International Law Advisory - Treasury Acts to Restrict Dealings with Palestinian Authority

Further to our advisory of March 31, 2006, on Wednesday, April 12 the Department of Treasury, Office of Foreign Assets Control (“OFAC”) issued regulations restricting dealings by U.S. persons with the Palestinian Authority, which has been under the control of the Hamas political party since March 30.  OFAC has determined that Hamas, which has previously been identified by OFAC as a terrorist entity and listed as a “Specially-Designated National” (“SDN”) under the OFAC-administered anti-terrorism sanctions (in particular, 31 C.F.R. Parts 594, 595, and 597), possesses a “property interest” in dealings of the Palestinian Authority.  Accordingly, except as authorized by OFAC (either through specific or general licenses), U.S. persons may not engage in dealings directly with the Palestinian Authority, or transfer, pay, withdraw, export or otherwise deal in any assets in which the Palestinian Authority has an interest.

OFAC has, however, also issued six general licenses which authorize a range of activities with the Palestinian Authority, including particular persons and entities operating under the auspices of the Palestinian Authority President that are not affiliated with Hamas.  The general licenses are summarized briefly as follows:

• General License No. 1:  authorizes all transactions with the Palestinian Authority for the conduct of official United Nations business, and by US persons who are employees of a government neighboring the West Bank/Gaza.
• General License No. 2:  authorizes US persons living or working in the Palestinian Territories to engage in transactions ordinarily related to the payment of living expenses, or ordinarily incident to travel from, or employment or residence in the Palestinian Territories.
• General License No. 3:  authorizes all US persons to pay taxes or fees to the Palestinian Authority where such taxes are necessary and incident to such persons' daily operations.
• General License No. 4: authorizes all transactions otherwise prohibited with the Palestinian Authority Presidency, Judiciary, members of the Palestinian Legislative Council that are not members of Hamas or other SDNs, and several independent agencies operating under the auspices of the Palestinian Authority.
• General License No. 5: authorizes any dealings with the Palestinian Authority through May 12, 2006 that are necessary to conclude ongoing contracts or programs.
• General License No. 6: authorizes in-kind donations of medicine to the Palestinian Authority Ministry of Health, provided that the medicine donated is not intended for resale and is used exclusively in the West Bank and Gaza.

Payments pursuant to these license exceptions generally cannot be made to a Palestinian Authority bank account on the books of a U.S. financial institution, or to any account that is blocked under OFAC’s anti-terrorism sanctions regulations. The full text of the above-referenced general licenses are available on the OFAC website.

We are currently in discussion with OFAC staff regarding the scope and effect of the restrictions and licenses discussed above, and will issue a further advisory should we have any additional developments to report.  In the meantime, if you would like to discuss these issues, or any related topic, please feel free to contact Ed Krauland at 202.429.8083.