D.C. Circuit upholds Treasury’s denial of delisting request in Zevallos v. Obama; opinion illustrates deferential standard applied to SDN designations

July 30, 2015

On July 10, 2015, the United States Court of Appeals for the D.C. Circuit affirmed the district court’s decision in the case of Zevallos v. Obama, rejecting a challenge to OFAC’s decision to designate (and not delist) Zevallos as a significant foreign narcotics trafficker and place him on the Specially Designated Nationals and Blocked Persons List (“SDN List”).
 
Fernando Zevallos, a Peruvian national and founder of a low-cost airline operating throughout Latin America, was designated by President George W. Bush as a significant foreign narcotics trafficker under the Foreign Narcotics Kingpin Designation Act in 2004.  The Kingpin Act gives the President the authority to designate individuals who play significant roles in drug trafficking operations, and all of Zevallos’ assets in the United States and the assets of related companies and individuals were blocked.  Zevallos, who was investigated by a number of countries for alleged involvement in narcotics trafficking throughout the 1980s and 1990s, is currently serving a twenty-year prison sentence in Peru and faces additional charges in the Southern District of Florida.  The case made its way to the D.C. Circuit as an attack on OFAC’s denial of Zevallos’ delisting request, which Zevallos argued was arbitrary and capricious, and violated his due process rights.
 
The D.C. Circuit affirmed the district court’s decision as “perfectly appropriate.”  The decision is notable in two respects.  First, the Court refused appellant’s invitation to apply de novo review in lieu of the Administrative Procedure Act’s “highly deferential” arbitrary and capricious standard, explaining that the Court has never applied de novo review in an APA case and has stated, in dicta, that “procedures must be severely defective before a court proceeding under the APA can substitute de novo review for review of the agency’s record.”  The decision also illustrates the flexibility that OFAC has in making designations and in refusing to lift designations.  The Court approved the use of unverified open source materials, such as news media reports, as part of the unclassified record supporting the decision to designate an individual or entity for inclusion on the SDN List, and clarified that, even though there “is no doubt… that Treasury marshalled less evidence now than existed to support his original designation in 2004,” and that “much of this evidence could be viewed in a light more beneficial to Zevallos,” under the deferential standard of review, the record supported Treasury’s denial of the delisting request.
 
The full text of the D.C. Circuit’s decision may be found here.