Comments on: OFAC Fines Exporter For Failure To Recognize Red Flags

By: Hillbilly

Hillbilly — Thu, 06 Aug 2009 03:21:56 +0000

OFAC isn’t interested in Bacon. For example, in US v. Gas Tech (ND OKLa. 2006) the company was charged with violations of the ITR because it provided designs of its equipment to a company in Calgary, Alberta (that’s in Canada for folks who don’t watch the Stampede) that made and then sold the equipment to a company in England that sold and installed it in a gas field in Iran that served the public utility for Tehran. The value of US content was less than 10%; but, for the purpose of the OFAC ITR, there is no de minimis rule for the Iranian petroleum and petrochemical industry. A little factoid that OFAC didn’t put in its brochures in that era. So a company that made the correct calculation for EAR purposes, and 250 employees, got hung on OFAC’s trophy wall because they didn’t read the unpublicized fine print in the ITR.

By: longhorn

longhorn — Wed, 05 Aug 2009 21:19:05 +0000

How many degrees of Kevin Bacon does an exporter have to go through before they are removed from the possibility that something “might” go to Cuba/Iran? What’s next? Company A ships to a company in the UK, who ships to its parent company in Germany, who ships to Australia and then to Cuba? The more information that OFAC publishes the better everyone can be at their jobs by following the rules and avoiding the precedents. By punishing someone who didn’t ship anything which might/might-not have gone to Cuba OFAC hasn’t really done anything except open the door for more penalties to companies which “might” have known. Also how is “might” defined? They use Gillette razors in Cuba, I’m selling those, those “might” end up there?

By: Hillbilly

Hillbilly — Wed, 05 Aug 2009 15:26:44 +0000

It should be noted that when BIS (the agency formerly known as BXA) attempted to lower the requisite standard for knowledge, it had the decency to do so by notice and comment, and got soundly rebuffed by industry commenters such that it withdrew the proposed rule. OFAC is trying to change the rules by what administrative lawyers used to call “Starbursting”, i.e., by taking new positions in administrative litigation expecting a docile public and tame judges to go along.

By: SG Paris

SG Paris — Wed, 05 Aug 2009 14:11:29 +0000

Thanks Clif for this interesting post. My understanding of the standard has always been the exporter “had knowledge” or “had reason to know”. The use of the word “might” is particularly troubling for me. I agree that standard could be applied to almost any export from the US to the EU where the US has a unilateral trade embargo on a country. One assumes if the regional sales manager knew the product was going to be reexported to Cuba, the language in the penalty letter would have stated that directly. This is indeed very troubling.

By: Clif Burns

Clif Burns — Wed, 05 Aug 2009 13:40:05 +0000

I agree, Ex-OFAC, that there must be some further basis for OFAC’s contention that the manager ignored some red flags. I just think that this basis should be shared with the export community, particularly if we are no going to start fining people for ignoring red flags.

By: Ex-OFAC

Ex-OFAC — Wed, 05 Aug 2009 13:32:24 +0000

Thanks for the interesting background, Clif. I’d be surprised if there weren’t some further basis in the facts of this case for OFAC to assert the regional sales manager had reason to know of the ultimate destination. The Cuban news article seems to show good compliance with the U.S. sanctions after the merger, perhaps to the chagrin of the EU…