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June 9, 2021
By: Alejandro Leáñez, ACSS

Sanctions delisting procedures are not within the scope of many debates relating to sanctions globally. All entities or persons subject to OFAC or EU sanctions are allowed to request a delisting from the list.

Each year, OFAC removes hundreds of individuals and entities from the Specially Designated Nationals (SDN) List. For example, last month, in April 2021, OFAC removed from the SDN list approximately 66 entities and individuals from Panama, Iraq, and Mexico. Each removal is based on an in-depth review by OFAC.

OFAC Delisting

The procedures for governing delisting from the SDNs and Blocked Persons List are within the 31 Code of Federal Regulations (CFR) § 501.807.

A person is allowed to request administrative reconsideration of the designation or state when the circumstances surrounding the designation are no longer applicable. You can do so by email or by sending a letter to OFAC.

The delisting petition can take contain the following arguments or evidence:

  • Insufficient basis for designation

For instance, two Italian companies were incorrectly targeted for their ties to the Venezuelan oil sector individual Alessandro Bazzoni.

They were targeted for implementing sanctions evasions schemes in order to help the Venezuelan State Oil Company Petróleos de Venezuela (PDVSA).

A Treasury official stated, “After receiving additional information following the designations, [Office of Foreign Assets Control] concluded that companies were owned by a different Alessandro Bazzoni than the person we designated.” Further, the Treasury official reasoned, “Consequently, we promptly removed the two companies from our list to avoid inadvertently harming innocent parties.”

  • Remedial steps

In this case the blocked person can propose remedial actions, such as corporate reorganization, the resignation from positions in a blocked entity, or similar steps, which the person believes would negate the basis for designation.

  • Sale of vessel

At times, OFAC takes action against shipping and intermediary networks that are supporting sanctioned regimes or entities.

An example is the Mehdi Group from India. On August 30, 2019, Mehdi Group was designated pursuant to E.O. 13224. A week later, on September 4, 2019, OFAC designated several vessels used by Mehdi Group and its subsidiaries to move Iranian oil. The vessels were designated as, “Property in which a blocked person has an interest.”

According to the CFR § 501.807, “A person owning a majority interest in a blocked vessel may propose the sale of the vessel, with the proceeds to be placed into a blocked interest-bearing account after deducting the costs incurred while the vessel was blocked and the costs of the sale.”

After the delisting petition is received, the procedure within OFAC is the following:

  • The information will be reviewed by OFAC, which may request clarifying, corroborating, or other additional information.
  • A meeting with OFAC may be requested by the sanctioned individual. However, such meetings are not required, and OFAC may, at its discretion, decline to conduct such meetings prior to completing the review of the delisting petition.
  • After OFAC has conducted a review of the request for reconsideration, it will provide a written decision to the blocked person.

If there is a penalty imposed by OFAC to an SDN individual alongside the designation, the individual can appeal before OFAC for reconsideration. The individual can also appeal the penalty under the Administrative Procedures Act and other federal laws in federal court.

In a rare move, Exxon Mobil challenged a $2-million OFAC civil penalty for allegedly violating certain sanctions involving Russia/Ukraine. The federal district concluded that the OFAC penalty violated the Due Process Clause of the Fifth Amendment of the U.S. Constitution since it failed to give Exxon fair notice that its conduct violated such sanctions. It granted  Exxon’s motion for summary judgment in the case, vacating the $2-million fine. Exxon was not designated.

OFAC Delisting Insights

In order to elaborate more on the topic, we asked Erich Ferrari, Founder and Principal Attorney of Ferrari & Associates, a DC law firm, the following questions:

ACSS: Is it easy to get off the OFAC list?

Erich Ferrari: No, but it is also not impossible. In order for a sanctioned party to be removed from the OFAC SDN List, they need to show that there is an insufficient factual or legal basis for the designation.

This can be done by either seeking a reconsideration of the designation or by asserting that the circumstances originally underlying the designation have changed to such an extent that the basis of the designation has been negated.

Further, sanctioned persons can propose remedial measures that, if adopted, would negate the basis of the designation.

Following submission of evidence and arguments seeking delisting pursuant to one of the aforementioned means of challenge, OFAC will seek additional, clarifying, or corroborating information with respect to the delisting petition filed by the sanctioned person. That information will be sought through questionnaires issued by OFAC.

ACSS: How does OFAC evaluate the information in a delisting request?

Erich Ferrari: OFAC will evaluate the information provided in light of information from both unclassified and classified sources. This often leads to long delays in the process and there are typically six to nine month gaps between the submission of a response to an OFAC questionnaire and the next questionnaire issued by OFAC.

With two to three questionnaires issued in a typical delisting matter and a similar period of time between the last questionnaire response and a final decision, the entirety of the delisting process can take several years.

ACSS: What other factors does OFAC use to evaluate a delisting request?

Erich Ferrari: In addition to evaluating whether there is an insufficient basis to maintain the designation, OFAC also assesses the credibility of the party providing the information, as well as the legitimacy of the information being provided.

If OFAC has information which conflicts with that being provided by the sanctioned person, and cannot reconcile the conflict, it will oftentimes make a credibility determination adverse to the sanctioned party and deem them or the information they are providing to be incredible.

Given that OFAC withholds much of the information supporting their designations, this often leads sanctioned persons stumbling in the dark with respect to what information they need to rebut.

Accordingly, many sanctioned persons find both the process and its administration to be difficult, and coming off the SDN List is no easy task.

ACSS: What is your opinion about the OFAC delisting procedure?

Erich Ferrari: The OFAC delisting process should be revamped, as it is opaque, inefficient, and unduly burdensome. As part of an overhaul of the process, OFAC should provide unclassified summaries of key findings, reasoning, and evidence underlying a designation to the sanctioned persons seeking delisting once they submit their petition.

If OFAC is serious about using sanctions to compel a change in behavior then letting the sanctioned persons know exactly what they have done to get on the list is paramount to their offering rebuttal arguments or changing their behavior.

As it stands now, most of the time, clients seeking delisting are mostly at a loss as to how they ended up on the OFAC SDN List.

Further, the delisting procedure should involve OFAC identifying particular deliverables that they want to see from the party seeking delisting.

This could include, for example:

  • Terminating problematic business relationships
  • Divesting themselves of certain assets, or
  • Refraining from certain business lines or with business in certain jurisdictions

OFAC will better achieve its objectives if those objectives are clearly defined for the persons they are seeking to coerce behavior change in.

Finally, the delisting process takes too long and the timing (except that it will be unduly long) to completion is uncertain. This leads many parties to eschew pursuing the process, because they view it as illegitimate and politically motivated.

Building in timeframes so that the party seeking delisting knows what to expect, identifying deliverables so that they know what to do, and being clear about why they are there in the first place would be important developments in creating a fairer and more effective delisting procedure.

EU Sanctions List Delisting

On the other side of the Atlantic, sanctioned EU persons and entities are also allowed to submit a request to the Council of the EU (the “Council”), together with supporting documentation, in order to request a reconsideration of the decision to list them.

The procedures for delisting with regards to EU autonomous sanctions are laid down in “Best Practices for the Effective Implementation of Restrictive Measures”. This document – further called “EU Best Practices Paper” – was issued in 2015 and updated in 2018, by the Foreign Relations Counsellors Working Party from the Council.

Similar to OFAC, the EU allows for submission by mail to the General Secretariat of the Council in Brussels, or via email.

Delisting could be appropriate in various cases, including:

  • Evidence of mistaken listing
  • A relevant subsequent change in facts
  • Emergence of further evidence
  • Death of a listed person
  • Liquidation of a listed entity.

Moreover, the sanctioned persons and entities have the option of challenging the Council’s decision before the General Court of the EU.

EU Delisting Examples

Some EU delisting removals include the revocation of EU sanctions against nine Egyptian individuals for misappropriation of Egyptian state funds by the Council.

Following a review of sanctions listings in force, the Council concluded that the regime had served its purpose against the Egyptian individuals.

Also, the EU Council removed sanctions on two leading political figures due to the constructive engagement in support of a negotiated political solution to the Libyan crisis and due to the absence of any recent role in the Libyan political process. The Council determined that delisting was appropriate since the criteria for listing are no longer met.

EU Delisting Insights

In order to elaborate more on the matter, we asked Sebastiaan Bennink, Partner, and Sarah Reilly, Senior Associate at BenninkAmar, an Amsterdam based law firm, the following questions:

ACSS: Is it easy to get off the EU sanctions list?

Sebastiaan Bennink and Sarah Reilly: No, but it is not impossible. In order for a sanctioned party to be removed from the EU sanctions list, they must submit a request to the Council, requesting that the decision to list them be reconsidered. The sanctioned party must back-up its request with supporting documentation.

Sanctioned parties also have the possibility of challenging the Council’s decision to list them before the General Court of the EU, in accordance with the conditions laid down in Article 275 paragraph 2 and in Article 263 paragraph 4 and 6 of the Treaty on the Functioning of the EU.

Accordingly, the parties will have to demonstrate that the measure is of direct concern to them. An appeal to the judgment of the General Court is heard by the European Court of Justice and must be filed within two months and ten days.

The EU Best Practices Paper provides that the annulment of the sanctions against a sanctioned party does not have immediate effect unless explicitly stated in the Court judgment.

The effects of any sanctions that have been annulled by the General Court are maintained until expiry of the period for bringing an appeal to the European Court of Justice, and during that period new restrictive measures can be adopted against the relevant persons and entities. The relevant EU institution can also appeal, in which case the listing remains in full force pending the appeal.

After the appeal delay, the restrictive measures against this person or entity will end or remain in full force.

Moreover, alongside delisting requests, regular review of listings involving Member States are provided for in the different sanctions regimes, whereby the grounds for keeping a person or entity on the list will be assessed. More specifically, the Member State that suggested the listing is asked about the need to maintain the designation and all Member States should consider if they have additional relevant information to put forward. Delisting decisions are to be implemented promptly, but no further time period is provided.

ACSS: How does the EU evaluate the information in a delisting request?

Sebastiaan Bennink and Sarah Reilly: The General Secretariat of the Council will receive and sort delisting requests. It will forward observations or requests for reconsideration of a listing to the Council in accordance with the relevant sanctions regime.

The Council Secretariat will then forward the requests to the competent regional working party for assessment on the basis of a preliminary analysis prepared by the European External Action Service (EEAS) and the Council Legal Service. The legal, technical and horizontal aspects of the delisting request will be discussed within the Working Party of Foreign Relations Counsellors (RELEX working party).

The EU Sanctions Guidelines provide that individual requests for delisting should be processed as soon as they arrive, in accordance with the relevant legal instrument—i.e., the relevant EU sanctions regime under which the party is listed—and the EU Best Practices for the effective implementation of restrictive measures.

ACSS: What other factors does the EU use to evaluate a delisting request?

Sebastiaan Bennink and Sarah Reilly: The EU Best Practices Paper provides for a de facto analysis, specifying that when evaluating a delisting request, “All relevant information should be taken into account.”

These EU Best Practices Paper further suggest that delisting is ‘appropriate’ in cases where the criteria for listing are no longer met, e.g. proof of mistaken listing, a change in facts, death of a listed person or the liquidation of a listed entity. The burden of proof thereby rests on the sanctioned party to show that the current circumstances do not justify it being designated.

ACSS: What is your opinion about the EU delisting procedure?

Sebastiaan Bennink and Sarah Reilly: The EU delisting procedure amounts in essence to EEAS discretion, and the criterion for delisting is somewhat opaque and warrants clarification.

While specific sanctions regimes allow parties to assume what actions are required for restrictive measures to be lifted, there is no express set of criteria. Moreover, the EU Guidance on the subject – i.e., the EU Sanctions Guidelines – update, 5664/18, 4 May 2018, and the EU Best Practices Paper– is limited.

Regular reviews are requested of Member States to assess whether persons and legal entities are to be removed or maintained on lists. Therefore, it is all the more surprising that identified criteria have not been made publicly accessible.

Discussions in the negotiation phase of the Council Regulation (EU) 2020/1998 of 7 December 2020 concerning restrictive measures against serious human rights violations and abuses featured debates on establishing a precise set of criteria for delisting, but this was not included in the final drafting of the sanctions regime for human rights violations.

We believe it would be advisable for the EU institutions to provide a clear set of criteria for delisting and communicate reports in response to the delisting request on the reasoning behind the maintenance of a sanctioned party on the sanctions list.

This would not only foster transparency, but it also would contribute to a better understanding of what is expected of sanctioned parties, ensure legality and encourage trust in a system that is often perceived as political. Further, it would perhaps stimulate further cooperation with EU regulators.

Conclusion

OFAC and EU delisting procedures constitute a possibility for sanctioned individuals or entities. However, sanctioned individuals should be aware that this is a lengthy procedure with no guarantee of a positive outcome.

The ultimate goal of OFAC is not to punish with the sanctions, but to bring about a positive change in behavior. Many sanctioned individuals and entities have been removed from the sanctions list when OFAC determines that the grounds for the sanctions are no longer present.

Similarly, EU sanctions are intended to bring about a change in policy or activity by entities and individuals responsible for malign behavior, and are of a proportionate, targeted and non-punitive nature.