The implications of the current war on many legal questions are certainly staggering. Many remain to be developed, tested in the Courts and no doubt appealed and subject to the appellate courts to review. There are multiple questions pertaining to law of war, violations of humanitarian law, unlawful acts of aggression, and others. But an additional question no doubt pertains to how claims in civil litigations for recovery of assets will be impacted.
As has been widely reported, the Attorney General has designated a new chief prosecutor in the Southern District of New York to lead a new KleptoCapture recovery unit. According to the DOJ press release, this unit is tasked with enforcing the new sweeping sanctions countermeasures that the U.S. has imposed, along with its alies and partners, in response to Russia’s war in Ukraine.
Indeed, Courts have explained that since our nation’s infancy, many of its leaders have viewed economic sanctions as “the most likely means of obtaining our objects without war.” James Madison, “Political Observations,” National Archives (Apr. 20, 1795). In 1977, amidst the Cold War, Congress passed the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. §§ 1701 et seq., which grants the President broad discretion to impose economic sanctions on foreign entities and individuals in the event of a national emergency. See Fulmen Co. v. Office of Foreign Assets Control, No. 18-2949, 2020 WL 1536341, at *1 (D.D.C. Mar. 31, 2020) (citing 50 U.S.C. § 1702(a)(1)(B)); see also Dames & Moore v. Regan, 453 U.S. 654, 677 (1981) (“[T]he IEEPA delegates broad authority to the President to act in times of national emergency.”). The President may declare such a national emergency “when an extraordinary threat to the United States arises that originates in substantial part in a foreign state.” Holy Land Found. for Relief & Dev. v. Ashcroft, 333 F.3d 156, 159 (D.C. Cir. 2003). See, e.g., Rakhimov v. Gacki (D. D.C. 2020)
In the past two weeks alone, the U.S. has implemented broad new sanctions regulations against various Russian companies, banks and individuals. It has been widely reported, daily, how individual oligarchs have been trying to move assets, how jets and yachts have been seized and how the U.S. has been coordinating with other countries to implement more sanctions and freeze more assets. Within this fast-emerging, tightening web of sanctions, among the various complex compliance questions that arise, is what to do if one has a civil claim or pending litigation against a sanctioned individual and are trying to recover assets?
The law provides that a person who has been designated on the sanctions list may “seek administrative reconsideration” of his designation and request to be removed. See 31 C.F.R. § 501.807. “A request for reconsideration — also sometimes called a delisting request — may include arguments or evidence rebutting Treasury’s ‘basis . . . for the designation.'” Zevallos, 793 F.3d at 110 (quoting 31 C.F.R. § 501.807). OFAC reviews these requests and then “provide[s] a written decision to the blocked person.” 31 C.F.R. § 501.807(d). “A designated person can request delisting as many times as he likes.” Zevallos, 793 F.3d at 110 (citing 31 C.F.R. § 501.807). Rakhimov v. Gacki (D. D.C. 2020).
In addition, OFAC regulations provide an option to obtain a specific license for a particular transaction. OFAC issues such specific licenses on a case-by-case basis under certain limited situations and conditions. Guidance on how to request a specific license is found here (https://home.treasury.gov/policy-issues/financial-sanctions/frequently-asked-questions/ofac-consolidated-frequently-asked-questions ) and at 31 C.F.R. 501.801.
Such a special license is potentially required even to commence legal proceedings to recover assets against the sanctioned individual, let alone to implement any Court order directing the asset to be turned over in satisfaction of any debt or judgment. With the new initiatives of the DOJ KleptoCapture unit, it will be interesting to see how the law will develop in terms of any collaboration between the civil litigants trying to recover debts and criminal authorities’ seeking to enforce violations of sanctions laws. License applications to OFAC will surely take time, especially in the current climate where the regulations are new and there are so many new regulations. Thus, it will be also important to present these issues to the Courts so that they can make appropriate orders, perhaps even freezing orders, to preserve the status quo while the license applications are pending with OFAC.
Benaur Law, with special expertise in international asset recovery, judgment enforcement and international litigation generally, is actively researching the effects of the new laws and regulations. Please contact us to discuss these issues.