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.

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.

Once bitten, twice shy, it would seem. Last year, Lloyds agreed to pay $217 million in penalties and to adopt certain compliance procedures arising from allegations by the U.S. Treasury Department’s allegations that Lloyd deleted information about Libya, Sudan and Iran in wire transfer instructions in order to clear dollar transactions through its correspondent banks in the U.S. Specifically, Lloyds agreed to third party audits “to determine whether any payments subject to OFAC regulations were processed through, or on behalf of, any U.S. individual or entity.”

Twice shy here means that Lloyds is backing away from transactions that it would appear aren’t even subject to OFAC’s regulatory jurisdiction and which don’t involve transactions to be processed through a U.S. bank or on behalf of any U.S. entity. It was a check payable to a U.K. company in pounds sterling. So maybe its thrice shy or twenty times shy.

The problem here, of course, is E.U. Council Regulation No. 2271/96 which makes it illegal for Lloyds to cooperate with the U.S. sanctions on Cuba. This point was not lost on Fertecon, or its lawyers, who have traipsed off to U.K. and E.U. authorities to complain. Lloyds case with the E.U. is not terribly enhanced by the fact that U.S. law wouldn’t appear to prohibit Lloyds from negotiating a Cuban check in pounds sterling for a U.K. customer. Lloyds must have made a careful calculation, given the lack of any significant enforcement of Regulation 2271/96, that it would be happy to be bitten by a toothless, mangy dog in its own backyard if it would curry favor with a neighbor’s angry pit bull that thinks it owns the entire neighborhood.

The first reviews from China are now in. And they aren’t good:

The government yesterday criticized the United States over a new system that’s likely to reduce China’s imports of hi-tech products. Wang Xinpei, spokesman for the Ministry of Commerce, expressed “strong dissatisfaction” over the US move, as the “US side did not have enough consultation with China to reach a consensus on implementing the new VEU system”. The United States should not visit any companies registered in China for VEU screening without permission from the Ministry of Commerce, Wang said.

We have previously criticized the VEU program because it was unlikely that China would permit on-site inspections as part of that process. The statement by the Chinese spokesman confirms that, although it is not entirely clear that BIS actually visited the Chinese sites of the companies granted VEU status. It does seem likely, however, that the companies at least agreed to future on-site visits — one of the factors set forth as a consideration for granting VEU status under section 748.15 of the Export Administration Regulations

More significantly, one has to wonder if there is a veiled threat behind the puzzling statement that the VEU program “will reduce China’s imports of high-tech products.” If the VEU program operates as anticipated by BIS, it would increase such imports. Perhaps this statement is a harbinger that China may take internal measure to block the program. After all, from the Chinese perspective at least, the VEU program would give advantages to the VEU companies but not to their Chinese competitors. That might serve as a motive for China to block imports to the VEU companies unless they withdrew from the program.

Of course, this is just speculation based on a somewhat puzzling statement in a Chinese state-owned news outlet. But it will be interesting to see if China does adopt countermeasures.

The saga of the prosecution of Stefan and Dan Brodie, executives of the Purolite Company, began in 2000 when the brothers were prosecuted for sales made by a Purolite subsidiary in the U.K. to Cuba. The Brodies were convicted by a jury. The trial court then set aside the verdict against Stefan, arguing that there was insufficient evidence that he was aware of the sales to Cuba. The trial court also found that Dan deserved a new trial because of inflammatory remarks made by the prosecution at the trial. Dan subsequently pleaded guilty and Stefan’s conviction was reinstated by the Third Circuit.

In 2004 the Brodies filed a lawsuit against Morgan, Lewis and Bockius for malpractice relating to advice the law firm allegedly gave the brothers concerning the sales by Purolite UK to Cuba. A partner at the law firm was alleged to have advised that the sales by Purolite UK to Cuba weren’t illegal as long as there was no U.S. participation in those sales. Additionally, according to the Brodies, the partner advised that stopping the Purolite UK sales to Cuba would violate British law and that, accordingly, the Foreign Sovereign Compulsion Doctrine would shield the brothers from prosecution.

Of course, if Morgan Lewis actually advised that a foreign subsidiary could trade with Cuba as long as there was no U.S. involvement, this would have been truly cringe-worthy advice. The Trading with the Enemy Act explicitly covers activities of foreign subsidiaries controlled by U.S. parents and makes trading with Cuba illegal even if no U.S. citizens are involved. The advice, if given, on the Foreign Sovereign Compulsion Doctrine would seem equally problematic if applied simply to foreign blocking statutes. Some U.S. courts have narrowly construed the doctrine to require that the foreign sovereign order specific acts by the defendant. Others have applied a balancing test which discounts the interest of the foreign sovereign in merely blocking U.S. laws.

But the District Court opinion at hand involves an interesting side issue in the lawsuit against the Morgan Lewis firm. During the original prosecution, Kristin Hayes, the wife of the managing partner of Morgan Lewis joined the prosecution team. Thereafter, it was alleged that the managing partner of Morgan Lewis provided confidential information about the Brodie brothers to his wife. When the trial court learned of these disclosure, Hayes was removed from the prosecution team, and two weeks before trial, Morgan Lewis withdrew from representing the Brodies.

The case at hand arises from the efforts of the Brodies to obtain a deposition of, and the trial testimony of, Kristin Hayes in the Brodies’ suit against Morgan Lewis. When the DOJ refused to make her available, the Brodies sued the DOJ in U.S. District Court. The district court ruled that the deposition was unnecessary because of the extensive testimony of Hayes during the disqualification hearing and because the DOJ had made a substantial number of relevant non-privileged documents available on the matter. As to the trial testimony, the court found that there may be reasons that would justify Hayes’s testimony at trial and scheduled further proceedings to resolve that issue.

So far it would appear that the Brodies have probably paid much more in legal fees over the Cuba sales than any profits that they might have made from those sales.

The incident in question was the cancellation by BAWAG, an Austrian bank, of all accounts held by Cuban nationals at the bank in advance of the expected takeover of the bank by American-owned Cerberus Capital. Lawyers for Cerberus had evidently advised that it could not close the transaction as long as Cuban nationals had accounts at the bank. In response to the cancellations, Austria instituted proceedings under E.U. Council Regulation 2271/96 which prohibits compliance with U.S. sanctions on Cuba. BAWAG faced a 73,000 euro fine under the Austrian proceeding.

Two things are interesting about this. First, this is the first instance I am aware of where a proceeding has actually been brought by an E.U. member state under Regulation 2271/96. Second, BAWAG applied for a license from OFAC to reinstate the accounts. And the license was granted.
So companies that find themselves caught between the rock of U.S. sanctions and the hard place of foreign countermeasures should consider seeking a license based on the foreign countermeasure.

While reading some of the news accounts of the BAWAG matter, I also discovered the interesting story of Maria Cajigal-Ramirez, whose accounts at BAWAG were initially cancelled. Ms. Cajigal-Ramirez was a naturalized Austrian citizen who had been born in Cuba. Problem is that Cuba doesn’t allow renunciation of Cuban citizenship. Section 515.201 of the Cuban Assets Control Regulations prohibit transactions with Cuban “nationals.” Are banks, and other businesses, in the U.S. violating the CACR by dealing with first-generation Cuban immigrants since they are still Cuban nationals? And, in answering this question, don’t forget the application of section 515.303 of the CACR that says that dual nationals are considered nationals of both countries for purposes of the regulations.