The Office of Foreign Assets Control (OFAC) has oversight of financial transactions involving U.S. and foreign entities. It exercises this authority in several ways, including (i) through the administration of its various sanctions programs, (ii) through the issuance of licenses authorizing certain transactions, and (iii) by blocking the assets involved in transactions between U.S. entities and sanctioned foreign parties.
While OFAC plays an important role in protecting the United States’ national security interests, companies and individuals do not have to (and should not) defer to OFAC’s authority and decision-making in all cases. Like all federal agencies and offices, OFAC is run by people, and people make mistakes.
When dealing with an OFAC decision with which you disagree, the process of seeking to have that decision overturned begins with filing an appeal with the Office. Filing an appeal with OFAC is a challenging—and in many ways highly-technical—process, and it requires an informed and strategic approach.
“When filing appeals to challenge decisions made by OFAC, companies and individuals (and their counsel) need to have an intimate understanding of the process involved. Mistakes and oversights will lead to delays and denials, and OFAC will err on the side of national security when there is not a clear and well-documented justification for reversing a prior decision.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
This article covers strategic considerations for three very different types of OFAC appeals: (i) appealing for removal from the Specially Designated National (SDN) list or another OFAC sanctions list; appealing the denial of an application for an OFAC specific license; and, (iii) appealing for the release of blocked assets. As you will see, while each scenario presents its own unique strategic challenges and opportunities, there are some overarching strategic considerations for challenging OFAC decisions and determinations as well.
So, what do you need to know before you file an appeal with OFAC? Here are 10 strategic considerations:
1. Seek to Understand the Basis for OFAC’s Decision
The simple act of filing an appeal is not enough to convince OFAC to reconsider a decision regarding sanctioning, licensing, or blocking assets in connection with a suspect transaction. To have a chance of success, an appeal must be firmly rooted in the law, and it must challenge a specific aspect (or multiple specific aspects) of OFAC’s decision-making process.
With this in mind, one of the first strategic considerations for filing OFAC appeal is understanding the basis for the decision at issue. If you don’t know why OFAC reached the decision it did, you won’t be able to formulate a specific and tailored response. In some cases, the basis will be clear from OFAC’s notice of its decision. In others, experienced OFAC counsel may be able to discern the basis from the facts presented, or it may be necessary to engage with OFAC directly.
2. Determine if You Have Grounds to File an Appeal with OFAC
Once you discern the basis for OFAC’s decision, the next step is to discern the basis (if any) for filing an appeal. Despite adverse consequences, in some cases filing an appeal won’t make sense. OFAC’s authority to regulate financial transactions between U.S. and foreign entities is broad, and in some cases it will simply be necessary to pursue an alternate route.
With that said, it is possible to appeal OFAC actions and decisions on various grounds. These include OFAC’s failure to consider all relevant facts and OFAC’s misinterpretation of the facts or the law—among others. Additionally, if you need to appeal the denial of a specific license application or seek the release of blocked funds, there may be steps that you (or your counsel) can take to rectify issues on your side of the equation.
3. Rely on Your Interpretive Guidance (If You Have It)
If you sought (and received) interpretative guidance from OFAC, you may be able to point to the Office’s guidance as grounds to justify your decision-making. Entities and individuals that are contemplating transactions that potentially implicate OFAC sanctions can seek interpretive guidance as to whether the proposed transaction is permitted—and if so, on what conditions. If you undertook to pursue a transaction in reliance on OFAC’s interpretive guidance and are now confronted with allegations of violating an OFAC sanction, piecing together documentation showing you followed the Office’s guidance may be enough to allow your transaction to move forward.
4. Open a Dialogue with OFAC
In some cases, rather than formally initiating an appeal, it will be both more efficient and more effective to open a dialogue with OFAC. For example, if you are struggling to obtain a specific license, continuing to work with OFAC under your (or your company’s or financial institution’s) pending application may be preferable to filing an appeal. OFAC personnel will generally be willing to work with license applicants that are willing to address issues collaboratively, and taking this approach could set the stage for a good working relationship in the future as well.
5. Restart the Process If Warranted
Sometimes, rather than filing an appeal and trying to convince OFAC personnel to reverse a decision they’ve already made, it will be more prudent to ask them to make a new decision instead. This could be the case, for example, if you are dealing with a specific license application denial and are unable to make headway working with OFAC. Rather than continuing trying to address issues with a pending application and potentially confuse the issues or get bogged down in the minutiae, it may simply make more sense to restart the process. In this type of scenario, submitting a fully compliant and well-substantiated application through the original application process could be the fastest route to securing the specific license you are seeking to acquire.
6. Determine the Appropriate Venue for Your OFAC Appeal
If filing an appeal is the best path forward, the next strategic consideration involves determining the appropriate venue. The process for filing an OFAC appeal depends on the nature of the issue involved. For example, while OFAC has established administrative procedures for seeking removal from an OFAC sanctions list or seeking the release of blocked assets, the denial of a specific license application is considered a “final” agency decision. As a result, once it becomes clear that OFAC is unwilling to issue a specific license, continuing to pursue the license will generally involve challenging OFAC’s decision in federal district court.
7. Carefully Craft the Appeal
Whether pursuing an appeal through OFAC’s administrative procedures or in the federal courts, it is important to engage experienced counsel to carefully craft the appeal. OFAC personnel are experts in the laws and regulations the Office enforces; and, while they do make mistakes, successfully appealing a decision is often a matter of demonstrating that the decision in question was based on less-than-complete information. Conversely, due to the unique and specialized nature of what OFAC does, many federal judges and law clerks are not intimately familiar with the issues involved. As a result, when pursuing an OFAC appeal in court, an effective strategy will often be to provide sufficient information to make the judge’s decision as easy as possible.
8. Take a Collaborative and Cooperative Approach (If Possible)
When pursuing an appeal with OFAC—whether informally or through the Office’s administrative procedures—a collaborative and cooperative approach will often be best. There are two reasons why. First, this approach is more likely to lead to thoughtful reconsideration; and, when OFAC personnel have questions, they may be more willing to confer with you (or your counsel). Second, as mentioned above, working with—rather than against—OFAC can set the stage for a good working relationship. If there is potential for you (or your financial institution or business) to have dealings with OFAC in the future, this could prove crucial.
9. Look Ahead to Potential Next Steps
While pursuing an OFAC appeal, it is important to simultaneously begin looking ahead to potential next steps. Ideally, the appellate process will go in your (or your financial institution’s or business’s) favor; but, what if it doesn’t? Is there another way that you can achieve your financial or business objectives? Is there a risk that any alleged OFAC sanction violations could lead to civil enforcement action or criminal prosecution? Depending on the circumstances, these could all be critical questions to consider.
10. Ensure that You Maintain OFAC Compliance Throughout the Process
Finally, when seeking any sort of approval or favorable decision from OFAC, it is important to ensure that you (or your financial institution or business) is in full compliance with the laws and regulations within the Office’s enforcement jurisdiction. Any violations that come to light during your interactions with OFAC will raise red flags—and they could not only lead to an adverse outcome in the instant situation, but they could potentially lead to other adverse consequences as well. Maintaining OFAC compliance is a key component of overall risk management; and, when it comes to strategically dealing with OFAC, it is a key success here as well.