Yesterday, I wrote about the new guidance the United States Department of the Treasury Office of Foreign Assets Control (“OFAC”) issued regarding payment of attorneys fees and litigation costs from blocked sources. Today as I was reading a blog posting on Export Law Blog, I started thinking about the impact this policy would have on blocked U.S. parties vs. blocked foreign parties. As such, I left the following comment on Export Law Blog stating my thoughts on the subject:

“However, what’s most disturbing about OFAC’s policy to me is the disparate impact it has on blocked U.S. parties who have been blocked vs. blocked foreign parties. The guidance points out that this new policy only applies to blocked parties who are also U.S. persons. Those are the same parties who are likely to have most of their funds in accounts subject to under U.S. jurisdiction, which in turn, makes the blocking of those funds more likely in the event of an SDN designation.

I represent a number of foreign parties in the SDN designation administrative reconsideration process. Rarely do I see their access to funds limited due to an OFAC blocking action. Typically, the bulk of their funds and assets are not impacted by the designation or blocking, as they are in accounts not subject to U.S. jurisdiction. Therefore, they usually have access to funds to hire adequate counsel despite the blocking action.

The result here is that blocked U.S. parties are more likely to be hamstrung by this policy, as there is a higher likelihood that their funds were held in accounts subject to U.S. jurisdiction. As such, they would be subject to the caps imposed by this policy when needing access those funds to pay for legal representation during the designation reconsideration/review process. On the other hand, foreign blocked parties seeking reconsideration/review are more likely to have access to funds because such funds were not held in accounts subject to U.S. jurisdiction. Therefore, the foreign blocked parties are less likely to be impacted by the caps imposed, as they can draw upon funds from unblocked sources.

In sum, OFAC’s policy has the unintended (perhaps?) disparate impact of making the reconsideration/review process more difficult for blocked persons who are U.S. citizens, since they are more likely to have their funds blocked than their foreign counterparts.

As any attorney who has worked on these matters can tell you, the designation reconsideration process is a long, time intensive, expensive process. The caps being imposed by OFAC on the release of blocked funds for representation in such matters, not only fail to ensure complete compensation; they fail to ensure nominal compensation.”

The author of this blog is Erich Ferrari, an attorney specializing in OFAC litigation. If you have any questions please contact him at 202-280-6370 at 202-351-6161 or ferrari@ferrari-legal.com.