Let’s Talk About Kingpin Act: What Is It? Why Is Important for Your Company?

The Kingpin Act is a vital piece of legislation that plays a critical role in the global financial system, particularly for businesses operating within the Western financial framework. Compliance with this act is essential for protecting your company from severe financial penalties and potential restrictions on your business operations. 

In this article, we’ll explore what the Kingpin Act is, how its sanctions work, and why it’s crucial for your company to stay compliant. Understanding the implications of this legislation can help safeguard your business and ensure smooth operations in an increasingly regulated world.

Kingpin Act: what is it?

The Foreign Narcotics Kingpin Designation Act, commonly known as the Kingpin Act, is a critical piece of legislation enacted by the U.S. government in 1999 to combat international drug trafficking. 

Its roots go back to the 1980s and 1990s when powerful drug cartels, such as the infamous Cali cartel in Colombia, were at the height of their influence. In 1995, President Bill Clinton issued Executive Order 12978, targeting members of these cartels and laying the groundwork for what would eventually become the Kingpin Act.

The Kingpin Act’s primary objective is to disrupt and dismantle global drug trafficking networks by imposing stringent economic sanctions on narcotics traffickers and their related organizations. 

Under this legislation, the President of the United States has the authority to designate individuals and entities as Significant Foreign Narcotics Traffickers, effectively cutting them off from the U.S. financial system and placing them under severe economic restrictions. This act serves as a powerful tool in the U.S. government’s ongoing efforts to combat the global drug trade and its associated criminal activities.

Kingpin Act sanctions: how to understand them

Now that we know what the Kingpin Act is, let’s dive into how it enforces sanctions. The process works like this:

➡️​ Designation by the U.S. President: The President of the United States designates specific individuals or entities as Significant Foreign Narcotics Traffickers.

➡️​ Enforcement by OFAC: The U.S. Treasury’s Office of Foreign Assets Control (OFAC) is responsible for enforcing the sanctions associated with these designations.

➡️​ Asset Freezes: Once designated, the assets of these individuals or entities within U.S. jurisdiction are likely to be frozen.

➡️​ Prohibitions on Financial Dealings: U.S. entities are prohibited from engaging in financial transactions with anyone on the list.

OFAC plays a crucial role in this process by adding the designated individuals and entities to its Specially Designated Nationals and Blocked Persons List (SDN List). This means that any person or company on this list is essentially cut off from the U.S. financial system, making it illegal for U.S. companies and citizens to conduct business with them.

When your organization conducts sanctions screening on customers and business partners, it’s vital to screen against the SDN List to ensure compliance with the Kingpin Act. Ignoring this step could result in severe penalties and restrictions on your business activities.

In addition to the Kingpin Act, it’s essential to consider other global frameworks like those set by the Financial Action Task Force (FATF). FATF is an intergovernmental organization that sets international standards to combat money laundering, terrorist financing, and other related threats to the integrity of the global financial system. 

Complying with FATF recommendations, alongside the Kingpin Act, helps ensure that your organization not only meets U.S. requirements but also aligns with global best practices in sanctions compliance.

Why does your company need to comply with the Kingpin Act?

While the Kingpin Act is a U.S.-based law, its impact reaches far beyond American borders, affecting businesses and organizations worldwide. Any company looking to operate smoothly within the Western financial system, especially those that rely on U.S. dollar transactions, must adhere to the requirements of this legislation.

So, how does this global reach manifest?

Since 2017, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) has expanded its jurisdictional scope, targeting non-U.S. entities that engage in transactions even if they don’t have direct ties to the U.S., aside from using U.S. dollars. 

This means that companies outside the U.S. can still face significant penalties and restrictions if they violate the Kingpin Act. A notable example is the case of CSE Global, a Singapore-based company, which faced substantial fines due to non-compliance, despite being located outside the U.S.

For most businesses, access to U.S. dollar transactions is essential. The U.S. dollar remains the dominant currency in international trade and finance, and losing access to it can cripple a company’s ability to operate globally. 

Therefore, complying with the Kingpin Act by performing diligent checks, such as screening against the Specially Designated Nationals (SDN) List to identify Significant Foreign Narcotics Traffickers, is not just a legal requirement, it’s crucial for maintaining access to the U.S. financial system.
This compliance is not limited to U.S.-based or U.S.-focused businesses.

European companies, for instance, must also ensure they adhere to the Kingpin Act, especially if they conduct transactions in U.S. dollars or have any dealings with U.S. entities. Failure to do so can lead to severe consequences, including hefty fines and restrictions that could severely impact business operations.