 2308230035).

Prince said OFAC could impose new cryptocurrency-related designations “that are Hamas-specific.” But beyond those additional designations, “there's not a significant amount that can be done,” he said.

In addition to the broad Hamas sanctions currently in place, OFAC has a range of general licenses that authorize aid-related transactions with the Palestinian Authority, which includes Hamas representatives. Gaza is experiencing a humanitarian catastrophe in the region due to Israeli retaliatory airstrikes, according to the World Health Organization.

Despite those general licenses, Prince said Hamas’ designation as an FTO can complicate decisions by companies and organizations looking to provide aid to Gaza, partly because the U.S. can criminally prosecute any party that knowingly provides material support or resources to an FTO under the Antiterrorism and Effective Death Penalty Act. And even if OFAC issues a general license or a specific license to authorize an aid-related transaction, Prince said “those licenses aren't able to excuse a U.S. person from the need to comply with that criminal material support or resources statute.”

He said Hamas’ FTO designation has had a “significant de-risking effect” on humanitarian relief efforts and aid-related transactions in Gaza, the West Bank or other areas where Hamas has a “significant presence.” Some banks or organizations “will de-risk and say, because of that criminal statute, we're not going to touch it,” Prince said.

Even so, Prince said the U.S. is unlikely, “absent egregious conduct,” to criminally prosecute a company relying on an OFAC general license for humanitarian aid. “But just the possibility of it makes it complicated when you're dealing with an FTO like Hamas,” he said.

Prince said he regularly sees “hesitancy on the part of financial institutions and other actors to rely on general licenses, even though they’re just about as broad as OFAC can make them.” Aid groups and banks have long urged OFAC for more assurances that they won’t face penalties for humanitarian-related transactions, including through comfort letters (see 2109020064), which are written assurances from OFAC that it won't seek to target a particular transaction. But Prince said the agency would strongly prefer companies to “trust their legal advisers and trust their own ability to review the general license” without “needing to go to OFAC for further assurance.”

“Each time one of those comfort letter requests comes in, it takes some amount of bandwidth away from arguably more pressing matters where it is a closer question,” Prince said. “And in the humanitarian space, the vast majority of the time the answer is going to be: ‘Yes, the general license covers it,’ because those general licenses are so broad.

“But there is still lingering concern.”