For a number of years the United States Department of the Treasury Office of Foreign Assets Control (“OFAC”) has instituted caps on the amount of money that can be paid by Specially Designated Nationals (“SDNs”) from blocked sources for legal representation in seeking to remove their designation or blocking. Previously, attorneys providing legal services to these parties in such matters could only be paid a nominal amount from blocked sources; and those payments were subject to specific licensure from OFAC. However, OFAC has recently revamped its policy and has issued new guidance on the release of blocked funds for payment of legal fees and costs associated with seeking removal of an OFAC designation or blocking action.

There are a number of limitations on this policy. First, the blocked party must be a U.S. person and the beneficial owner of the blocked funds from which payment is to be authorized. Furthermore, the funds may only be used for the administrative reconsideration or judicial review of a blocked party’s designation, blocking, or blocking pending investigation. Second, there are a number of limits placed upon how much compensation can be paid to the attorney(s). The maximum hourly rate for these types of payments is $125; however, that is of little consequence because the total amount that can be paid for attorneys fees for an administrative reconsideration of the blocking or designation is $14,000. If the attorneys also represent the blocked court during judicial review by a U.S. District Court they then can be compensated an additional $14,000 from blocked funds. Finally, if there is an appeal filed to an adverse finding at the district court level, then the attorneys can be compensated an additional $10,000. Therefore, the maximum compensation permitted from blocked funds, assuming that the attorneys represented the blocked party at all levels of the reconsideration/review process, is $38,000. In extraordinary cases, such as those that involving complex and lengthy proceedings, OFAC increases these dollar amounts of the caps which effectively results in a doubling of the authorized amounts. In other words, attorneys representing a blocked party in a removal of its designation or blocking can receive $28,000 at the administrative reconsideration level, $28,000 at the district court level, and $20,000 at the appellate level, for a total of $76,000 from blocked funds. Finally, the attorneys may only be compensated $15,000 for incurred costs during these proceedings regardless of the length or complexity of the case.

The new policy also puts into place requirements to be fulfilled in the license application for authorization to be paid from blocked funds. First, there must be a certification that the blocked party is a U.S. person without access to any other funds, property, or assets outside of the United States and that they are the beneficial owner of the blocked funds. In addition, the blocked party must certify that no other person has a property interest in the blocked funds and that the blocked party has fully reported its interest in such blocked funds to OFAC. Second, OFAC must be provided with an itemized statement of amounts already paid for legal representation and associated costs up to the date of the license application. Third, the blocked party must include a letter stating that they want the blocked funds to be paid to a particular attorney or attorneys. Fourth, OFAC requires an itemized statement of the hourly rate and the billable hours per attorney divided by each phase of the case: administrative reconsideration, district court review, and appellate review. Finally, OFAC also requires an itemized statement describing the costs incurred.

While a step in the right direction, this new policy certainly does not even come close to adequately compensating counsel for the amount of time and work that goes into representing a party in the OFAC designation or blocking removal process. In fact, OFAC admits this in its newly issued guidance stating quite candidly, “This policy is not intended to ensure complete compensation to counsel.” As an attorney who has worked on numerous SDN removal matters, I can tell you that these cases go on for years, are extremely complex and time intensive, and cost lots of money. The amounts being authorized as part of this policy are insufficient to alleviate the real problem here; namely, that parties designated by OFAC have difficulty affording adequate legal representation in seeking the removal of their designation or blocking. As such, the difficult job of removing oneself from the SDN list or having their property unblocked becomes all the more difficult.

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.