Among the tools used by the U.S. Government to impose sanctions on both entities and individuals, few are as powerful as "U.S. Denied Party Lists." Assembled and maintained by different government agencies, these lists contain the names of people and companies that have been 'blacklisted' by the U.S. Government.
A well-known example is the list maintained by the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) of Specially Designated Nationals and Blocked Persons (the SDN list). It names U.S. and foreign entities and people with whom U.S. businesses and individuals are prohibited or restricted from engaging in business transactions. (For a general overview about the other U.S. Denied Party Lists see our previous article.)
Inclusion on a U.S. Denied Party List can have adverse consequences even if the designated parties are ultimately removed from the list, as two recent cases involving lawsuits against OFAC involving due process concerns will demonstrate.
Several U.S. government agencies have broad discretion to designate a party on a U.S. Denied Party List, but whichever agency is involved, the designated party's business relations and reputation begin to suffer almost immediately after being included, often quickly leading to the loss of millions of dollars. The agency may have the authority to freeze the party's assets or the party may become ineligible to apply for certain U.S. export and import licenses.
There is a process to seek removal or challenge a designation, but it is long and difficult, and rarely achieved. Once a party is included on one of the U.S. Denied Party Lists, they can begin an interagency administrative process to seek removal or appeal the designation, although success varies significantly depending on the agency.
Another way to challenge the designation is through the courts, and in some cases, parties have filed suit against the government agencies in federal court on grounds of violating their due process rights.
Interagency Administrative Process
Each U.S. government agency has its own administrative process for appealing a designation or requesting removal from a U.S. Denied Party List. Procedures vary from agency to agency, and the final decision is subject to the agency's discretion.
The interagency process is very long, complex, and most of the time unsuccessful. Even if the government agency approves the removal of a party from a U.S. Denied Party List, they will not actually be immediately removed from the list: that often requires the agency to publish a notice in the Federal Register updating the specific U.S. Denied Party List, which involves yet another lengthy internal agency process that usually takes several months.
Overall, critics claim that the interagency processes are unfair and lack due process because they are not only burdensome—it is very difficult to obtain removal from a U.S. Denied Party List—but even if removal is approved, the party's reputation and business may continue to be negatively impacted. Most importantly, in most instances, the party that gets listed does not have an opportunity to defend the designation prior to the listing.
Despite the low success rates of lawsuits against the U.S. government seeking removal from a U.S. Denied Party List, the wide discretion conferred to government agencies to list individuals and entities and the lack of transparency regarding the designation and the removal process, have driven some parties to file suits against U.S. government agencies and officials for abuse and discriminatory enforcement of the law.
Recent Cases: Deripaska and KindHearts
The U.S. government usually prevails when individuals or entities file suit against U.S. government agencies, like Treasury and OFAC, challenging designation on any U.S. Denied Party Lists. Below is a brief summary of two recent lawsuits against OFAC.
On April 6, 2018, pursuant to Executive Orders 13661 and 13662, Oleg Deripaska was identified on the SDN List along with seven companies owned or controlled directly or indirectly by Mr. Deripaska, a Russian citizen and billionaire. He is the founder of Basic Element, a Russian industrial group with interests in aluminum, energy, construction, agriculture, and at one point, was reputed to be the richest man in Russia.
Generally, EO 13661 imposes sanctions on persons that are officials of the Government of Russia, are owned or controlled by a Russian government official, or assist or support a Russian government official. Additionally, EO 13662 imposes sanctions on persons that operate in certain specified sectors of the Russian economy. Mr. Deripaska was listed pursuant to allegedly operating in the energy sector of the Russian economy. According to the Treasury press release:
"Oleg Deripaska is being designated pursuant to EO 13661 for having acted or purported to act for or on behalf of, directly or indirectly, a senior official of the Government of the Russian Federation, as well as pursuant to EO 13662 for operating in the energy sector of the Russian Federation economy. Deripaska has said that he does not separate himself from the Russian state. He has also acknowledged possessing a Russian diplomatic passport, and claims to have represented the Russian government in other countries. Deripaska has been investigated for money laundering, and has been accused of threatening the lives of business rivals, illegally wiretapping a government official, and taking part in extortion and racketeering. There are also allegations that Deripaska bribed a government official, ordered the murder of a businessman, and had links to a Russian organized crime group."
On March 15, 2019, Mr. Deripaska filed a Complaint for Declaratory Relief from Judgment (the Complaint) in the United States District Court for the District of Columbia against the U.S. Department of the Treasury and its Secretary, Steven Mnuchin, and OFAC and its Director, Andrea Gacki.
The Complaint challenges Mr. Deripaska's designation on the SDN List, alleging that Mr. Deripaska's designation as an SDN under EOs 13661 and 13662: 1) was arbitrary and capricious and did not provide sufficient notice under the Administrative Procedures Act, and 2) violates his right to due process under the Fifth Amendment. Additionally, the Complaint alleges harm resulting from Mr. Deripaska's designation on the SDN List, including adverse effects to Mr. Deripaska's wealth, reputation, and economic livelihood.
Based on precedent case law, Mr. Deripaska's lawsuit will likely not prevail. A review of similar lawsuits shows that parties that sue OFAC are rarely successful, even when using similar arguments to those in the complaint filed by Mr. Deripaska.
Although it is much less common, some entities are successful in suing the U.S. government. One example is KindHearts for Charitable Humanitarian Development, Inc., a non-profit charity based in Toledo, Ohio that brought action against OFAC challenging a provisional determination by OFAC that the non-profit was a Specially Designated Global Terrorist ("SDGT").
After its provisional designation as an SDGT, OFAC indefinitely froze all of KindHearts' assets and property pending a full investigation pursuant to EO 13224, which empowers the agency to freeze the assets of, and forbade transactions with, persons who commit, threaten to commit, or support terrorism.
In 2009, the Court held that the government cannot freeze an organization's assets without obtaining a warrant based on probable cause, and that OFAC had violated KindHearts' right to due process by freezing its assets without providing it adequate notice of the basis for the freeze or a meaningful opportunity to defend itself.
Significantly, the fact that KindHearts was an American corporation was a determining factor in the outcome of the Court's opinion because KindHearts also relied on the Fourth Amendment protections against unreasonable seizure. Ultimately, KindHearts was de-listed and a settlement was reached per ACLU.
Looking at cases similar to that of Mr. Deripaska's lawsuit, there appears to be a high but not entirely insurmountable bar to overcome designation on the SDN List through a lawsuit. KindHearts, on the other hand, involved a U.S. company and was argued—and ultimately was successful—under a different legal theory. Even so, it took six years between the listing of the organization and the conclusion of the settlement with OFAC that led to de-listing KindHearts.
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What do these cases tell us? Most importantly, that a U.S. government agency's decision to list a party on one of the U.S. Denied Party Lists may cause extreme hardship, even after the agency approves the removal of the party from the list.
And second, that the U.S. government needs clear interagency administrative processes for the listing as well as the challenging of a designation on a U.S. Denied Party List while adequately addressing national security concerns and affording due process rights.
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