Cypriot Investment Firm Challenges OFAC's Denial of Sanctions Delisting Petition
VFC Solutions, a sanctioned Cypriot investment firm, filed a lawsuit against the Office of Foreign Assets Control for denying its petition to be delisted from the Specially Designated National and Blocked Persons List (SDN List), arguing that the agency acted "arbitrarily and capriciously" by denying the petition based on "speculation and conjecture."
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In its complaint last week at the U.S. District Court for the District of Columbia, VFC also said OFAC acted arbitrarily and capriciously in denying the petition on "purported misstatements" made by sanctioned Belarusian general Alexander Volfovich in his separate delisting petition (VFC Solutions v. Bradley Smith, D.D.C. # 25-03861).
VFC is an investment and consulting firm formerly engaged in "innovative technology ventures" in Israel and the U.S., it said. The firm was sanctioned in 2023 because it was controlled by Volfovich.
Acknowledging that the basis for the sanctions designation was Volfovich's ownership and control over the company, VFC filed a delisting petition and proposed 17 remedial measures "specifically designed to negate the basis for its designation," chief among them being the general's resignation from and divestiture of his ownership interest in the firm.
After OFAC issued VFC a questionnaire regarding its petition, the firm supplemented its response three times, providing more information about Volfovich's progress in divesting from the company. He was "removed as a director" and "executed two instruments" looking to transfer half of his shares to each of his sons, Stanislav and Ariel Volfovich, VFC said. However, Cyprus' Ministry of Finance "denied approval for the share transfers."
VFC then sent OFAC a legal opinion from a Cypriot law firm "opining" that the reason for the Ministry of Finance's denial was "likely the result of the Cypriot authorities’ refusal to take administrative actions involving OFAC-designated parties." Thus, the firm said, Cypriot authorities are unlikely to approve the general's divestment while the sanctions remain in place.
OFAC ultimately denied the delisting petition, finding that even if the transfer was effectuated, Volfovich's shares would go to his sons, and thus the general "would likely be able to continue to exert control, via proxy, over VFC.” In court, the firm said this conclusion is based on nothing more than speculation, since OFAC never explained the "factual basis" for this decision. Mere "fears of a possible, future proxy relationship -- absent real, documented facts -- cannot satisfy the [Administrative Procedure Act's] requirement for reasoned decision-making grounded in the administrative record."
In its delisting petition and questionnaire responses, VFC proposed to "annually certify, under penalty of perjury, that it is not acting for or on behalf of any person on the SDN List -- such as Mr. Volfovich." The firm faulted OFAC for failing to address this proposal.
VFC also challenged OFAC's decision to deny the delisting petition based on alleged misstatements that Volfovich made in his own, separate delisting petition. By denying the company's petition "based on the lack of credibility of a third party’s statements relating to circumstances entirely distinct from those regarding his relationship with Plaintiff, and arising in that party’s own separate agency proceeding," the agency "failed to identify a rational basis for the agency’s decision."
Instead, OFAC relies on "factors extrinsic to the actual conduct and circumstances of the party before the agency, and instead impute the conduct or statements of a third party relating to circumstances distinct from anything to do with Plaintiff, onto Plaintiff," the complaint said.