On October 19 this blog reported on a hearing held by the Senate Energy and Natural Resources Committee with respect to efforts that the U.S. government and U.S. companies are taking to respond to and mitigate potential ecological disasters that might stem from planned exploratory drilling by non-U.S. companies in Cuban territorial waters. The chairs in the hearing room had barely cooled off before Ileana Ros-Lehtinen, Chair of the House Foreign Relations Committee, fired off a letter to the Obama administration criticizing any efforts by the federal government to minimize the impact of the Cuban drilling on the ecology of nearby U.S. coastal waters. Because the drilling is going to occur in all events, complaining about damage containment on U.S. shores seems to be a classic case of cutting off our own nose to spite Cuba’s face.

Chairwoman Ros-Lehtinen’s tenure on the Foreign Relations Committee has, sadly, not caused her to learn much about U.S. export laws, as we’ve noted before, and this letter on Cuban drilling continues to demonstrate her confusion about applicable export and sanctions laws. For starters, the Chairwoman seems to believe that the lapsed Export Administration Act is still in force when she demands an investigation by the Bureau of Industry and Security (“BIS”) as to whether use of a Chinese-built rig in the drilling violates the “Export Administration Act.”

The de minimis rule also appears to have confused Ros-Lehtinen:

We are concerned by reports that the Scarabeo 9 may have been designed specifically to avoid U.S. economic sanctions against Cuba. While the EAA and the Export Administration Regulations (EAR) generally prohibit virtually all exports and reexports of U.S.-origin goods, software and technology to Cuba, we need clarity on how the Administration is applying the sanctions and EAR to foreign produced items incorporating 10 percent or less controlled U.S. content

That is not a difficult question to answer: the sanctions and the EAR do not apply to restrict export to Cuba of foreign-produced items incorporating 10 percent or less controlled U.S. content. There’s no need to write a letter to President Obama to get that answer; it’s clearly stated in the EAR.

But the Chairwoman saves the best for last:

The Export Administration Regulations clearly state that the only items allowed to be exported to Cuba are donations of medical equipment, agricultural exports, and telecommunications equipment. Thus, even if the de minimis rule does not [sic] apply, the broader prohibitions against exports to Cuba must still be enforced.

Where exactly to start with this? Section 746.2(a)(1) of the EAR permits many more exports other than the three mentioned by Ros-Lehtinen, including medicine, computers, disk drives, digital cameras, televisions, radio receivers, recording devices, baggage, gifts, humanitarian donations, aircraft on temporary sojourn, spare parts for foreign-made equipment and much more. More importantly, any listing of permissible exports in section 746.2(a)(1) does not overrule the explicit provisions of the de minimis rule found in section 734.4 of the EAR which specifically permits re-exports to Cuba of items with 10 percent or less U.S.-origin controlled content.

He said that the US Departments of Commerce and the Treasury have a long-standing practice of providing licenses to address environmental challenges in Cuban waters, and that DOC’s Bureau of Industry and Security has issued a number of them for booms, skimmers, dispersants, pumps, and other equipment and supplies to minimize environmental damage from a spill. “I believe the Commerce and Treasury departments would move quickly to approve more licenses if needed,” he said.

Not all witnesses before the Committee shared Bromwich’s rosy view of our ability to respond to a Cuban spill:

Paul A. Schuler, president of Clean Caribbean & Americas, an international spill response cooperative operating in the region, said only three US companies have such licenses that must be renewed every 1-2 years. “It needs to be handled in advance, and not as an ad hoc action as part of a response to an oil spill,” Schuler said. “Others would have to go through the entire licensing process, and my experience has been that it has not been quick.”

I suspect that exporters with experience obtaining licenses from BIS and OFAC might also share Schuler’s scepticism about whether the agencies could move quickly on licenses by U.S. companies to provide clean-up services in Cuban waters (which would require an OFAC license) and export equipment to be used in that clean-up effort (which would require a BIS license).

A jilted wife, a Cuban spy, and OFAC: how could this blog ignore a story involving all three at once? Last week a federal district judge in Miami ruled that Ana Margarita Martinez could not garnish money owed by U.S. companies providing licensed travel to Cuba to satisfy a $27.2 million judgment she obtained in 2001 against Cuba.

The circumstances of Ms. Martinez’s lawsuit against Cuba are detailed in this article, which, although it appeared in Time magazine, contains salacious details that we are unable to repeat on a family blog like this one. In brief, Martinez married a “hunky, sensitive” man named Juan Pablo Roque, described as looking “more like Richard Gere than Richard Gere does,” whatever that means (and I think you know). As it turns out, Roque was a Cuban spy sent to the United States to infiltrate Brothers to the Rescue. He secretly returned to Cuba just before the Castro government shot down the Brothers to the Rescue airplane. When questioned in a television interview about what he missed that he left behind in the United States, Roque calmly responded “My Jeep,” with nary a mention of Ms. Martinez. A lawsuit followed and in 2001, a sympathetic judge awarded Ms. Martinez a $27.2 million judgment against Cuba for its complicity in Roque’s torture and “battery” of Ms. Martinez. The judgment was awarded under now-repealed section 1605(a)(7) of the Foreign Sovereign Immunities Act, 28 U.S.C § 1602, et seq., which permitted money awards for torture against foreign states designated as state sponsors of terrorism, as is the case for Cuba.

Ms. Martinez attempted to satisfy the judgment in a state court garnishment action against licensed Cuba travel companies seeking payment of the sums owed by those companies to Cuba for landing fees and other airport services and charges. That action was moved to federal court where a magistrate’s report issued in June recommended quashing the writs of garnishment. Last week the federal district court judge adopted the report and issued an order granting the garnishee defendants summary judgment on their motion to quash the writs.

The magistrate noted that section 515.201(b)(1) of the Cuban Asset Control Regulations prohibited all dealings in or transfers by a U.S. person of property in which a Cuban national has an interest unless an OFAC license is obtained. He further noted that section 515.310 defined transfer to include judicial levies and garnishment. Since Ms. Martinez had neither applied for or obtained an OFAC license permitting the garnishment of these sums, the Magistrate’s report recommended that the writs of garnishment be quashed.

The wrinkle in the case is the Terrorism Risk Insurance Act, 28 U.S.C. § 1610 note, which says that “blocked assets” of terrorist may be subject to garnishment to satisfy judgments obtained under section 1605(a)(7) of the Foreign Sovereign Immunities Act. However, the magistrate ruled that since the payments by the travel companies to Cuba were licensed by OFAC, they were not “blocked assets” under that provision.

Mr. Hausel is right. Section 515.204 of the Cuban Assets Control Regulations prohibit any person subject to U.S. jurisdiction from engaging in any transaction relating to any product outside the United States which is of Cuban origin.

But that’s not the end of the story here. E.U. Council Regulation No. 2271/96 makes it illegal for any company in the European Union to comply with the U.S. embargo on Cuba. PayPal operates in Europe through a Luxembourg-based banking entity. If that entity had any role in freezing the German company’s funds, it might be in violation of the E.U. Regulations, thereby putting PayPal, as it were, between a rock and a rum place. Not surprisingly, the German website owner is threatening a lawsuit against the Luxembourg entity.

Readers of this blog might recall an earlier post where a fishing boat wandered into Cuban territorial waters and got whacked by BIS with a fine for the illegal export (albeit temporary) of the boat to Cuba. Is United going to get a nastygram for BIS over this emergency landing in Cuba?

This is where license exception AVS, which is set forth in section 7540.15 of the Export Administration Regulations, comes in. That exception gives certain aircraft special exemptions from certain export requirements.

Section 740.15(a)(2)(i) deals with U.S. registered aircraft operating under an Air Carrier Operating Certificate, Commercial Operating Certificate, or Air Taxi Operating Certificate issued by the Federal Aviation Administration. This section would cover the United flight. All remaining U.S. registered aircraft are covered under Section 740.15(a)(2)(ii). Under the first of these exceptions, no license is required for the “export” of the aircraft from the United States when it flies to foreign countries, as long as certain conditions are met that qualify it as a temporary sojourn. Under the second category for all other U.S. registered aircraft, there is an explicit provision prohibiting the use of the exception for flights to Cuba. So although a United pilot could divert his aircraft to Cuba under this exception, Joe Pilot in a private plane could not make an emergency landing at Jose Marti in Cuba no matter what he smelled in the aircraft. Section 740.15(a)(5) says that the exception can’t be used for exports or re-exports to Cuba or other Group E countries, but I am assuming that this is just an inartful way of repeating that trips to Cuba must be temporary sojourns meeting the other requirements of section 740.15.

Even if the emergency landing in Cuba did not violate BIS’s rules, United’s headaches may not be over. The Cuba sanctions regulations of the Office of Foreign Assets Control (“OFAC”) prohibit “the receipt of goods or services in Cuba, even if provided free-of-charge by the Government of Cuba or a national of Cuba.” It seems hard, if not impossible, to land in Cuba without receiving services, even if just the clearance to land, from Jose Marti airport. And I don’t see an exception in the OFAC regulations for an emergency landing. I’m sure Ileana Ros-Lehtinen, Bob Menendez and the other Cuba hawks on the Hill are having major conniption fits over this and dashing off letters to OFAC calling for the death penalty for everyone involved in this unplanned trip to Cuba.

So where does this new Cuban document retrieval service fall? The service advertises that it uses “proprietary” means to retrieve Cuban birth certificates and other official certificates for people in the United States. Retrieving these documents from Cuban archives seems to pose few problems. But the service doesn’t stop there:

All documents retrieved from Cuba for any official use (Cuban passport, driver’s license and marriage applications etc) need to be “legalized” in Cuba in order to be recognized as an official document.

The certificates we provide are legalized with stamps and seals from the Ministerio de Relaciones Exteriores also known as MINREX.

Adding the legalization stamps, seals and other government doohickeys may be what steps over the line, because the retrieval company is not just exporting information already in existence but is taking existing information and providing services to alter it.

Section 515.545 of the Cuban Assets Control Regulations also seems to suggest that the legalization process may be one step too far:

This section does not authorize the remittance of royalties or other payments relating to works not yet in being, or for marketing and business consulting services, or artistic or other substantive
alteration or enhancements to informational materials

The company has said that this plan has been blessed by its lawyers and that they are not obtaining licenses for these transactions. I suppose that in the end the issue is whether the legalization of the document is or is not a “substantive alteration or enhancements.” I would be disinclined to opine to a client on that matter without at least some informal discussions with OFAC. So, I’m assuming that someone in OFAC likely provided at leat an informal reaction to the retrieval plan.

[Posting has been light lately due to demands at work This week my normal posting schedule ought to resume.]

At Rivera’s request, Ong sent him an email that provided an address in the state of Washington to which the undercover agent could ship the parts. When the agent was reluctant to ship the parts to that address, Ong suggested, in another email, that the items should be sent by “balikbayan box.”

Although the indictment states, rather comically, that “balikbayan box” is a “freight forwarding company” it is, instead, as the name might suggest, a type of box. The box in question is a corrugated cardboard box of particular dimensions used by expatriate Philippines to send a number of small gifts packed together back to their family in the Philippines. Typically, the boxes are given to freight forwarding companies that specialize in putting these boxes on container ships for cheap, if slow, shipment to the Philippines and then delivering them to the addressees once they arrive. Ong allegedly also noted to Rivera that balikbayan box shippers rarely asked for identification from the shipper.

Ong and Rivera agreed on this plan, so Ong sent an email to Rivera with the address of a balikbayan box shipping company in Atlanta, Georgia, along with the specific dimensions and packing instructions for such a shipment. Rivera then forwarded this information to the undercover agent. Nine months later, Ong was arrested when he arrived in Hawaii for a vacation.

Although the indictment states that Ong traveled to the United States from time to time to arrange for exports from the United States to the Philippines, there are no allegations in the indictment that any of the activities at issue in the indictment occurred in the United States. It seems that instead all activities relating to this export by Ong occurred while he was in British Columbia. There seems a good chance that Canada would not have recognized that the U.S. had jurisdiction over Ong or permitted his extradition. In retrospect, Ong probably regrets his choice of Hawaii as a vacation spot.

After Ong’s guilty plea, Ong and the government stipulated to a judicial order of his removal to Canada, which means that his only incarceration will likely be time already served. His co-defendant Rivera is, as they say, still at large. He’s probably not thinking about a vacation in the United States. Ever.

The artists applied for a license, which OFAC denied on April 7, barely a week before the festival in Havana was to begin. The festival, sponsored by Cuba and Culture Ireland, features Celtic musicians from Ireland and Cuba. (Somewhat remarkably Cuban descendants of immigrants from Gaelic provinces in Northern Spain maintain a lively tradition of Celtic music in Cuba).

According to the above-linked report in IrishCentral.com, the license was denied because it went “beyond the scope of what was authorized” in the 2004 Guidelines on Cuba travel issued by the Bush administration as part of an initiative to cut back on U.S. travel and personal remittances to Cuba. Although the IrishCentral report doesn’t indicate how the request exceeded those guidelines, it is not hard to figure out.

Licenses are not granted to individuals to participate in Cuban-organized international festivals inasmuch as the proposed participation goes beyond the direct, bilateral interaction between U.S. and Cuban nationals contemplated by this licensing provision.

In other words, the Irish-American musicians can’t go to the Cuban festival because there will be Irish people there.

Back in January 2011, President Obama announced that the travel guidelines would be amended “[t]o enhance contact with the Cuban people and support civil society through purposeful travel, including religious, cultural, and educational travel.” The Cuba page on the OFAC website footnotes the link to the 2004 Guidelines with the statement that they are “presently being updated to reflect January 2011 policy changes.” The denial of this license suggests that the revised guidelines will retain the silly requirement that cultural exchanges in Cuba may only be bilateral. No Irish (or other foreigners) need apply — as they used to say.

The club had signed up 184 boats and had hoped that the regatta would provide a little boost to the Sarasota economy. Now they’re going to Miami instead.

Interestingly the previously-linked article on OFAC’s refusal to permit the regatta to proceed, made no mention of any request by the boat owners to get approval from the Bureau of Industry and Security (“BIS”) for the exports of the 184 boats to Cuba. (Sailing a U.S. vessel into Cuban waters, even if only temporarily, is considered an export of that boat to Cuba.) OFAC licenses travel to Cuba and BIS licenses exports of U.S. goods to Cuba. As this blog reported a few years back, BIS fined one boat owner for exporting his boat to Cuba in connection with the ill-fated Conch Republic Regatta from Key West to Havana. So not only did OFAC’s inaction protect the U.S. from the Cuban threat to our national security, but also it may have protected boat owners who thought they could blithely sale to Cuba just because OFAC had said so, if it had in fact said so.

According to an article on the website of London broadsheet The Daily Telegraph, some U.K. banks may be walking back, at least slightly, from a hard and fast policy of not processing Cuban payments for fear of OFAC reprisal. Interestingly, the article notes that part of the banks’ hesitance arises from “US attempts to extradite British executives it claims have breached sanctions” and “the failure of the British Government to provide protection against extradition.” This is presumably a reference to the pending extradition request against Christopher Tappin for his involvement in an attempted export of batteries from the United States to Iran.

The Telegraph article suggests that British authorities have been in contact with Lloyds and other banks after receiving a number of complaints from customers that could not clear Cuba checks. One case involved a customer whose account was closed by Bank of Scotland when the customer would not provide assurances that it would not receive Cuban payments in its account.

Now, presumably as a result of these official contacts, even Lloyds may be softening its hard line on Cuba transactions. The Telegraph reporter Roland Gribben signals this change in the following fractured sentence that suggests he may not have a very clear grasp of export law himself.

If the Cuban bank does not infringe OFAC regulations or has dealings with Specially Designated Individuals who can be either individuals, entities or banks, then Lloyds may be willing to process a payment from Cuba provided it was in sterling.

Probably what Lloyds was saying before Mr. Gribben garbled their statement was that Lloyds would process checks in pounds provided that parties on OFAC’s List of Specially Designated Nationals and Blocked Persons were not involved in the transaction.