What are the Seven Grounds for OFAC Clearance?
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is responsible for enforcing economic sanctions imposed by the United States on foreign nationals and companies. If you or your company are on OFAC’s list of Specially Designated Nationals (SDNs), other people and corporations will face steep penalties if they do business with you. This can cripple your finances by deterring most of your options.
There is good news, though: OFAC claims that they remove hundreds of entries from its SDN lists every year. Getting your name cleared, however, is not always easy: Clearance from the SDN lists is largely in OFAC’s discretion, though the agency lists several grounds that justify removal, several of which are mentioned in 31 C.F.R. § 501.807.
Dr. Nick Oberheiden is the founding partner of Oberheiden P.C., a national defense firm that offers OFAC clearance services for sanctioned individuals, companies, and other entities. Here are the seven grounds that OFAC claims would justify your removal from its list of sanctioned parties.
1. Insufficient Basis for Inclusion on the SDN List
One reason OFAC will clear you or your company from the SDN list is if the rationale for your initial inclusion was insufficient. Proving this can be extremely difficult, as it requires the agency to reconsider its original decision and then come to the opposite conclusion that it came to, before. However, if other entities were not added to the sanctions lists in spite of there being similar circumstances to your own, they can be used to highlight the unfairness of your situation.
2. Justification for Inclusion No Longer Applies
You can also argue that, while OFAC’s initial decision to add you or your company to its list of sanctioned individuals was justified, that justification no longer applies. While this is the underlying argument in many of the other grounds for getting you cleared from the OFAC listings of sanctioned parties, it can stand on its own.
For example, there is a good chance that this justification will be used a lot in the next few years. Russian companies and individuals that have been targeted for U.S. economic sanctions due to the war in Ukraine will, when the war ends and the tension has passed, urge OFAC to reconsider whether they still deserve to be the subject of U.S. economic sanctions.
3. Proposing Remedial Steps to Negate the Basis for Inclusion
In a somewhat similar vein, sanctioned parties can propose remedial steps that would turn their justifiable inclusion on the SDN list into an unjustifiable one.
These arguments are often the most difficult to make, as the compliance protocols that will be necessary to persuade OFAC will not only have to show that they would work sufficiently, but also that you intend to implement and stringently enforce them once you are off the sanctioned parties list. They generally have to be extremely detailed, feasible, and ready to implement.
Unfortunately, you or your company’s reputation will play a key role in this line of argument. If OFAC has any inclination that you are not proposing the remedial steps in good faith, or has any doubt that you will uphold your end of the deal, it will likely deny your proposal with little debate.
4. Sale or Divestment
A strong argument to make, though it is only applicable in a limited number of OFAC clearance petitions, is that you have sold or divested from the business relationship or association that led to your inclusion on the SDN listing of sanctioned individuals.
However, as Dr. Nick Oberheiden, founding partner of the national defense firm Oberheiden P.C. and leading OFAC clearance lawyer at the firm, says, “Unfortunately, you can count on OFAC not taking your word for it. You will still have to present concrete evidence that you have, in fact, left the business relationship that led to you getting caught up in American economic sanctions.”
5. Mistaken Identity
Another strong, but uncommon, argument to make against ongoing OFAC sanctioning is that you are the victim of mistaken identity.
OFAC makes mistakes. It can impose sanctions on one person or entity when it means to impose them on another. However, it frequently faces uproar and criticism from the parties that get sanctioned, with many of them advancing whatever line of attack they can that might get the sanctions lifted.
As a result, sanctioned individuals who are genuinely the victims of mistaken identity – maybe they share the same name as the targeted person or party, or maybe there was a typo in the sanctioning imposition – often face an uphill battle. They have to persuade a federal agency, one that is accustomed to getting frivolous complaints, that they made a mistake.
Providing details about the nature of the mistake and pointing to the likely benefactor of the mistake can be helpful details to provide in the petition for clearance in these cases.
6. Good Behavior
Sanctioned parties can also request OFAC to clear them from the SDN list by pointing to their good behavior. This is often considered a longshot, but it can work: Asking OFAC to give you another chance for no other reason than that you have been under economic sanctions for a long time and have not violated them can be risky. However, stressing the details of your recent conduct and how you or your company have changed in ways that no longer necessitate the need for the sanctions can persuade the agency to clear you for business in U.S. markets.
7. Death of a Sanctioned Individual
Finally, the associates of an individual who was sanctioned by OFAC can ask the agency to clear them from the SDN lists because of the death of that individual.
The use of intermediaries by sanctioned parties is common. That is why economic sanctions are often incredibly broad, with OFAC casting a wide net around targeted parties and individuals to ensure that the target is not able to evade the embargo by simply using their network of associates to do their business for them.
Those associates that get added to the SDN basically become collateral damage to OFAC sanctioning attempts.
When the true target of the sanctions passes away, it is not uncommon for his or her associates to flood OFAC with clearance petitions to get out from under economic sanctions that were not actually meant for them, in the first place.
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.