A recent US congressional hearing on the effectiveness of financially sanctioning criminal organizations illustrated some of the flaws in the practice and also provided suggestions for how to improve it.
On November 8, the US House of Representatives held a hearing on the effectiveness of a 1999 law known as the Kingpin Act, which is used to sanction individuals suspected of involvement in the drug trade.
Once the Treasury Department's Office of Foreign Assets Control (OFAC) has added an entity to the so-called "Kingpin List," it becomes illegal under US law for anyone to conduct business with that entity. The designation also freezes any US assets of the listed entity.
According to prepared testimony by Donald Semesky Jr., the former head of the Office of Financial Operations at the Drug Enforcement Administration (DEA), the law has been "tremendously effective" in protecting the United States from the "scourge" of illegal drugs.
However, other witnesses at the hearing critiqued certain aspects of how the law has been implemented.
Eric Olson, the deputy director of the Wilson Center's Latin American Program, said in prepared remarks that the use of the Kingpin List "is powerful and legitimate," but "it carries with it the risk of collateral damage that can potentially undermine legitimate sectors of the financial system and ultimately the economy."
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Olson supported his conclusions by raising the case of the powerful Rosenthal family and their money laundering network in Honduras, which the Treasury Department sanctioned in 2015.
Citing InSight Crime's coverage of the case, Olson pointed out that the Kingpin List designation had "struck a powerful blow" against the family's criminal network, but also that it had generated uncertainty among the clients and employees of the family's businesses.
Another concern that has been raised with regard to the Kingpin List is the lack of due process for the entities that are sanctioned on it. Semesky, the former DEA official, said that the process for adding entities to the list is thorough, but he admitted that mistakes have been made in the past.
For example, earlier this year the United States was forced to drop more than 20 Latin American entities from the list after they successfully argued that they had been wrongfully sanctioned.
Additionally, former US federal prosecutor David Hall pointed out in his prepared testimony that it can sometimes be difficult for individuals and businesses to determine whether or not they are dealing with a blocked entity.
According to Hall, most small US businesses do not have the resources to "uncover the ownership structures of their customers and business partners." He argued that placing the burden on these businesses is "not fair or practical."
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Rep. Dan Donovan (R-NY) asked perhaps the most pointed question during the hearing: "How successful do you think we're being in identifying assets and in cases seizing them, with the people on the list?"
"Overall, not very successful," Semesky responded.
One reason for this, panelists suggested, is that enforcing US sanctions often requires collaboration with other countries whose insitutions may not be up to the task.
"It limits what we can do from a law enforcement point of view and an effectiveness point of view," Olson said. "If partner countries aren't strong, capable, honest and transparent, it really weakens and undermines our own ability to go after the assets of say, the FARC, and other criminal organizations."
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Several panelists also agreed that the use of the Kingpin List would benefit from improved evaluation of its effectiveness, a point that has also been raised with regard to other US-administered anti-crime programs in Latin America.
Noting that there has never been a comprehensive review of the pros and cons of Kingpin List sanctions, Olson suggested that one be commissioned.
"It's now been nearly 17 years since it was first implemented and it is time to do a cost-benefit analysis, and to find out if the act is as effective as anecdotes might suggest it is," he said.
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