I have been asked numerous times over the years how the United States Department of the Treasury Office of Foreign Assets Control (“OFAC”) can designate an individual or entity without showing any evidence of the designated parties’ wrong doing. The reason for this derives from OFAC’s status as an administrative agency. As such their actions constitute administrative actions.

But what does that mean? At a recent press conference, OFAC Director Adam Szubin tried to draw some distinctions between OFAC’s actions and a normal criminal prosecution. His comments were interesting, albeit misleading at times. Here is a run down of what he said and what it really means:

1. When journalists demanded that Szubin make public the evidence OFAC had gathered against a certain designated individual, Szubin declined to do so, stating that OFAC had not initiated any judicial proceedings against the individual. The naming of “kingpins”, he said, is an administrative act intended to protect the US financial system against the proceeds of narco-trafficking. “The objective is to disrupt the financial operations of narcotics cartels, making it harder for them to achieve their goals, and to protect our financial system from dirty financial flows”, Szubin declared.

This is true, an OFAC designation is not the initiation of a judicial proceeding such as a criminal prosecution would be. It is indeed an administrative act. As such, an agency can render a final decision on a certain matter, and generally speaking a court can not overturn their action unless it is deemed to be arbitrary and capricious.

However, this does not mean that OFAC could not or should not provide some evidence as to why a designation was made. In the federal criminal context, many times an Assistant United States Attorney will provide defense counsel with pre-indictment discovery to show counsel the government’s proof to believe that his/her client committed a crime. This is done to convince the client to plead guilty to a crime they have been investigated prior to an indictment or arrest on criminal complaint. OFAC could do the same thing prior to designating an individual. This would provide an individual an opportunity to cease their activities or explain those activities without having to suffer the consequences of a designation. This would be an excellent way to prevent erroneous designations.

2. “This is not a criminal process”, said Szubin, “in that documents do not go before a court, we are not prosecuting anyone, and we are not trying to put them in jail. We just have evidence that he is a trafficker and we want him out of our financial system”.

This is also true, but begs the question: what amount of evidence is required in order for a designation under a U.S. economic sanction program to occur? For example, there is no statute or regulation that states, OFAC will only designate individuals based on clear and convincing evidence. That means that OFAC may designate an individual or entity at their discretion. In theory, although unlikely, so much as a rumor or an anonymous tip could lead to a designation.

3. Szubin stated that “Tier One Kingpins”, never apply for delisting, because they have spent years or decades in trafficking “and have no intention of changing”.

This is false, there are a number of high profile “Kingpins” who have either in the past challenged or are currently challenging their designations.

4. Szubin denied that there was any lack of due process, since any person on the list can appeal to the US courts. “These actions can be rescinded by a court”, he said. “Should an individual wish to challenge our actions, he may do so in a US court. Then a judge would look at the evidence we have”.

This statement is misleading as well. In order, for a court to review OFAC’s action, the individual would first have to exhaust their administrative remedies. This includes requesting a reconsideration under 31 C.F.R. 501.807; a process which is notorious for taking a long time. Some requests for removal under those procedures take OFAC as long as two (2) years to make a determination on. All that time, the designated individual may have their assets blocked and be prevented from engaging in transactions with U.S. persons. Furthermore, even if it does get to the point of judicial review, the courts will look at OFAC’s action in light of an arbitrary and capricious standard; an incredibly favorable standard for OFAC.

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.