OFAC Sanctions List Removal: How (and When) to File a Request for Reconsideration
The Office of Foreign Assets Control (OFAC) administers multiple sanctions programs that either prohibit or restrict financial transactions with sanctioned individuals and organizations. These individuals and organizations are identified on sanctions lists, the most well-known of which is OFAC’s list of specially designated nationals (the “SDN list”).
Being placed on an OFAC sanctions list can have serious financial, commercial, and legal consequences. For example, as OFAC states, “[SDNs’] assets are blocked and U.S. persons are generally prohibited from dealing with them.” Being placed on an OFAC sanctions list can also increase an individual’s or organization’s risk of facing scrutiny from other federal agencies, and it can negatively impact commercial relationships both in the U.S. and abroad.
As a result, individuals and organizations placed on OFAC sanctions lists should work with legal counsel to evaluate their options for seeking removal. Placement on sanctions lists (including the SDN list) is not permanent. OFAC removes hundreds of individuals and organizations from the SDN list annually; and, as OFAC also states, “removal is based on a thorough review by OFAC . . . [involving a] rigorous review process that evaluates every request for removal individually on its merits and applies consistent standards to all of them.”
“Individuals and organizations that are subject to OFAC sanctions can request removal from the agency’s sanctions lists on certain specified grounds. Seeking removal is a multi-step process that requires a detail-oriented approach and a clear understanding of the procedures involved.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
With all of that said, not all SDNs (or other OFAC-sanctioned persons) are eligible to file a request for removal. To qualify for removal, an individual or organization must no longer present a risk under the applicable OFAC sanctions program. For example, the SDN list is used to identify individuals and organizations that are “owned or controlled by, or acting for or on behalf of, targeted countries,” or that are classified as “terrorists and narcotics traffickers designated under programs that are not country-specific.” These identifications and classifications are based on federal laws including the International Emergency Economic Powers Act (IEEPA), Trading with the Enemy Act (TWEA), among others, and determining whether an SDN (or other OFAC-sanctioned person) is eligible for removal requires a careful analysis of the applicable OFAC sanctions program and governing statutory authority.
When Can Sanctioned Individuals and Organizations File for List Removal?
OFAC has identified two primary scenarios in which sanctioned individuals and organizations can file for list removal: (i) “an insufficient basis exists for the listing;” or, (ii) “the circumstances resulting in the listing no longer apply.” These criteria are based on 31 C.F.R. Section 501.807, which governs the OFAC sanctions list removal process.
On its website, OFAC further specifies the types of circumstances that can justify removal from a sanctions list, including the SDN list. For example, OFAC states that “situations that may result in delisting” include:
- A “Positive Change in Behavior” – OFAC states that, “[t]he ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior.” Thus, if an SDN (or other listed party) is able to demonstrate a “positive change in behavior,” this can justify a request for removal.
- “The Basis for the Designation No Longer Exists” – Along with positive changes in behavior other changes in circumstances can justify requests for removal as well. If the basis for an SDN’s (or other sanctioned party’s) listing no longer exists, then listing is no longer warranted.
- Designation Based on Mistaken Identity – OFAC constantly monitors for the need to add individuals and organizations to its sanctions lists; and, sometimes, OFAC gets it wrong. If an individual or organization has mistakenly been placed on a sanctions list, then the individual or organization can file a request for removal immediately.
- The Death of an SDN – In certain circumstances, the death of an SDN can also justify a request for list removal. This could be the case, for example, if a party is listed under OFAC’s relatively new secondary sanctions program, which covers parties that are affiliated with SDNs.
If a listed party does not currently qualify for removal, it may be able to take affirmative steps in order to qualify. For example, 31 C.F.R. Section 501.807 states that a listed person “may propose remedial steps on the person’s part, such as corporate reorganization, resignation of persons from positions in a blocked entity, or similar steps, which the person believes would negate the basis for designation.” Severing ties with foreign governmental entities or private parties, unwinding prohibited transactions, and various other steps may be effective in establishing grounds for OFAC sanctions list removal as well.
What is the Process for Requesting OFAC Sanctions List Removal?
Requesting OFAC sanctions list removal is a multi-step process that begins with identifying the grounds for removal. This in itself is a process that requires a comprehensive internal audit, document collection and preservation, and a careful analysis of the pertinent sanctions program regulations and applicable federal laws. Once it has been determined that a request for removal is warranted, the primary steps involved in the process are:
- Filing a Request for Reconsideration with OFAC – The process begins with filing a request for reconsideration with OFAC. Among other things, the request for reconsideration should include “a detailed description of why the listed person should be removed.” This filing is OFAC’s first introduction to the listed party’s request for removal; and, as a result, it should be clear and comprehensive, and it should provide an easy roadmap for OFAC to follow during its review.
- Submitting Appropriate Supporting Documentation – Along with the request for reconsideration, a party seeking removal should also submit appropriate supporting documentation. This documentation may include “arguments or evidence” that establish any of the grounds for removal discussed above. While supporting documentation is not strictly required at the filing stage, OFAC is likely to request additional information during its review; and, by being proactive, listed parties can improve their chances of securing a swift removal.
- Responding to OFAC’s Requests for Additional Information – During its review, OFAC may request supporting documentation, answers to questionnaires, and additional information in various other forms. Parties seeking removal should timely respond to these requests, providing complete and accurate responses to the extent required. If a party seeking removal ignores OFAC’s requests for additional information, OFAC will eventually deny the party’s request for reconsideration.
- Communicating with OFAC As Necessary – Along with responding to OFAC’s requests for additional information, seeking removal from a sanctions list (including the SDN list) may also involve other communications with the agency. Here, too, a proactive and cooperative approach is generally best, though sanctioned parties must be careful not to inadvertently disclose harmful information that could lead to a denial (or an audit or investigation).
While OFAC states on its website that listed parties do not need to hire an attorney to file a request for removal, hiring an attorney is strongly recommended. This is due not only to the complexity of the legal issues involved (in addition to the complexity of the process itself), but also due to the risks of failing to secure removal. If a party that is eligible for removal fails to file a successful request, this can not only serve as a commercial and financial setback; but, as noted above, mistakes during the process can potentially trigger legal scrutiny as well. By working with experienced counsel, listed individuals and organizations can mitigate the risk of these outcomes substantially while also helping to ensure that the removal request process is as streamlined as possible.
What Happens Once a Party is Removed from an OFAC Sanctions List?
Let’s say an SDN files a request for reconsideration, and OFAC agrees that the SDN should no longer be listed. What happens next?
Aside from OFAC removing the party from its online SDN list, the short answer is, “Nothing.” The party may still appear as a specially designated national in other databases (including the databases in financial institutions’ sanctions screening applications), and this may lead to other parties continuing to refuse to do business. Due to the risks of non-compliance, financial institutions and other U.S. entities will often err on the side of compliance, preferring to forego business opportunities rather than risk violating OFAC sanctions. But, this is an area where experienced counsel can assist as well. Formerly sanctioned parties can engage their counsel to communicate with financial institutions and other parties on their behalf, and this can help facilitate the execution of formerly blocked transactions.
What Happens if OFAC Denies a Request for Removal?
What happens if OFAC denies a listed party’s request for removal? The answer to this question depends on the circumstances involved. If the denial is justified, then the listed party’s next steps may involve effecting a “positive change in behavior” or taking other steps to demonstrate that “the basis for designation no longer exists.” If the denial is not justified, then the next step may be to challenge OFAC’s decision in court, though it will often make sense to engage counsel to interface with OFAC before pursuing federal litigation.
Dr. Nick Oberheiden, founder of Oberheiden P.C., focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation.