Ripe for Reform: The Opaque World of Specific Licenses to Do Business Under Sanctions

In a pair of letters sent earlier this month, lawmakers asked Treasury Secretary Janet Yellen to cancel a license the department granted to Israeli businessman Dan Gertler in the eleventh hour of the Trump administration. Gertler and a group of companies affiliated with him had been subject to financial sanctions based on suspected corruption and human rights abuses. The license allowed Gertler to restart business dealings with U.S. companies. It was granted quietly and through a seemingly irregular process, after a lobbying effort by a team that included Allen Dershowitz, who served as one of President Donald Trump’s lawyers in his first impeachment trial.

The circumstances surrounding the grant of this license are certainly troubling. But they are not unique. The process for granting licenses under sanctions programs is opaque and the information shared with Congress and the public on licenses is meagre. Moreover, on more than one occasion, licenses—which can be extremely valuable in dollar terms—appear to have been granted based on applicants’ political connections. As the Gertler license and other examples show, the sanctions license process is ripe for reforms that render it more transparent and less prone to undue influence.

Sanctions Licenses: The Basics

A few words about what licenses are. The Treasury Department’s Office of Foreign Assets Control (OFAC), which administers sanctions programs, can issue licenses that permit transactions that sanctions programs would otherwise prohibit. These exceptions allow the government flexibility in tailoring sanctions, presumably to better achieve whatever end the particular sanctions program is meant to promote. Say, for instance, the United States imposes sanctions on the Venezuelan government as punishment for violating human rights, but wants to make sure that the sanctions don’t interfere with the ability of ordinary Venezuelans to communicate. It might issue a license permitting transactions relating to communications equipment.

There are two types of licenses. The first, general licenses, are announced publicly, placed on the OFAC website, and are self-executing, i.e., they are available to any person or entity that falls within the license’s parameters and that is willing to abide by its terms. An example of a general license is the Venezuelan communications license just mentioned.

The second type of license that OFAC can issue is a specific license. Specific licenses have to be applied for, and permit transactions only by the recipient of that license. Anyone can apply for a license to engage in transactions otherwise prohibited by sanctions, but whether a license is granted, and what the exact parameters of the license are, are entirely within the discretion of OFAC. If persons or companies are denied a specific license, they can re-apply with new information, but there is no appeal process either within or outside of OFAC.

Lack of Transparency for Specific Licenses

When OFAC grants specific licenses, it does not make them public. If someone has an interest in learning what specific licenses OFAC has granted, that person has to file a Freedom of Information Act (FOIA) request, a notoriously slow-moving process. Even a successful FOIA request, however, will be less than fully illuminating. OFAC considers much of the information provided in applications for specific licenses, and in the specific licenses themselves, to fall under the FOIA “trade secrets” exception, and so redacts this information. Even for information that OFAC doesn’t consider covered by that exception, it nonetheless gives recipients of specific licenses the opportunity to challenge disclosure of the information administratively and in court before the information is shared. This lack of transparency and high barrier to information means there is very little public scrutiny of the issuance of specific licenses.

Congress’ window into specific licenses granted by OFAC is barely any better, even though lawmakers are meant to conduct oversight. Under some sanctions authorities, the Treasury Department will send Congress a brief report every six months that will mention the total number of licensing actions OFAC took during the reporting period. For instance, in a June 2020 report (obtained through a FOIA request) under just one of dozens of sanctions programs now operating, the entirety of the information concerning specific licenses is that OFAC

closed 12 licensing cases (which may take the form of specific licenses, license amendments, “return-without-action” letters, general information letters, interpretive guidance letters, denial letters, closed without determination letters, or withdrawals)…

At the same time, obtaining a specific license can be extremely valuable for the recipient. It lets a person or company engage in business dealings that it otherwise could not, perhaps in an economic sector where other competitors are suppressed by the very same sanctions. In theory, whether OFAC grants a specific license should be an evenhanded affair that evaluates all applicants along the same metrics, such as whether granting the license promotes U.S. interests. In practice, however, such decisions can at least appear to be influenced by money and connections—a problem exacerbated by the lack of transparency in the license-granting process.

Sometimes, It’s Who You Know

Being politically connected appears helpful. For example, in addition to Dershowitz, Gertler had on his lobbying team former FBI Director Louis Freeh. Gertler had been sanctioned since 2017, when he was among the first to be targeted under the Global Magnitsky Human Rights Accountability Act, whose sanctions are used to address international corruption and human rights abuses. At the time of his designation, the Treasury Department said that Gertler, a billionaire involved in the mining business in the Democratic Republic of the Congo, had used his friendship with then-DRC President Joseph Kabila to engage in “opaque and corrupt mining and oil deals” that deprived the DRC of over a billion dollars in revenue. A few months later, a group of companies that Gertler was involved with were also sanctioned, for facilitating “the looting of natural resources and the humanitarian consequences that follow.”

The license, granted on Jan. 15, permitted Gertler and the companies to resume transactions through January 2022. According to The Sentry, a non-profit that tracks corruption and atrocity crimes in Africa, the license was issued “extraordinarily quickly” and “appears to have been granted without the involvement or consultation of many of the career officers who would normally review and approve such a license.”

A second recently granted license has also raised questions. This one occurred in the context of the broad sanctions on Syria that, among other things, prohibit U.S. companies from trading in that country’s oil. In September 2019, a newly formed company named Delta Crescent Energy applied for a specific license to be allowed to trade in oil in the area of northeast Syria controlled by the U.S.-backed Syrian Democratic Forces. Two of the three founders of Delta Crescent Energy are Republican donors who have donated to (among others) Trump and Republican Senator Lindsey Graham.

Delta Crescent’s prospects for such a license might have seemed grim when, the next month, Trump abruptly announced he was pulling all U.S. forces from Syria. However, reportedly after extensive conversations with Graham, Trump changed his mind, keeping a reduced force in the region to protect oil fields. As Trump would soon put it: “We’re keeping the oil.”

In April 2020, OFAC granted Delta Crescent Energy a license, which the Government Accountability Project subsequently obtained in typical heavily redacted form through FOIA litigation. In August 2020, a few months after receiving the license, the company secured a deal with the Kurdish authorities that control northeast Syria to refine and export crude oil. Trump administration officials, including Secretary of State Mike Pompeo, appear to have aided in brokering the deal between Delta Crescent Energy and the Syrian Democratic Forces. Delta Crescent Energy is the only company thus far known to have a license to trade in Syrian oil, although others have reportedly applied.

Importantly, indications that politically connected applicants might have a leg-up in obtaining licenses predate the Trump administration. In 2010, the New York Times, after three years of FOIA requests and litigation, managed to obtain access to a substantial tranche of redacted specific license information. The Times found numerous instances of licenses granted after contact by politicians, including one in which a license was set to be denied but the decision was reversed after a senator, who had received a donation from the applicant, contacted OFAC.

Sunlight and Oversight

It may be that in each of these instances, the decision to grant a license was based on the best interests of U.S. foreign policy, and had no relation to the political connections of the interlocutors weighing in on the applicants’ behalf. But the lack of transparency in how specific licenses are granted does not encourage such faith.

Fortunately, there are steps that can be taken to address potential misuses of the licensing process, some of which can be implemented relatively swiftly. First, specific licenses state explicitly that they may be “revoked or modified at any time.” The Biden administration should review specific licenses that indicate anomalies in process or the presence of undue political pressure, to ensure that they truly further U.S. interests. It should also, of course, state clearly a policy that the only relevant factor in considering license applications is the interests of the United States. Second, the Biden administration should adopt rules and regulations ensuring that licenses, application materials for granted licenses, and any other content in license files are routinely provided to relevant congressional committees to improve oversight. And third, in order to ensure these enhancements are not purely discretionary, Congress should pass legislation mandating additional transparency over the specific license process for both itself and—within reasonable bounds necessary to respect genuine interests in confidentiality—the general public.

Knowing that licenses will be subject to meaningful scrutiny might be all the deterrence needed to prevent the more egregious instances of abuse. At the same time, increased transparency in the licensing process will help quell, to some extent, concerns that sanctions powers are overused and unaccountable. Licenses should not be granted as political favors, but rather based on sound policy.

Image: An exterior view of the building of US Department of the Treasury is seen on March 27, 2020 in Washington, DC. Photo by OLIVIER DOULIERY/AFP via Getty Images

 

About the Author(s)

Andrew Boyle

Counsel in the Liberty and National Security Program at the Brennan Center for Justice; previously prosecuted senior Khmer Rouge leaders on behalf of the United Nations for war crimes, crimes against humanity, and genocide - Follow him on Twitter (@J_Andrew_Boyle).