New Russia Sanctions Leading to Surge in Delisting Requests

As companies, business officials and others petition to be delisted, the increased number of requests has proven to be lucrative for several law firms that specialize in sanctions removals. Ferrari & Associates has recently doubled its practice, said Erich Ferrari, while Akrivis Law Group, a firm that has traditionally focused on Entity List removals, has seen more clients hoping to be removed from the Specially Designated Nationals list.

“It’s kind of tilting -- this is not something we’ve marketed really, per se, but people have needed it,” Akrivis Law Group's Farhad Alavi said in a recent interview. “I think Russia has opened up the space quite a bit.”

Former officials with Treasury’s Office of Foreign Assets Control warned that a surge in delisting requests could further handicap an already under-resourced agency, leading to slower adjudications. OFAC has seen a steady increase in SDN removal requests since 2020, according to data obtained through a public records request -- it received 87 petitions in 2020, 100 in 2021 and 124 last year.

There is little indication the pace will slow, given that the U.S. continues to impose new sanctions against Russia for its invasion of Ukraine, which has so far included hundreds of designations against Russian government officials, banks and oligarchs, as well as companies helping sanctioned Russians evade U.S. financial restrictions and export controls (see 2304120039, 2203240045, 2203030062 and 2203030062).

But delays at OFAC are nothing new -- lawyers have long complained about OFAC processing times, which worsened as the agency saw a record number of employees leave during the Trump administration (see 2010290028). Several former officials warned the departures and an influx of new officials risked compounding some of the agency’s existing issues.

That could be spilling over into delisting requests, which often aren’t prioritized, one former OFAC official who recently left the agency said. “There's only so many hours in the day and only so many of those investigators to be able to handle that work,” said the official, who requested anonymity to speak candidly about that person's time at OFAC. “Anytime you're seeing the steep increase in designations, that means there's less bandwidth to devote the time necessary to engage in the removals.”

The lack of bandwidth is exacerbated by the agency’s heavy sanctions workload, lawyers warned. At times last year, during the agency’s busiest time in recent memory, some OFAC officials were working 20-hour days (see 2203280016). One official recounted how employees would joke about how they didn’t have time to put their clothes away after doing laundry, instead putting them back on to return to work.

“It was very hectic and time-consuming,” the person said.

Removal from the SDN List can take years, with the quickest adjudication times taking anywhere from a year to 18 months, Ferrari said. He has seen some cases, including those that make an “insufficient basis for designation argument,” take five years, and “usually those parties get denied.”

Peter Robinson, a criminal defense lawyer, said he hasn't noticed a recent uptick in delisting requests but said the removal process has gotten "inordinately long." Three of his clients -- the wife, son and daughter of Radovan Karadzic, former president of the Bosnian Serb Republic who was convicted of war crimes by a U.N. international criminal court -- have waited three years for a decision on their OFAC delisting request, he wrote in a lawsuit filed May 2 in a U.S. federal court.

The suit said OFAC continually delays delisting decisions and isn't transparent about its "concerns" during the delisting process. If the agency denies a request because of those concerns, the requester must submit a new petition to address them, Robinson wrote. "They will thus become hamsters on the OFAC wheel, forced to wait yet another unreasonable period of time for yet another decision," the suit said.

“It's a challenging process,” Adam Smith, a Gibson Dunn lawyer and senior adviser to the director of OFAC during the Obama administration, said in a recent interview. “In many respects, a delisting request is a request for OFAC to engage in an investigation. And so, depending on the complexity of the investigation being asked for OFAC to undertake, it can take a long time.”

Ferrari said he has urged OFAC to move quicker, adding that the agency has the most leverage immediately after adding someone to the SDN List. Many sanctioned parties are “basically willing to do whatever OFAC wants or expects within those first two years” to be removed from the SDN List, he said. But after a certain amount of time has passed, “they've kind of figured out how to live under sanctions,” Ferrari said, “and they don't care anymore.

“I really think there are missed opportunities in terms of achieving actual concrete objectives that are just bogged down by the bureaucratic process just being too slow," he said.

Alavi also said he wishes OFAC were more responsive. “The biggest problem is timeline. It's just very onerous,” he said. “I just wish there was a way to kind of more quickly go through these, even if it's to get to a no answer, frankly.”

OFAC can help by being clearer about what steps SDN-listed parties need to take to be removed, said Ferrari, who added that about half of his firm's new business is clients seeking to be removed from the sanctions list. “They have no idea what to do to get off the list,” he said, adding that “most” lawyers also aren’t sure. “It's a niche proceeding within a niche area of law,” he said. “I think there's a lot of confusion.”

An OFAC spokesperson didn’t respond to requests for comment.

The former OFAC official said the agency “periodically” reviews its sanctions lists to “eliminate all of the low-hanging fruit,” including petitions that don’t need “significant analysis” or don’t require negotiating terms of removal. “So you may see some years where there's a big spike,” the person said. The agency had a surge in delistings in 2021, according to an Export Compliance Daily review of OFAC data, and removals fell back to normal levels last year.

The official said the agency could use more resources to help speed up the removal process, particularly as OFAC employees continue to face large workloads from new Russia-related sanctions. The agency has said it plans to place a significant focus this year on targeting Russian sanctions-evasion networks (see 2303030018), and Smith said he’s preparing for an increased “focus on counterparties who are assisting Russia in its war efforts.”

But the expansion in the agency’s responsibilities “has not been matched by a corresponding expansion of congressional funding for OFAC, and that's something that needs to change,” the former OFAC official said. “Because with any organization, retention becomes harder if you place more work on people's plates without correspondingly providing them resources to be able to handle that work.”