Treasury Should Keep Better Track of Blocked Foreign Assets

The Department of the Treasury, through the Office of Foreign Assets Control (OFAC), regulates commercial and financial transactions with countries hostile to the United States by (1) restricting trade with such countries and their nationals, and (2) blocking their assets which are located in the United States or under U.S. jurisdiction. The restrictions seek to prevent designated hostile countries from acquiring dollar foreign exchange and to deny them the free use of their assets until political differences are resolved and American claims are satisfied. The controls which currently freeze certain foreign assets are based on emergency powers legislation. Treasury officials cite this emergency rationale, a Government policy of noninterference in owner investment discretion, and administrative cost considerations as reasons for not keeping close track of the assets or monitoring asset-holder practices. Under these circumstances, the Treasury cannot ensure that its controls are effective or that the interests of American claimants and the U.S. Government are being adequately protected. Major concerns are whether: (1) the system for implementing blocking controls and the Treasury's monitoring of the controls are adequate to ensure that designated hostile countries are denied the use of their dollar assets and earnings to the maximum practicable extent; (2) blocked assets are properly accounted for and their value preserved; and (3) a reliable basis exists on which to make policy and management decisions regarding the assets and related U.S. interests.

Treasury administrators have not required asset-holders to systematically report the assets they block or receive custody of, nor have they regularly inventoried the assets or monitored the holders to determine how the assets are identified and kept. As a result, the administrators frequently did not know what assets were blocked, who owned them, where they were located, or what they were worth. This lack of asset knowledge and virtually complete dependence on asset-holders made the Treasury unable to fully assess the program's effectiveness, give information on the assets' worth, and provide assurances that they were properly accounted for and managed. Blocked assets are presently turned over to State abandoned property offices as they receive custodial authority, but such transfers unnecessarily jeopardize owner and Treasury interests in the assets. Asset-holders who were contacted by GAO did not appear to possess a clear understanding of Treasury regulations. In addition, the Treasury has shown belated concern in maintaining asset values. U.S. Government claims, which are largely undetermined, do not compete with private claims for compensation generated from settlements negotiated and funded by blocked assets; this weakens the prospects for recovery of Government claims.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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