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Myths and Truths of U.S. Sanctions' Lists: De-listing is Possible

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OFAC Lists: SDN, SDNT and GLOMAG

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OFAC publishes and continually updates a series of lists, including a list of Specially Designated Nationals and Blocked Persons (“SDN List”), as well as a list of Specially Designated Narcotics Traffickers (“SDNT List”). All U.S. citizens, permanent residents, businesses and financial institutions (“U.S. Persons”) are prohibited from doing business with any person or entity on the SDN or the SDNT Lists. Additionally, non-U.S. persons who engage in transactions with an individual or entity on the SDN or SDNT Lists risk also being added to the same lists.

Under the 2016 Global Magnitsky Human Rights Accountability Act (“GLOMAG”), and the 2017 Executive Order (E.O.) 13818, additional sanctions may be imposed by the President or the Secretary of the Treasury to foreign persons and entities in connection to corruption or human rights violations in any foreign country.

Persons and entities sanctioned pursuant to GLOMAG are incorporated into OFAC’s SDN List and identified through a GLOMAG designation to highlight the basis of the sanction.

The SDN and SDNT Lists are published in the Federal Register, the Code of Federal Regulations, and on OFAC’s website .

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Broad Criteria for Sanctioning

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SDN, SDNT AND GLOMAG As an arm of the Executive Branch, OFAC is authorized to sanction the listed

individuals and entities pursuant to Presidential Executive Orders, and laws enacted by Congress, including the International Emergency Economic Powers Act, the National Emergencies Act, and GLOMAG. Public policy and global politics are factors that must be considered when assessing the basis for OFAC’s imposition of sanctions.

Under this authority, OFAC can sanction individuals or entities believed to be involved in terrorism, proliferation of weapons of mass destruction, narcotics trafficking, or other identified threats to the national security, foreign policy, or economy of the U.S.

Pursuant to GLOMAG and the 2017 E.O. 13818, OFAC may now also sanction foreign persons and entities believed to be involved in serious human rights abuse or corruption in a foreign country, as well as those who assist or provide material support, including goods and services, to the designated persons or the targeted activities.

U.S. persons are prohibited from engaging in any transaction with a person listed pursuant to GLOMAG, as well as entities owned 50 % or more by a listed person.

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Legal Options for Listed Individuals and Entities…

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ADMINISTRATIVE REMEDIES Anyone designated by OFAC and placed on the SDN or SDNT Lists has the right to seek removal

under a process referred to as “De-Listing”.

The OFAC SDN or SDNT De-Listing process is an administrative matter, and is neither civil nor criminal. To be removed, listed individuals and/or entities can file a written request for reconsideration (or a “De-listing Petition”) with OFAC to request their De-Listing from the SDN or SDNT Lists.

After submission of the request, OFAC may request clarifying, corroborating, or other additional information before rendering a written decision. In turn, the listed individual or entity can also submit a Freedom of Information Act (“FOIA”) request to OFAC to review evidence supporting the designation.

If the request for De-Listing is granted, the individual’s name, along with related identifying information, is removed from the active SDN or SDNT Lists.

The standard of proof for OFAC to list (and continue to list) an individual or entity is “Reasonable Cause to Believe.” OFAC is not required to have sufficient evidence to be convinced “beyond a reasonable doubt” that a certain person or entity should be sanctioned.

A similar process is employed when seeking De-listing for sanctions imposed pursuant to GLOMAG.

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…Legal Options for Listed Individuals and Entities…

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FOR SDN, SDNT OR GLOMAG DE-LISTING Consider the Target’s Connections Investigate business and personal relationships of all listed parties. Follow the Money Trail OFAC’s concerns are always financial in nature. Focus on Remediation Emphasize changes made since the time of designation. Submit a Petition for De-Listing Set forth the grounds for removal. Meet with OFAC and Law Enforcement Officials Explain why De-listing is justified and appropriate.

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…Legal Options for Listed Individuals and Entities…

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JUDICIAL REMEDIES If the Government denies the request for De-Listing, administrative remedies are deemed

exhausted.

A listed individual or entity can subsequently seek relief through the APA by filing a court action with a U.S. District Court to petition the De-Listing from the SDN or SDNT Lists.

For instance, listed individuals may allege that OFAC violated their right to be free from unreasonable seizures for freezing U.S.-based assets without first obtaining a warrant. See Al Haramain Islamic Found, Inc. v. U.S. Dept. of Treasury, 686 F.3d 965 (9th Cir. 2012).

Similarly, although OFAC can rely on classified information to make a designation decision, OFAC violates a listed person’s due process rights if: (1) it fails to provide adequate notice and a meaningful opportunity to respond, or (2) it fails to limit the effect of its reliance on classified information. Id. Therefore, if OFAC does not prepare and disclose an unclassified summary of the basis for the sanctions, it fails to satisfy the due process standard. Id.

Notably, OFAC does not violate a listed person’s due process rights if the listed person “knew the basis”

…Legal Options for Listed Individuals and Entities

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A CASE TO WATCH In ExxonMobile et al. v. OFAC et al, a widely publicized case pending decision in the U.S. District Court for the Northern District of Texas, a U.S. Person is seeking relief from a civil penalty imposed by OFAC for violating the Ukraine\ Russia-related Sanctions. OFAC penalized ExxonMobile (Exxon) because it executed one agreement and seven “completion deeds” with an individual that had been designated in the SDN List pursuant to E.O. 13661, the president of the Russian government-owned Rosneft OAO (Rosneft), Igor Sechin. On July 20, 2017, Exxon filed its legal action seeking relief from OFAC’s penalty. Exxon alleges that Mr. Sechin signed the relevant documents acting as president of Rosneft, and not on his personal behalf. Exxon also alleges that E.O. 13661 did not prohibit U.S. Persons from engaging in business with the companies managed by individuals designated in the SDN List or at least that’s not what the White House and the Department of the Treasury’s public statements defined upon release of E.O. 13661. Therefore, Exxon alleges that OFAC failed to provide notice of the specific transactions that would be deemed unlawful until after the allegedly unlawful conduct occurred. Thus, Exxon claims OFAC violated Exxon’s due process rights. OFAC has contested Exxon’s allegations noting that the plain language of the Ukraine-Related Sanctions Regulations and E.O. 13661 do not contain a “personal” versus “professional” distinction. OFAC also asserts that there was a Frequently Asked Question (FAQ) publicly available on the OFAC website at the time of the violations that specifically spoke to the conduct at issue in this case, though framed in the context of the Burma sanctions program.

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Executive Orders Targeting Ukraine and Russia…

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OVERVIEW… On March 6, 2014, President Barack Obama issued E.O. 13660, targeting the actions and policies of certain persons who, he declared, “undermined democratic processes and institutions in Ukraine”; “threatened the peace, security, stability, sovereignty, and territorial integrity of Ukraine”; and contributed to the “misappropriation of state assets of Ukraine.” In further response to certain actions and polices of the Government of the Russian Federation, including the purported annexation of the “Crimea region of Ukraine,” President Obama issued three subsequent Executive Orders that expanded the scope of E.O. 13660: E.O. 13661, E.O. 13662, and E.O. 13685.2

Together, these orders authorize the imposition of OFAC Sanctions against: 1) persons allegedly responsible for or complicit in certain activities with respect to Ukraine; 2) officials of the Government of the Russian Federation; 3) persons operating in the arms or related materiel sector of the Russian Federation; and 4) against individuals and entities operating in the “Crimea region of Ukraine.” E.O. 13662 also authorizes OFAC to sanction certain entities operating in “such sectors of the Russian Federation economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, such as financial services, energy, metals and mining, engineering, and defense and related materiel.” E.O. 13685 prohibits the importation or exportation of goods, services, or technology to or from the “Crimea region of Ukraine,” as well as new investment in the “Crimea region of Ukraine” by a U.S. Person, wherever located.

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Executive Orders Targeting Ukraine and Russia…

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…OVERVIEW OFAC Sanctions with respect to Ukraine and Russia fall into the following three broad categories:

1. Designation of individuals and entities on the SDN List (with the prefix “UKRAINE” in the program tag associated with each listing); and

2. “Sectoral Sanctions” against entities operating in the sectors of the Russian economy identified by the Secretary of the Treasury pursuant to E.O. 13662 and listed on a Sectoral Sanctions Identification List (“SSI List”).

3. A new investment ban and prohibition on the exportation and importation of goods, technology, or services to or from the “Crimea region of Ukraine.”

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CAATSA and CRIEEA

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SDN LISTING On August 2, 2017, President Trump signed into law the Countering America’s Adversaries Through Sanctions Act (CAATSA), a legislation expanding OFAC Sanctions on Iran, Russia and North Korea. The section of the law pertaining to Russia, titled the Countering Russian Influence in Europe and Eurasia Act of 2017 (CRIEEA), modified OFAC’s Directives 1, 2, and 4 to expand existing prohibitions on U.S. Persons doing business with Russia: Prohibitions on transactions involving new debt of sanctioned Russian financial institutions (Directive 1): CRIEEA only allows dealings in new debt of 14 days maturity or less, versus the original 30 days. CRIEEA did not modify the terms of the existing restriction on dealings in their new equity. Prohibitions on transactions involving new debt of sanctioned Russian energy companies (Directive 2). Rather than allowing dealings in these companies’ new debt of 90 days maturity or less, as it was the case under existing prohibitions, CRIEEA allows only dealings in their new debt of 60 days maturity or less. Prohibitions on supplying Russian oil projects (Directive 4). U.S. Persons are prohibited from providing goods, services (except for financial services), or technology in support of exploration or production for new deepwater, Arctic offshore, or shale oil projects involving a sanctioned Russian oil firm or individual with a controlling interest or a 33% or more non-controlling ownership interest. This expanded the geographic scope of the existing prohibitions. The changes to Directives 1 and 2 became effective on November 30, 2017. The changes to Directive 4 became effective on January 29, 2018.

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Sanctions: Consequences of Listing...

The sanctioned person(s) and/or entities placed on the SDN or SDNT Lists, including those placed on the SDN List pursuant to GLOMAG, may have their U.S.-based property and interests in property “blocked.”

Listed individuals and entities will lose access to funds located in U.S. banks and will be denied credit and insurance.

Representation of sanctioned individuals and/or entities by U.S. legal counsel generally requires a license from OFAC.

Collateral consequences, including being stopped for secondary inspection and denied entry at immigration and customs entry points into the U.S., and being

placed on U.S. airlines’ “no-fly” lists.

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...Sanctions: Consequences of Listing

Family members of listed persons may also be subject to visa revocation and banishment from travel to the United States and its territories, and under certain circumstances, having their property blocked by financial institutions.

Financial institutions often will be called upon to provide financial information and/or cease servicing banking and financial transactions for listed persons.

These adverse consequences are often later extended to family members of the listed person, who may also be added to the SDN or SDNT Lists, as part of Anti-Money Laundering Compliance Programs.

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Myths and Truths: De-Listing is Possible

MYTH IMPOSSIBLE TO REMOVE FROM OFAC SDN OR SDNT LISTS. MYTH IT ONLY TAKES A FEW MONTHS TO BE REMOVED. MYTH OFAC’S DECISION ON RECONSIDERATION IS FINAL.

TRUTH De-Listing from the SDN or SDNT Lists, including those placed on the SDN List pursuant to GLOMAG, regularly occurs with the filing of a timely request for reconsideration.

TRUTH It takes much longer. The average duration of designation for a party who has been removed from the SDN or SDNT Lists is approximately 2 years and 3 months. GLOMAG De-listings will be similarly lengthy.

TRUTH There are two ways to appeal OFAC’s denial of a reconsideration request: (1) submission of a new administrative reconsideration (2) initiating a lawsuit under the Administrative Procedure Act (“APA”) against OFAC in the U.S. District Court of Appeals for the District of Columbia. A similar process applies in cases involving sanctions pursuant to GLOMAG.

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