As part of the 18th anniversary of the September 11 attacks earlier this month, the Trump Administration effectively declared the old adage that “one person’s terrorist is another person’s freedom fighter” does not apply with respect to U.S.-sanctioned terrorists and their supporters.

On September 9, 2019, the President issued Executive Order 13886, expanding the global terrorism Executive Order 13224 issued shortly after the September 11 attacks in a variety of ways, including, for the first time, authorizing secondary, “correspondent account” sanctions against any “foreign” (non‑U.S.) financial institution that knowingly conducts or facilitates any future “significant transaction” on behalf of any person blocked pursuant to the past and current terrorism-related Executive Orders. The Treasury Department followed up the President’s action last week by sanctioning the Central Bank of Iran as a supporter of terrorism – adding yet another basis for secondary sanctions for those who transact with that entity. As sanctions watchers are aware, “secondary” sanctions are those sanctions – which foreign governments call “extraterritorial” – that the U.S. Government threatens to impose on non-U.S. persons for activity conducted entirely outside the United States (as opposed to “primary” sanctions, where the U.S. Government establishes and enforces the sanctions rules that apply to U.S. persons or to transactions with a “U.S. nexus,” such as involvement of the U.S. financial system or economy).

This marks the U.S. Government’s fifth secondary sanctions program (Iran, Hezbollah, Russia, North Korea, and terrorism), with all five imposed or strengthened during the Trump Administration. The Iran secondary sanctions program – the granddaddy of them all – officially began the wave upon passage of the Comprehensive Iran Sanctions, Accountability, and Divestment Act (“CISADA”) of 2010. Congress followed CISADA with mandatory secondary sanctions against Hezbollah in 2015 and again in 2018 and mandatory secondary sanctions against Russia in 2017.

Previous Administrations had chafed under Congressional imposition of such secondary sanctions – particularly where the sanctions were drafted as “mandatory” upon fulfillment of certain conditions – with officials complaining that such sanctions undercut diplomacy by threatening allies unless they complied with U.S. foreign policy decisions. The Trump Administration itself bristled at the Countering America’s Adversaries Through Sanctions Act (“CAATSA”) of 2017 that imposed mandatory secondary sanctions against Russia, with the President noting in a signing statement that the Act “encroaches on the executive branch’s authority to negotiate” and “limit[s] the Executive’s flexibility.”

At the same time, President Trump has demonstrated that he is not afraid to wield a big stick against allies and non-allies alike when it comes to advancing his national security and foreign policy objectives – such as withdrawing from the Iran deal and “snapping back” the secondary sanctions that had been suspended under that deal – which means that the secondary sanctions tool/threat might be a perfect fit for this Administration.

Before authorizing the terrorism secondary sanctions earlier this month, President Trump already had imposed secondary sanctions against North Korea in Executive Order 13810 in 2017 (back when the President considered the North Korean leader to be “Little Rocket Man” and “a madman,” rather than “his friend” of today). And the Trump Administration may not be done with the secondary sanctions tool. Before being ousted as National Security Advisor, Ambassador John Bolton threatened secondary sanctions on foreign financial institutions supporting the Government of Venezuela.

Unlike the mandatory Congressional sanctions mentioned above – which require the Administration to impose secondary sanctions if certain conditions are satisfied – the secondary sanctions imposed by the global terrorism and North Korea Executive Orders “authorize” the Administration to do so, pursuant to specified criteria.

For foreign financial institutions, however, the discretionary nature of the terrorism and North Korea sanctions may provide little comfort. It is true that the odds may be exceedingly small that the Treasury Department’s Office of Foreign Assets Control (“OFAC”) will impose secondary sanctions against a legitimate foreign bank, given that it has only imposed them twice before – against China’s Bank of Kunlun and Iraq’s Elaf Islamic Bank, the latter of which subsequently succeeded in satisfying OFAC’s conditions for removal of the penalty. Yet, the penalty is potentially so severe for a bank – loss of its correspondent account access and its ability to interact with the U.S. financial system – that few banks dare to consider taking any risks in this area.

For anyone tempted to play the odds, recall for a moment the fate of foreign banks that received a similar penalty from OFAC’s sister agency, the Financial Crimes Enforcement Network (“FinCEN”), for anti-money laundering concerns. After FinCEN named Latvia’s ABLV Bank an institution of primary money laundering concern in February 2018 and proposed U.S. correspondent account restrictions, the European Central Bank declared the bank as “failing or likely to fail” and the bank went into voluntary liquidation. Similar fates befell a number of banks targeted by FinCEN in recent years.

It is not just foreign banks that have cause for concern. “Foreign financial institutions should be on notice that the U.S. Government will fully utilize this new authority if they are found to be, in any way, facilitating the malign activities of U.S. designated terrorist groups, their members, and their supporters,” Treasury Under Secretary Sigal Mandelker said in a statement. “And when I say foreign financial institutions, that doesn’t just include banks, it also includes money services businesses, cryptocurrency exchangers and administrators, and a litany of others.”

Given that most global banks utilize the OFAC sanctions list already as a basic part of their compliance programs, the impact of the new secondary sanctions threat may be limited. Yet, the new sanctions could be challenging for certain financial institutions – such as those located in countries where actors labeled by the U.S. Government as terrorists may have stronger backing within some communities or even within the governments themselves – and for their correspondent banks in other jurisdictions.

The new sanctions also will require fast action by foreign financial institutions in countries all over the globe to determine how to respond to the continuing tranches of new terrorism sanctions as they are issued. For example, in a round of sanctions accompanying the new Executive Order, OFAC targeted a broad range of individuals and entities based or operating in Brazil, Iraq, Lebanon, the Maldives, the Palestinian territories of Gaza and the West Bank, the Philippines, Syria, and Turkey. Financial institutions in those jurisdictions, and others, should remain wary of the long arm, and the observant eye, of OFAC.