For years, charities put on U.S. terrorist watch lists by the Department of Treasury (Treasury) have had problems defending themselves, in part because, except in limited circumstances, it was illegal for lawyers to represent them without first getting a license from Treasury. That could be a slow and difficult process. But on Dec. 7, 2010 Treasury took a significant step toward solving this problem by issuing new regulations that permit free legal services and make it easier to arrange payment for lawyers. The move follows an ACLU lawsuit involving the old regulations.
The new rule makes changes to three regulations to create a common standards for legal representation of groups or people listed under EO 12947 (1995, listing designations for those engaged in violence that threatens the Middle East peace process), EO 13224 (2001, which lists Specially Designated Global Terrorists) and Foreign Terrorist Organizations listed by the Secretary of State. It is in Volume 75 Page 75904 of the Federal Register.
Under the new rules, when a charity, person or other group is listed, U.S. lawyers will be able to provide legal representation without charge in “any legal, arbitration or administrative proceeding brought before an U.S. federal, state or local court or agency” without getting a license from Treasury.
For listed groups to pay costs of legal representation, no license is necessary if the representation relates to specific types of cases and one of two payment methods spelled out in the regulations is used. The types of cases that can take advantage of this rule are as follows:
Legal advice and counseling on the requirements of and compliance with U.S. law as long as it does not facilitate transactions in violation of the blocking order;
Representation of persons named as defendants or parties to domestic U.S. legal proceedings, including arbitration or administrative proceedings;
Domestic U.S. legal proceedings to defend interests in property subject to U.S. jurisdiction;
Representation before any federal or state agency regarding enforcement of U.S. sanctions against the client;
Representation of persons detained within the jurisdiction of the United States, regardless of location, regarding any charges made against them, including, detention, military commission prosecutions and federal court proceedings; and
Any other legal services where U.S. law requires access to legal counsel at public expense. (31 CFR 594.506)
If the legal issue does not fall into these categories, a specific license is still required for payment of attorneys. The two approved payment methods are:
Payment from the client’s sources outside the U.S
Payment from a legal defense fund at a U.S. financial institution that is subject to reporting requirements.
The rules allow representation by a “a U.S. person that is an attorney, law from or legal services organization…” when the funds originate outside the U.S., provided that the attorney provide Treasury’s Office of Foreign Assets Control (OFAC) with a letter of engagement or intent to engage that specifies the services to be performed, signed by the client. All funds must come from the client’s sources outside the U.S.
The attorneys working under this regulation must submit quarterly reports to OFAC that identify the sources of the funds, the amounts given, the names of consultants such as expert witnesses or investigators, and a general description of the services provided.
The regulations allow attorneys to create legal defense funds in a U.S. financial institution. Before payment can be made the following information must be submitted to OFAC:
- A copy of the engagement letter (or intent to engage) specifying the services to be provided and signed by the client
The name of the individual or entity setting up the fund
The name of the financial institution where the fund is located and a contact person there
The account name and number.
U.S. donors may give to the funds, but no listed persons or groups may contribute to it. The fund must notify the financial institution that it can only be used to pay for services relating to legal representation.
Report to OFAC must be filed quarterly, listing the following.
- Donors and amounts
- Details of payments made
A general description of the services provided.
Any funds left over at the end of the case or legal representation become the property of the listed group and are blocked unless a license authorizing their release is issued.
The barriers to legal representation created by Treasury’s previous rule resulted in long delays in challenges to designation of U.S. charities. In the case of KindHearts, an Ohio charity shut down in 2006 “pending investigation,” a federal judge called Treasury’s application of its policy “arbitrary and capricious,” and therefore unconstitutional.
Treasury seems to have been moved to act by the ACLU, which sought a specific license from OFAC prior to filing a pro bono lawsuit on behalf of an individual who appeared on the OFAC terrorist list. Although the ACLU was providing pro bono services and was not going to be reimbursed for its expenses, it sought a specific license because the legal matter did not fall into one of the six categories above. In addition to seeking a license, ACLU filed a lawsuit against Treasury Secretary Geithner challenging the constitutionality of the specific license requirement in the context of pro bono legal services.