Yet another Russian company sanctioned by the European Union has filed an appeal with the European Union Court of Justice contesting its designation. Almaz-Antey, maker of the much ballyhooed S-300 surface-to-air missile system, has challenged its listing, with its General Director claiming “no proof has been presented by the European Council that (Almaz-Antey) is involved in destabilizing the situation in Ukraine.” The company is only the latest to appeal, joining, among others, Russia three largest lenders Sberbank, VTB Bank, and Vneshekonombank.
Court challenges to EU sanctions have become fairly commonplace over the past few years and with good reason—there have been a number of high-profile victories for plaintiffs, particularly in the Iran context. These include the National Iranian Tanker Company, sanctions-buster extraordinaire Babak Zanjani, and Iran’s Bank Melli. Friend-of-the-blog Maya Lester, who runs the European Sanctions blog has been involved in a number of these types of cases.
In the past, successful challenges to EU sanctions relied on the peculiar (at least from a U.S.-centric point of view) evidentiary rules regarding the use of classified information. Under E.U. law, information used to designate individuals or entities, classified or not, must be shown to the designees. This obviously proved difficult for EU governments who for obvious reasons are hesitant to reveal classified sources and/or methods. While new procedures were proposed in February, they have not yet taken effect.
One question you may be asking – why haven’t there been similar successful challenges to U.S. sanctions?
There has never been a successful challenge to a U.S. sanctions designation, a fact officials from the Office of Terrorism and Financial Intelligence (“TFI”) and Office of Foreign Assets Control (“OFAC”) like to tout. While technically they are correct, this does overlook a number of cases where administrative delistings have occurred before any adverse ruling could be handed down. Some examples include Gotovina v. United States Department of Treasury et. al, Osorio v. Office of Foreign Assets Control, and Gomez Rua v. United States Department of Treasury et al.
A successful legal challenge to a U.S. sanctions designation must surmount a number of difficult hurdles. First, most designees are not U.S. persons and are therefore not entitled to the same constitutional rights as a U.S. citizen. Second, the legal standard OFAC must meet to issue a designation is “reasonable cause to believe,” an incredibly low bar. Third, most challenges are pursuant to the Administrative Procedures Act, meaning in order for a court to reverse an agency action, plaintiffs must generally show the agency acted in a manner “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Fourth, since OFAC operates in the realm of national security, they are afforded extreme deference by the judiciary.
In sum, it is extraordinarily difficult to compel delisting through legal action. Readers are encouraged to take a look at Zevallos v. Obama, as well as Zevallos’ appeal, currently being review by the D.C. Circuit Court of Appeals, to see just how this process works. (Disclosure: Ferrari & Associates P.C. represents Mr. Zevallos).
Though the administrative reconsideration process can be maddeningly slow, it is generally a better option for getting off the list, at least initially.