DC Circuit Endorses Broad Reach of US Sanctions Targeting the Russian Metals and Mining Sector

In Diegelmann v. Bessent, the US Court of Appeals for the District of Columbia Circuit confirmed that an entity can “operate” in the metals and mining sector of the Russian economy merely by purchasing refined covered materials, without itself extracting, processing, manufacturing, or refining those materials.

On July 14, 2026, the US Court of Appeals for the District of Columbia Circuit upheld economic sanctions designations imposed by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) on two German precious-metals traders and three affiliated companies. The sanctions stem from these entities' purchase of refined precious metals, including gold bars, from Russian counterparties, which implicated US secondary sanctions on operating in the metals and mining sector of the Russian economy.

The Diegelmann decision[1] is notable in that it validates a broad application of OFAC’s existing Russia sanctions authorities. Most notably, the DC Circuit’s reasoning indicates that designation risk may extend to downstream purchasers, traders, brokers, intermediaries, and other market participants located outside Russia.

The ruling also illustrates the continuing difficulty of challenging OFAC designations in court. Despite the US Supreme Court’s decision in Loper Bright Enterprises v. Raimondo eliminating mandatory judicial deference to an agency’s interpretation of an ambiguous statute, the deferential arbitrary-and-capricious review applicable to OFAC’s national-security determinations remains.

BACKGROUND

The Executive Order

Executive Order 14024 authorizes, among other things, the designation of parties determined by the US secretary of the treasury to operate in designated sectors of the Russian economy.

In February 2023, OFAC issued a determination that Executive Order 14024 applied to the metals and mining sector of the Russian economy. OFAC FAQ 1115 defines that sector to include

any act, process, or industry of extracting, at the surface or underground, ores, coal, precious stones, or any other minerals or geological materials in the Russian Federation, or any act of procuring, processing, manufacturing, or refining such geological materials, or transporting them to, from, or within the Russian Federation.

As a result, the secretary of the treasury is authorized to sanction any persons determined to have engaged in the activities described above.

The Designation

On February 23, 2024, OFAC designated German nationals Axel and Fritz Diegelmann and three companies owned or controlled by Axel Diegelmann. OFAC designated the Diegelmanns and their Liechtenstein-based precious metals investment firm Rheingold Edelmetall AG pursuant to Executive Order 14024 for “operating or having operated in the metals and mining sector of the Russian Federation economy.” OFAC also designated two other companies based on its determination that those companies were controlled by or acted on behalf of Axel Diegelmann.

OFAC’s press release states that the Diegelmanns had collaborated with Russia-based metals companies in disguising the Russian origin of precious metals and assisting Russian clients in laundering funds through the purchase and sale of precious metals for cash, thereby circumventing US sanctions. OFAC also alleged that Rheingold Edelmetall AG attempted to deliberately obscure the ownership structures of Russian clients and the beneficiaries of the relevant transactions.

THE LITIGATION

On April 16, 2024, the Diegelmanns challenged the designations in US court under the Administrative Procedure Act, arguing that their activities did not constitute “operating in” the Russian metals and mining sector and that OFAC lacked sufficient evidence to support the designations.

Whether Purchasing Metals Can Constitute Operating in the Sector

The principal dispute in the case concerned the meaning of “procuring.” The Diegelmanns contended that “procuring,” when used in the mining industry, refers to obtaining the equipment, supplies, and services needed for mining operations. Under that reading, merely purchasing or trading metals would not amount to operating in the metals and mining sector.

Both the District Court and the DC Circuit rejected that interpretation. Because OFAC did not define the meaning of “procure,” both courts applied the word’s ordinary meaning: to obtain or acquire something, particularly through special effort. The courts concluded that buying precious metals therefore can constitute “procuring” geological materials.

That interpretation is significant because it does not require a purchaser to engage in mining, smelting, processing, or refining. A company can fall within the sectoral definition based on its acquisition of covered materials alone. The court’s reasoning consequently supports OFAC’s ability to reach “pure purchasers” and other downstream participants, even when they operate outside Russia.

The Decision Leaves the Meaning of ‘Geological Materials’ Unresolved

The Diegelmanns alternatively argued that finished products such as refined gold bars are no longer “geological materials.” They maintained that the term should be limited to ores, minerals, and other materials in their natural or unprocessed state.

The DC Circuit did not decide that question. It held that the Diegelmanns had failed to preserve the argument before the District Court. The DC Circuit therefore expressly left open both whether refined precious metals qualify as geological materials and whether there is a point in the production process at which a metal ceases to fall within that term.

A Potentially Broad Russia Nexus

The DC Circuit also upheld OFAC’s conclusion that the Diegelmanns’ transactions were sufficiently connected to Russia. The Diegelmanns did not dispute that they purchased precious metals from Russian nationals, but they argued that the metals needed to have been extracted in Russia and physically located there at the time of purchase.

The DC Circuit did not squarely decide the full scope of the phrase “to, from, or within the Russian Federation.” Instead, it concluded that even under the Diegelmanns’ proposed assumptions, classified portions of the administrative record adequately supported OFAC’s determination.

The decision therefore should not necessarily be read as establishing that every transaction with a Russian national constitutes procuring or transporting materials “to, from, or within” Russia. This creates a practical diligence challenge, where purchasers may not be able to assess sanctions risk solely by reviewing the immediate seller’s place of incorporation or the physical location where title transfers.

The Continued Importance of Classified Evidence

Both the District Court and the DC Circuit relied on a classified administrative record reviewed in camera. The public opinions of the District Court and the DC Circuit provide little detail about that evidence, stating only that the classified record adequately supported OFAC’s determination.

The use of classified evidence is not unique to this case, but it underscores the procedural imbalance sanctioned parties often face. OFAC may defend a designation based on information that the designated party cannot review or rebut directly. Courts have generally permitted that practice in sanctions cases, particularly where disclosure could implicate intelligence sources, methods, or other classified national security concerns.

How Loper Bright Affected the Analysis

The Diegelmanns invoked principles concerning judicial deference to agency interpretations. The District Court and the DC Circuit, however, did not uphold OFAC’s position simply because OFAC was the agency administering the sanctions program.

In Loper Bright, the Supreme Court overruled the Chevron doctrine, under which courts had deferred to reasonable agency interpretations of ambiguous federal statutes. After Loper Bright, courts must exercise their own independent judgment when determining the meaning of a statute.

That change did not alter the outcome here in Diegelmann. Both the District Court and the DC Circuit independently examined the text and ordinary meaning of “procure” and agreed with OFAC’s interpretation. It therefore did not need to defer to OFAC on that question.

Under the Administrative Procedure Act, courts review OFAC designation decisions, which are considered factual determinations, to evaluate whether they are arbitrary or capricious. The DC Circuit has described that review as “extremely deferential” when the agency’s decision implicates national security and foreign policy. Loper Bright did not displace that standard because that case concerned how courts resolve ambiguity regarding an agency’s statutory interpretation—not the degree of scrutiny applied to an agency’s factual findings, predictive judgments, or national-security determinations.

The decision’s importance lies in confirming that OFAC’s existing sanctions can reach conduct well beyond traditional mining activities.

Companies should consider the following compliance implications:

• Purchasing can itself create sanctions risk: A company need not extract or otherwise engage in the upstream activities of a targeted sector to face designation risk. The decision indicates that purchasing goods associated with a sanctioned sector may be sufficient to establish that a company has “operated” in that sector.
• Geography may not be dispositive: Transactions completed outside the sanctioned country may still be sanctionable when the materials, counterparties, ownership, or transaction structure have a sufficient connection to the targeted sector of that country’s economy.
• Downstream industries should reassess risk: Traders, brokers, commodity dealers, jewelers, manufacturers, financial institutions, logistics providers, and other intermediaries may be exposed even if they do not view themselves as participants in the targeted industry.
• Product-level diligence may be necessary: Companies should consider tracing the origin and processing history of relevant goods rather than relying solely on sanctions screening of immediate counterparties.
• The definition of “geological materials” may be important in future enforcement actions and designation challenges: The DC Circuit’s opinion does not conclusively determine which refined, processed, manufactured, or finished products remain “geological materials.” Companies dealing in gold bars, jewelry, industrial components, processed minerals, and other downstream products, or companies dealing in downstream products of other sanctioned sectors of the Russian economy, should not assume that substantial processing necessarily removes a product from the scope of the determination. The court’s express reservation of the issue leaves room for future challenges based on the nature and level of processing of the relevant goods.

Legal practice assistant Charlie Biggs contributed to this LawFlash.