Background
President Biden invoked the International Emergency Economic Powers Act in 2021 to issue Executive Order 14024, declaring a national emergency regarding harmful activities of the Russian Federation. The Office of Foreign Assets Control (OFAC) implemented the order, extending it in 2023 to cover the “metals and mining sector of the Russian Federation economy.” OFAC defined this sector to include “any act of procuring, processing, manufacturing, or refining” geological materials in Russia.
Axel Diegelmann and his son Fritz are German nationals who trade in precious metals. In 2024, OFAC blocked property of the Diegelmanns and three associated companies, determining that they operated in Russia’s metals and mining sector. OFAC concluded the Diegelmanns surreptitiously helped “Russia-based metals companies” buy and sell precious metals, circumventing international sanctions. The Diegelmanns admitted to purchasing refined precious metals, including finished gold bars, from Russian clients.
The district court granted summary judgment for the government. The Diegelmanns appealed, challenging whether purchasing finished precious metals constitutes “procuring geological materials” under the applicable regulation.
The Court’s Holding
The D.C. Circuit affirmed the sanctions, holding that the Diegelmanns’ purchases of refined precious metals from Russian sources constitute “procuring geological materials” within the meaning of OFAC’s sectoral determination. The court rejected the Diegelmanns’ argument that “procure” in the mining context means only obtaining equipment necessary for extraction. Instead, the court applied the ordinary meaning of procure—”to get by special effort; obtain or acquire”—concluding that purchasing gold bars qualifies as acquiring geological materials.
The court rejected the alternative argument that “geological materials” refers only to raw, unprocessed materials as forfeited. The Diegelmanns failed to present this distinction to the district court, instead arguing that the regulation targets “precious metals” generally. Under settled appeal procedure, arguments not raised below are ordinarily not heard on appeal. The court noted it had no occasion to decide whether refined metals qualify as “geological materials” because the argument was waived.
The court upheld OFAC’s determination that the precious metals were sufficiently connected to Russia, finding that classified evidence in the administrative record adequately supported the sanctions. The court applied the “extremely deferential” standard of review appropriate for national security matters under the Administrative Procedure Act.
Key Takeaways
- Trading in finished precious metals with Russian sources can trigger OFAC sanctions for operating in Russia’s metals and mining sector, even for foreign nationals outside the U.S.
- The ordinary meaning of “procure” in sanctions regulations includes acquiring finished goods, not merely obtaining extraction equipment or raw materials.
- Arguments not raised at the district court level are forfeited on appeal, even when appealing a summary judgment decision.
- OFAC determinations regarding national security receive extremely deferential judicial review and may be supported by classified evidence not disclosed to the party challenging the sanctions.
Why It Matters
This decision significantly expands OFAC’s enforcement reach over precious metals traders and other commodities dealers. By holding that purchasing finished products derived from Russian geological materials constitutes “procuring geological materials,” the court interprets the sanctions scope broadly to encompass downstream commerce in refined metals, not merely extraction or raw material procurement. This creates substantial sanctions compliance risk for any trader or intermediary who buys precious metals sourced from Russia, regardless of where that trader is located.
The ruling also reinforces the extremely deferential standard courts apply to national security determinations. OFAC’s interpretations of its own regulations receive substantial judicial deference, and classified evidence may support sanctions determinations without public disclosure or the opportunity for the sanctioned party to meaningfully contest the evidence. For businesses operating in commodities linked to designated Russian sectors, the decision clarifies that OFAC has broad discretion to sweep finished products within sanctions scope.