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D.C. District Court Explains “Extreme Deference” Granted to OFAC

On September 28, the District Court for the District of Columbia issued a Memorandum Opinion granting the government’s Motion for Summary Judgment in the matter of OKKO Business PE v. Lew, et al., Civil Action No. 1:14-cv-925 (CKK), __ F.Supp.3d __ (D.D.C. 2015). This case arises from the denial of a Release of Blocked Funds license application OKKO Business PE (OKKO) submitted to the Office of Foreign Assets Control (OFAC) in May 2012. This license sought the unblocking of a 200,000 Euro transfer that originated from an OKKO account at Citi Bank Ukraine. Citi Bank blocked the transfer in the United Kingdom[1] pursuant to the Belarus Sanctions Regulations. The payment instruction identified the Belarusian Oil Trade House as the beneficiary of the payment. OFAC designated that entity pursuant to Executive Order 13405 on May 15, 2008.[2]

OKKO operates gas stations throughout Ukraine. In April 2012 it entered into a deposit agreement with the Belarusian Oil Trade House for an oil auction. The Release of Blocked Funds license application states that the purpose of the blocked payment was for “participation in auctions to purchase petroleum products from Belarusian oil refineries.” OFAC denied the license request in October 2012, because the funds transfer represents an “interest in property of a sanctions target described in Executive Order 13405.” Subsequent to this denial, OKKO cancelled its deposit agreement with the SDN, and requested reconsideration of the license. OKKO asserted that the funds should be released, because an SDN no longer has an interest in the blocked property. After its request for reconsideration was denied, OKKO sought a de novo judicial review.

Interest in Property

Citi Bank blocked the funds transfer in May 2012  because it represents an interest in property held by a Specially Designated National (SDN).  OKKO argued to the court that upon conclusion of the auction the SDN no longer had an interest in the funds, as the payment would be returned to OKKO. However, under the terms of the agreement, the SDN would only return the funds five days after OKKO submitted a written demand.

It is important to note that OFAC  does not recognize transfers of blocked property,[3]  and the agency defines “transfer” in the Belarus Sanctions Regulations as it does in its other regulations to include all conceivable scenarios.[4] Therefore, under OFAC’s interpretations of its regulations, the cancellation of the deposit agreement did not remove the SDN’s interest in the funds transfer, which should remain blocked.

The court held that OFAC’s interpretation of property interest to mean “an interest of any nature whatsoever, direct or indirect”[5] is not unreasonable, and that “[m]atters of strategy and tactics relating to the conduct of foreign policy are so exclusively entrusted to the political branches of government as to be largely immune from judicial inquiry or interference.”[6]

Deference Beyond Chevron

The D.C. Circuit Court has firmly established that judicial review of OFAC determinations must be “extremely deferential” because of its unique role “in an area at the intersection of national security, foreign policy, and administrative law.”[7]  OFAC’s role in the foreign affairs of the United States means that it is granted judicial deference far  beyond that given to an agency dealing in domestic affairs. As a result, challenging OFAC is very different than going against almost any other member of the federal agency alphabet soup.

Judicious Advocacy

It is therefore best to avoid the need for judicial review by carefully presenting one’s case before OFAC, and if necessary reaching a compromise with OFAC before it makes its final determination. Counsel should zealously advocate for their clients before OFAC, but this advocacy should be constructive. For example, OFAC will definitely deny license requests that essentially protest the sanctions prohibitions. The denial of  business opportunities available to foreign entities is an inherently ineffectual position. Additionally, OFAC will generally deny license applications requesting permission to engage in activity directly prohibited by its regulations. Successful license requests  evidence that the requested activity supports current U.S. foreign policy. OFAC license applications are simply not the proper means for protesting the U.S. government.

[1] Like all other sanctions programs, the Belarus Sanctions Regulations defines U.S. person to include the foreign branches of entities organized under the laws of the United States. 31 CFR 548.312. The currency of the transaction is therefore irrelevant, because the Citi Bank branch in the UK is a U.S. person.

[2] OFAC designated the Belarusian Oil Trade House for acting for or on behalf of Belneftekhim Concern, which OFAC designated on November 13, 2007. See, OFAC press release announcing the designation of the Belarusian Oil Trade House.

[3] See, 31 CFR 548.202(a),  (“Any transfer after the effective date that is in violation of any provision of this part or of any regulation, order, directive, ruling, instruction, or license issued pursuant to this part, and that involves any property or interest in property blocked pursuant to §548.201(a), is null and void and shall not be the basis for the assertion or recognition of any interest in or right, remedy, power, or privilege with respect to such property or property interests.”)

[4] “The term transfer means any actual or purported act or transaction, whether or not evidenced by writing, and whether or not done or performed within the United States, the purpose, intent, or effect of which is to create, surrender, release, convey, transfer, or alter, directly or indirectly, any right, remedy, power, privilege, or interest with respect to any property. Without limitation on the foregoing, it shall include the making, execution, or delivery of any assignment, power, conveyance, check, declaration, deed, deed of trust, power of attorney, power of appointment, bill of sale, mortgage, receipt, agreement, contract, certificate, gift, sale, affidavit, or statement; the making of any payment; the setting off of any obligation or credit; the appointment of any agent, trustee, or fiduciary; the creation or transfer of any lien; the issuance, docketing, filing, or levy of or under any judgment, decree, attachment, injunction, execution, or other judicial or administrative process or order, or the service of any garnishment; the acquisition of any interest of any nature whatsoever by reason of a judgment or decree of any foreign country; the fulfillment of any condition; the exercise of any power of appointment, power of attorney, or other power; or the acquisition, disposition, transportation, importation, exportation, or withdrawal of any security.” 31 CFR 548.309.

[5] Holy Land Found. for Relief & Dev. v. Ashcroft,  333 F.3d 156, 162 (D.C.Cir.2003).

[6] OKKO Business PE, Slip Decision at 9 (citing Regan v. Wald, 468 U.S. 222, 242 (1984)).

[7] Islamic Am. Relief Agency v. Gonzales, 477 F.3d 728, 734 (D.C.Cir.2007).

Copyright Holland & Hart LLP 1995-2020.National Law Review, Volume V, Number 287



About this Author

Jeremy Paner, Economic, Trade Sanctions Attorney, HOlland Hart Law Firm
Of Counsel

Mr. Paner is Of Counsel at Holland & Hart's Washington, DC office. His practice focuses on economic and trade sanctions compliance issues, in addition to general white collar criminal and regulatory investigations. Mr. Paner leverages his sophisticated governmental experience to deliver valuable risk analysis and compliance and avoidance advice to private clients.

Prior to joining Holland & Hart, Mr. Paner was the New York State Department of Financial Services appointed independent economic sanctions monitor of a major international...