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Zarmach Oil Services, Inc. v. United States Dep't of the Treasury

November 16, 2010

ZARMACH OIL SERVICES, INC., PLAINTIFF,
v.
UNITED STATES DEPARTMENT OF THE TREASURY, OFFICE OF FOREIGN ASSETS CONTROL, DEFENDANT.



The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge

MEMORANDUM OPINION

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.

BACKGROUND

I. STATUTORY FRAMEWORK

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 ...


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