Author: Oleg Ryabtsev
Managing partner, C&C
Overview of the Current Situation
The Office of Foreign Assets Control of the United States (OFAC) is the agency responsible for implementing U.S. economic and trade sanctions.
OFAC has the following powers:
- freezing of bank accounts and financial assets
- prohibition of transactions with a designated entity and/or individual
- termination of access to the SWIFT system for banks
- prohibition of investments in sanctioned companies and/or industries
- restriction of the use of U.S. currency and the U.S. financial system
The legal basis for contesting an OFAC asset freeze is the Administrative Procedure Act, which allows individuals to challenge decisions of federal agencies if they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."
Based on more than 20 cases handled by our firm and information available from our peers several successful challenges have been built on the following arguments:
- the grounds for blocking have ceased to exist (e.g., resignation from office, company liquidation)
- settlement through legal proceedings (e.g., resignation, termination of relationships)
- OFAC error (e.g., mistaken identity)
Challenges based solely on contesting OFAC’s authority or claiming lack of evidence have not been successful.
Administrative Appeals Process
The first step is to submit an application for a specific or general license from OFAC:
- Specific License: an individual authorization for a specific transaction or activity
- General License: authorization for a certain category of transactions for all persons meeting specified criteria
The average review period for an application is approximately 18 months, even for straightforward cases. OFAC may issue the license immediately or deny it without providing any explanation.
Judicial Review
In the event of an OFAC denial the next step is to file a lawsuit:
- filing a claim in a U.S. federal court
- challenging OFAC's actions under the Administrative Procedure Act
- proving the unlawfulness, arbitrariness, or lack of justification for OFAC’s decision
Most settlements regarding sanctions matters are reached through judicial proceedings. These settlements typically involve:
- Elimination of the root cause of the sanctions (e.g., termination of specific activities)
- Acceptance of negative covenants, such as commitments not to hold certain positions or to avoid contact with sanctioned persons
- Agreement to periodic monitoring by OFAC
Role of Law Firms
Law firms are permitted to represent the interests of sanctioned persons in the context of ensuring access to legal protection. This exception is provided for under most sanctions programs and is confirmed by General License No. 14 under many sanctions regimes.
Law firms may:
- Advise on the applicability of sanctions
- Submit license applications
- Represent clients in court
- Interact with OFAC on the client’s behalf
Information Requests
It is possible to submit inquiries to OFAC for clarification, but this procedure is subject to significant limitations:
- The review period for such inquiries is also around 18 months
- OFAC’s responses typically do not go beyond publicly available information found in press releases
- In most cases submitting inquiries is impractical due to the long wait times and the predictability of responses
Example of a Decision
Contact Information
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