Terrorist Attack: New Restrictions on “Terrorists” and Relaxations for Cooperative Countries

In the aftermath of the September 11, 2001 terrorist attack against the United States, President Bush used export and trade controls to punish targeted “terrorists” and reward countries that have cooperated with the new US antiterrorism campaign.

On September 23, 2001, President Bush signed Executive Order 13224 “Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism.” This executive order blocks/freezes the assets of specifically identified “terrorists” and makes it illegal for US persons to deal with or participate in activities involving “terrorists.” The executive order included an annex listing specifically identified terrorists subject to the order. The “terrorists” in the annex are now part of the pre-existing Foreign Terrorist Organization (FTO) list administered by the Office of Foreign Assets Control (OFAC). Since the publication of the executive order, OFAC has made several additions and adjustments to the FTO list. (See Annex 1 at the end of this newsletter for the list published with the executive order.)

In the final analysis, the restrictions imposed by the new executive order are not significantly different from the US restrictions that were in force prior to the executive order, with one exception. The new executive order authorizes OFAC to impose sanctions on organizations who themselves are not terrorists but who assist terrorists. For the purpose of the executive order, assisting terrorists includes providing direct financial, material or technological support as well as merely providing financial services (e.g., banking) or other services to terrorists. OFAC could use this new tool to impose sanctions, for example, against a bank Switzerland in which a “terrorist” has an account or which processes transactions involving “terrorists.” This tool gives the United States leverage to use to pressure other countries to implement antiterrorism trade controls similar to US rules.

(For further details of the new terrorism rules and the latest list of “terrorists,” go to http://www.treas.gov/ofac/.)

While tightening the noose on terrorists, President Bush also announced specific steps to relax export controls on India and Pakistan because they are cooperating with the US antiterrorism campaign. The three areas of relaxation for India and Pakistan are:

1. End the policy of a presumption of denial for transfers of items on the US Munitions List and allow the use of ITAR license exemptions.
2. Remove a number of Indian and Pakistani organizations from the Commerce Department proliferation Entities List and relaxes the licensing policy for organizations that remain on the list.
3. Remove prohibitions against FMS sales, foreign assistance and Ex-Im guarantees.

These changes should have a favorable impact on US exporters as well as India and Pakistan, although the extent of the benefits of these changes is not yet clear. For example, high level officials from both Bharat Electronics and Hindustan Aeronautics, two large Indian companies removed from the list, have said that they have learned to live without US products and US suppliers since being added to the list in 1998 by redesigning products and finding alternative suppliers. Both companies say they do not plan to source US products to replace foreign products they are already using, but may consider US products for new projects.

It is safe to assume that we have not seen the end of the use of US export and trade controls as a tool in the US antiterrorism campaign. Other countries that cooperate with the United States may receive benefits. Administration sources have already hinted that there is some consideration of lifting the ban on transfers of US Munitions List items to Indonesia. I’ll speculate that Syria, depending on its actual cooperation as judged by the Bush Administration, may receive some benefits. And if you don’t tell anybody I said this, then I will say that I would not be surprised to see some slight relaxations for Iran, depending on the extent to which Iran cooperates (Iran is none too fond of the Taliban or Iraq) and the US administration’s judgement of such cooperation.