United States District Court, District of Columbia
PACIFIC SOLAR ENERGY, S.A. de C.V., Plaintiff,
v.
UNITED STATES DEPARTMENT OF THE TREASURY, et al., Defendants.
MEMORANDUM OPINION AND ORDER
RANDOLPH D. MOSS United States District Judge
By all
accounts, Plaintiff Pacific Solar Energy, SA, de C.V.
(“Pacific Solar”) did nothing wrong. It is a
Honduran company that sought to make a payment of $105,
028.05 to its insurer, Seguros Continental, which is also a
Honduran company. Dkt. 1 at 8 (Compl. ¶¶ 15-17).
Because the payment was to be made in U.S. dollars, Pacific
Solar directed its bank in Miami, Florida-Banco Santander-to
wire the premium payment to an account held by the
insurer's Honduran bank-Banco Continental, S.A.
(“Banco Continental”)-at Banco Continental's
correspondent bank in Miami-U.S. Century Bank-so that Banco
Continental could then credit the transfer to the
insurer's account in Honduras. Id. at 8-9
(Compl. ¶¶ 18-20); Dkt. 61-1 at 2 (SUMF ¶ 5).
But,
unbeknownst to Pacific Solar, Defendant U.S. Department of
Treasury, through its Office of Foreign Assets Control
(“OFAC”), designated Banco Continental as a
Specially Designated Narcotics Trafficker pursuant to Foreign
Narcotics Kingpin Designation Act (“Kingpin
Act”), 21 U.S.C. § 1901 et seq., just
hours before Banco Santander wired Pacific Solar's funds
to U.S. Century Bank. Dkt. 66 at 4; Dkt. 61-1 at 1 (SUMF
¶ 1). Because the designation had the effect of blocking
all property (and interests in property) of Banco Continental
in the United States, see 21 U.S.C. § 1904(b),
Banco Santander should not have made the transfer and U.S.
Century Bank should not have accepted it, id. §
1904(c). But they did. Once U.S. Century Bank received the
funds on behalf of Banco Continental, moreover, it should not
have issued a credit transfer message or payment order to
Banco Continental in Honduras for the purpose of transferring
the funds from Banco Continental's correspondent account
in the United States to Banco Continental in Honduras. But it
did.
Pacific
Solar's luck gets worse. Three days after OFAC blocked
Banco Continental's accounts in the United States, the
government of Honduras notified OFAC that it had initiated
proceedings to liquidate Banco Continental, and the bank is
now under the control of the Honduran government and has been
placed in liquidation. Dkt. 29-1 at 17. Although the funds at
issue were credited on Banco Continental's general
ledger, they were never ultimately credited to the
insurer's account. See Dkt. 45-1 at 19-22
(Exhibit B); see also Dkt. 45-1 at 13 (Manfull Decl.
¶ 63). The Honduran government, however, acknowledges
that Banco Continental received the funds, and it has
represented that Pacific Solar may file a claim against the
estate of the bank in Honduras. See Dkt. 45-1 at 19
(Exhibit B).
This
brings us to the present dispute: Shortly after OFAC blocked
Banco Continental's U.S. accounts, Pacific Solar applied
to OFAC for a license under 31 C.F.R. § 501.801 to
unblock the $105, 028.05 held at U.S. Century Bank, so that
it could then recover the funds that it had sought to
transfer to its insurer in Honduras. Dkt. 1 at 13 (Compl.
¶ 48). OFAC denied that application, concluding that
U.S. Century Bank had properly blocked the transfer to Banco
Continental and that “[i]t is OFAC's policy to
license the release of blocked property only in limited
circumstances” not present in this case. Dkt. 61-1 at 3
(SUMF ¶ 14). Pacific Solar asked OFAC to reconsider, and
OFAC denied that request. Id. at 3-4 (SUMF ¶
15). After Pacific Solar brought this action challenging
OFAC's denial, however, OFAC learned that U.S. Century
Bank had issued the credit transfer message or payment order
to Banco Continental in Honduras. Id. at 4 (SUMF
¶¶ 16-17). After further investigation, it then
wrote to Pacific Solar stating that it was mistaken in its
initial decision and that, in fact, the funds at issue are
not blocked in the United States and that as a result, no
OFAC license is necessary (or appropriate) to recover the
funds in Honduras. Id.
The
parties' cross-motions for summary judgment are pending
before the Court. Dkt. 60; Dkt. 61. These motions address
three questions, although the first question was raised by
the Court and not the parties. First, in light of OFAC's
representations that it is authorized only to block property
located in the United States or held or controlled by a U.S.
person, is Pacific Solar's claim seeking an OFAC license
redressable for purposes of establishing Article III
standing? Second, even if Pacific Solar has standing, is
there any basis for the Court to set aside OFAC's
determination that Pacific Solar does not need a license
because the funds at issue are not located in the United
States? Third, if Pacific Solar can clear the first two
hurdles, is there any basis for the Court to set aside
OFAC's decision declining to grant Pacific Solar a
license?
As
raised with the parties at a status conference on March 26,
2019, however, an OFAC regulation that was not addressed by
OFAC in its administrative decisions and that was not
addressed by either party in the briefs currently before the
Court, poses at least two additional- albeit
related-questions. See Minute Order (March 24,
2019); Minute Entry (March 26, 2019).
That
regulation, promulgated by OFAC pursuant to the Kingpin Act,
states:
Any transfer after the effective date that is in violation of
any provision of this part or of any regulation, order,
directive, ruling, instruction, or license issued pursuant to
this part, and that involves any property or interest in
property of a specially designated narcotics trafficker is
null and void and shall not be the basis for the assertion or
recognition of any interest in . . . such property or
property interests.
31 C.F.R. § 598.205(a); see also Id. §
598.302 (defining “effective date”); id.
§ 598.316 (defining “transfer”);
id. § 598.314 (defining “specially
designated narcotics trafficker”). The plain language
of the regulation would seem to indicate that any transfer of
funds made in violation of the Kingpin Act and OFAC's
implementing regulations or orders is “null and
void.” This, then, raises two significant questions:
First, if, as the parties agree, OFAC's blocking order
was in place prior to U.S. Century Bank's initiation of a
credit transfer message or payment order to Banco Continental
in Honduras, does the regulation have the effect of
nullifying or voiding that transfer, such that the funds held
at U.S. Century Bank never made it to Honduras? Second, does
this same reasoning apply to Banco Santander's initial
transfer of funds into U.S. Century Bank, such that the
payment from Pacific Solar never made it into Banco
Continental's blocked accounts to begin with?
Because
OF AC did not address the effect, if any, of the regulation
on Pacific Solar's license application in its
administrative decisions, the Court will deny both
parties' cross-motions for summary judgment, Dkt. 60;
Dkt. 61, and will remand the matter to OF AC for further
consideration. It is a cardinal rule of judicial review that
“agencies, not courts, should decide issues in the
first instance, for courts ‘cannot exercise their duty
of review unless they are advised of the considerations
underlying [agency] action.'” Eisai, Inc. v.
Food & Drug Admin., 134 F.Supp.3d 384, 403 (D.D.C.
2015) (quoting SEC v. Chenery Corp. (“Chenery
I ”), 318 U.S. 80, 94 (1943)). Because an
agency's “action must be measured by what [it] did,
not by what it might have done, ” Chenery I,
318 U.S. at 93-94, the Court cannot address the meaning of
the OF AC regulation-or how it might affect OFAC's
determination of Pacific Solar's license application-when
OF AC itself has not yet done so.
For the
foregoing reasons, both Plaintiff's motion for summary
judgment, Dkt. 60, and Defendants' cross-motion, Dkt. 61,
are hereby DENIED without prejudice. It is
further ORDERED that the matter is remanded
to OFAC to consider whether and how 31 C.F.R. §
598.205(a) and any related statutory or regulatory provisions
apply to this matter. It is further ORDERED
that, within 45 days, (1) OFAC shall issue a decision
addressing the questions posed by this opinion, or (2) the
parties shall file a joint status report informing the Court
where the matter stands and proposing next steps.
SO
...