Zarmach Oil Serv. Inc. v. United States Dep't of The Treasury, Civil Action No. 09–2164 (ESH).

Citation750 F.Supp.2d 150
Decision Date16 November 2010
Docket NumberCivil Action No. 09–2164 (ESH).
CourtU.S. District Court — District of Columbia
PartiesZARMACH OIL SERVICES, INC., Plaintiff,v.UNITED STATES DEPARTMENT OF THE TREASURY, Office of Foreign Assets Control, Defendant.


David H. Dickieson, Schertler & Onorato, LLP, Washington, DC, for Plaintiff.Scott Risner, U.S. Department of Justice, Washington, DC, for Defendant.



Plaintiff Zarmach Oil Services, Inc. (Zarmach) has sued the United States Department of the Treasury, Office of Foreign Assets Control (OFAC), seeking review under the Administrative Procedures Act (“APA”), 5 U.S.C. §§ 701–706, of OFAC's denial of a specific license to release funds blocked pursuant to the sanctions regime against the Government of Sudan. Zarmach argues that OFAC's denial violates the APA because it is arbitrary and capricious and contrary to law. Defendant has moved to dismiss and for summary judgment. For the reasons stated herein, the Court will grant defendant's motion.


In 1977, Congress enacted the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. §§ 1701–1706, amending the Trading With the Enemy Act of 1917 (“TWEA”) and granting the President the authority to regulate various international economic transactions during declared wars or national emergencies. Upon presidential declaration of a national emergency “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States,” 50 U.S.C. § 1701(a), IEEPA authorizes the President to:

regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation ... of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest ... with respect to any property, subject to the jurisdiction of the United States....

Id. § 1702(a)(1)(B).

On November 3, 1997, President Clinton issued Executive Order No. 13067, which authorized a series of economic sanctions against the Government of Sudan pursuant to IEEPA. Finding that the Government of Sudan's “continued support for international terrorism; ongoing efforts to destabilize neighboring governments; and the prevalence of human rights violations, including slavery and the denial of religious freedom” constituted “an unusual and extraordinary threat to the national security and foreign policy of the United States,” Exec. Order No. 13067, 62 Fed. Reg. 59989 (Nov. 3, 1997), the President blocked “all property and interests in property of the Government of Sudan that are in the United States [or] that hereafter come within the United States.” Id. § 1. The Executive Order further authorized the Secretary of the Treasury, “in consultation with the Secretary of State and, as appropriate, other agencies ... to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to [the President] by IEEPA, as may be necessary to carry out the purposes of [the] order,” including redelegation of any of these functions to other officers and agencies of the United States Government. Id. § 5.

On October 13, 2006, President Bush issued Executive Order No. 13412, which maintained the blocking of the Government of Sudan and extended the scope of the blocking to Sudanese petroleum and petro-chemical industries. See Exec. Order No. 13412, 71 Fed. Reg. 61369 (Oct. 13, 2006).

Pursuant to IEEPA and a delegation of authority by the Secretary of the Treasury, 31 C.F.R. § 538.802, OFAC has promulgated regulations to implement Executive Order Nos. 13067 and 13412. OFAC's regulations provide that:

Except as authorized ..., no property or interests in property of the Government of Sudan, that hereafter come within the United States ... may be transferred, paid, exported, withdrawn or otherwise dealt in.

31 C.F.R. § 538.201(a). The regulations further provide that:

Any transfer ... which is in violation of any provision of this part ... and involves any property or interest in property blocked pursuant to § 538.201 is null and void and shall not be the basis for the assertion or recognition of any interest in or right, remedy, power or privilege with respect to such property or property interests.

31 C.F.R. § 538.202(a). Since 2000, OFAC has defined “Government of Sudan” to include the Sudanese Petroleum Corporation (“Sudapet”), based on evidence that Sudapet was owned by the Government of Sudan's Ministry of Energy. (Declaration of Adam J. Szubin [“Szubin Decl.”] ¶ 20.)

OFAC defines the terms “property” and “property interest” to include “any other property, real, personal, or mixed, tangible or intangible, or interest or interests therein, present, future or contingent.” 31 C.F.R. § 538.310. The regulations further provide that “the term interest when used with respect to property (e.g., ‘an interest in property’) means an interest of any nature whatsoever, direct or indirect.” 31 C.F.R. § 538.307. The regulations define “transfer” to mean:

any actual or purported act or transaction ... whether or not done or performed within the United States, the purpose, intent, or effect of which is to create, surrender, release, convey, transfer, or alter, directly or indirectly, any right, remedy, power, privilege, or interest with respect to any property and, without limitation upon the foregoing, shall include the making, execution, or delivery of any assignment, power, conveyance ... agreement, contract, ... [or] sale....

31 C.F.R. § 538.313.

Under its sanctions programs, OFAC may, by request, issue a “specific license” to authorize an otherwise prohibited transaction or service. See 50 U.S.C. app. § 5; 31 C.F.R. § 501.801. OFAC has interpreted its blocking authority under IEEPA and implementing executive orders as granting it discretionary authority to issue or withhold such licenses based on national security and foreign policy considerations, and OFAC regulations generally do not compel the issuance of a specific license once certain criteria are met. (Szubin Decl. ¶ 15.) The Sudanese Government's interest in blocked property is extinguished once the property has been transferred pursuant to an OFAC-licensed transfer. 31 C.F.R. § 538.403.


In November 2003, Cliveden Petroleum, Inc. (“Cliveden”), a corporation located in Geneva, Switzerland, negotiated a lease with Sudapet for oil drilling rights in the Sudan. (Compl. ¶ 5.) Pursuant to the lease, Cliveden requested that its bank, Banco Atlantico, Gibraltar, transfer $915,102 via electronic wire to Sudapet's bank. ( Id. ¶ 7.) During the transfer, the funds were unintentionally routed through the intermediary bank of Bank of New York Mellon in the United States. ( Id. ¶ 9.) Because the assets were destined for Sudapet, an entity defined by OFAC as part of the Government of Sudan, OFAC blocked the transfer and froze the assets.

A month later, on December 2, 2003, Cliveden entered into an agreement to “irrevocably and unconditionally assign to Zarmach all of its rights and benefits attached to the pending blocked funds and to the related claim against the U.S. Office of Foreign Asset Control.” 1 ( Id. ¶ 17; Id. Ex. 3.) Despite this purported transfer of rights, on January 13, 2004, Banco Atlantico, on behalf of Cliveden (which presumably no longer had any interest in the funds), applied to OFAC for a license to allow the funds to be released. ( Id. ¶ 13.) OFAC denied this request, explaining that “the blocked funds transfer in question involves an interest of a Sanctions Target; specifically, pursuant to Sudanese Sanctions Regulations, 31 C.F.R. Part 538 and that the release of the blocked assets “would be inconsistent with U.S. sanctions policy.” ( Id. Ex. 2.)

Subsequently, Cliveden wired a separate payment of $915,102 to Sudapet in order to satisfy its obligations under the lease transaction. ( Id. ¶ 16.)

On August 14, 2009, Zarmach submitted an Application for the Release of Blocked Funds, seeking reconsideration of OFAC's previous denial of a specific license regarding this transaction. ( Id. ¶ 18; Administrative Record [“AR”] at 000007–19.) On September 2, 2009, OFAC denied Zarmach's request. (Compl. Ex. 4.) OFAC explained that it “licenses the release of blocked funds only under limited and compelling circumstances consistent with the national security and foreign policy interests of the United States” and stated that while it had reviewed the information submitted by Zarmach, OFAC had “determined once again that licensing the release of the blocked funds would be inconsistent with OFAC policy,” as the transfer in question involved “an interest of a sanctions target, specifically, Sudanese Petroleum Corporation. ( Id.)

Zarmach initiated the present action on November 17, 2009, claiming that OFAC's denial of a license violates the APA and the Takings Clause of the Fifth Amendment to the Constitution.


When a district court reviews agency action under the APA, as is the case here, the court may “reverse the agency action only if it is ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’ United Techs. Corp. v. U.S. Dep't of Defense, 601 F.3d 557, 562 (D.C.Cir.2010) (quoting 5 U.S.C. § 706(2)(A)). “This ‘standard is narrow and a court is not to substitute its judgment for that of the agency. Nevertheless, the agency must examine the relevant data and articulate a satisfactory explanation for its action[,] including a rational connection between the facts found and the choice made.’ Id. (quoting Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (19...

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