By: Samuel Cutler
On November 5, 2018, the United States reimposed a comprehensive set of sanctions on Iran that had previously been lifted by the Obama administration as part of the Joint Comprehensive Plan of Action (JCPOA). Included among the various measures implemented by the Trump Administration was the redesignation of more than 700 individuals and entities as Specially Designated Nationals (SDN). Any person engaging in significant financial transactions with these SDNs could be cut off from the U.S. economy. Without returning the 700+ designees to the SDN list, the Trump administration’s efforts to comprehensively reimpose sanctions on Iran would be significantly impeded. Therefore, any potential legal deficiencies in the redesignation action could have profound consequences. Luckily for the Trump administration, President Obama made a key decision in formulating the JCPOA that largely safeguarded the move from legal challenge.
The Administrative Procedure Act requires that an agency action not be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Every addition of an individual or entity as an SDN must meet a sufficient evidentiary basis to survive a legal challenge under this requirement. Some of the new SDNs had previously been designated as SDNs using different authorities before this most recent action. This provided new evidentiary bases for their designation as SDNs. For instance, Bank Melli had previously been designated an SDN in 2007 under Executive Order 13382 for facilitating the proliferation of Weapons of Mass Destruction. As of November 5, it has again been designated an SDN, this time under Executive Order 13224 for supporting the IRGC Qods Force, itself an SDN because of its support for terrorism. Providing a new basis for these designations is consistent with normal procedures. However, entities receiving a new evidentiary basis for designation represent only a small portion of the newly redesignated entities.
The vast majority of the resanctioned entities were not provided with new evidentiary bases for their designations, rather their SDN status was as a result of the elimination of the so-called “E.O. 13599 List.” This list, created in in 2016 by the Obama administration, allowed the Trump administration to reimpose sanctions on hundreds of entities without expending the immense time and resources needed to create new evidentiary packets for each individual designee.
Executive Order 13599 was issued in February 2012 and authorized the Secretary of the Treasury to block all property or interests in property owned by the Iranian government, Iranian financial institutions, or any person identified by the Treasury Secretary as acting on behalf of those entities. Even when an entity was designated under a separate authority, most Iran-linked SDNs were also listed pursuant to E.O. 13599 for acting on behalf of or in support of the Iranian government. This in essence provided a secondary evidentiary justification for each designation. As the Iran sanctions regime became progressively more restrictive, secondary sanctions liability was attached to potential dealings with 13599-listed entities.
In signing the JCPOA, the Obama administration removed hundreds of individuals and entities from the SDN list. However, rather than lift sanctions on them entirely, the Treasury Department’s Office of Foreign Assets Control (OFAC) decided to keep them on the 13599 list. From a sanctions perspective, maintaining a 13599 designation was mostly redundant; while the JCPOA lifted secondary sanctions liability from 13599 entity-linked transactions, the general prohibitions on U.S. persons dealing with Iranian persons writ large remained mostly intact.
What creating E.O. 13599 list did accomplish was maintaining the bases for designation of these individuals and entities. Had the Obama administration simply removed the designations, any sanctions reimposition would have been legally suspect. In Islamic American Relief Agency v. Gonzalez, the D.C. Circuit wrote that when analyzing the information used in support of an SDN designation, “we may not substitute our judgment for [Treasury’s], but we will require it to ‘examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.’” Still, a court may very well question an attempt by Treasury to utilize the same information justifying the initial designations as the basis for a renewed designation, given the intervening removal from the list, as it would be unclear which “facts” OFAC would be relying on to support the new designation.
The danger of an adverse ruling would likely force OFAC to create entirely new designation packets to support redesignation, requiring significant expenditure of time and resources. But by maintaining the 13599 list, any individual or entity seeking to have their designation removed pursuant to Treasury’s delisting procedures at 31 C.F.R. § 807 would have to argue that an insufficient basis existed at the time of the initialdesignation or that the circumstances resulting in that initial designation no longer apply. This is an enormously high bar for any petitioner to meet. In creating the 13599 list, the Obama administration anticipated the need for a mass redesignation of SDNs in the event of a sanctions snap-back scenario. Without this foresight, the impact of the Trump administrations Iran sanctions reimposition would have been significantly diminished.