Oct
11
General License To Be Issued by OFAC for Food Exports to Iran and Sudan
Posted by Clif Burns at 8:52 pm on October 11, 2011
Category: Iran Sanctions • OFAC
A Federal Register notice is scheduled to be published tomorrow in which the Office of Foreign Assets Control (“OFAC”) announces the issuance of a general license for the export of food to Iran and Sudan. Previously, although the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”) authorized the export of agricultural products, medicine and medical devices to Iran and Sudan, those exports required specific one-year licenses from OFAC. The general license does not cover sales to military or law enforcement purchasers.
The general license specifically covers “food” which is a subset of agricultural products. The new rules will define food as
items that are intended to be consumed by and provide nutrition to humans or animals … ,
including vitamins and minerals, food additives and supplements, and bottled drinking water, and seeds that germinate into items that are intended to be consumed by and provide nutrition to humans or animals.
Items that are agricultural products but not food will still require licenses.
The rules make some specific exceptions to the definition of food, including, not surprisingly, castor beans. Thriller enthusiasts and news junkies will understand this exception: castor beans are used to manufacture the highly powerful poison ricin (although Iran can easily grow castor beans or import them from other countries other than the United States.) Also excluded are Rosary/Jequirity peas, the source of ricin’s more potent cousin abrin, which although more powerful than ricin is not known, according to the CDC, to have been weaponized or used in terrorist attacks.
My favorite part of the new rule is the exclusion of alcoholic beverages from the general license for Iran. I have not figured out whether this exclusion is made from ignorance, Puritanism or a desire by OFAC to enforce Islamic law. It should probably come as no surprise to anyone with even a passing acquaintance with Iran or Islam that alcoholic beverages are illegal in Iran and that people trying to import them into Iran are subject to being shot or sentenced to prison.
UPDATE: This post has been updated to correct a mistake I made in reading the new rule which does in fact permit export under general license of food to the Government of Iran and to purchasers outside Iran for export to Iran. My apologies for any confusion.
Oct
5
Just Because It’s Not Double Jeopardy Doesn’t Mean It’s Fair
Posted by Clif Burns at 9:15 pm on October 5, 2011
Category: BIS • Iran Sanctions • OFAC
ABOVE: Flowserve HQ
The Bureau of Industry and Security (“BIS”) announced on Monday that Texas-based manufacturer Flowserve agreed to pay $2.5 million to settle charges that the company and its foreign affiliates to settle BIS’s allegation of 288 violations of the Export Administration Regulations, including exports of items to Iran, Syria and other sanctioned countries. What makes this a particularly hard kick in the nether regions by BIS is that Flowserve voluntarily disclosed these violations. I suppose this is considered leniency by BIS because it could have fined Flowserve $72 million dollars.
The BIS settlement with Flowserve GB Ltd. (“Flowserve UK”), Flowserve’s British subsidiary, which is one of the dozen Flowserve settlements posted by BIS on its electronic FOIA page, is particularly instructive. Two of the counts against Flowserve GB relate to Flowserve products which Flowserve UK ordered from the U.S. and then transshipped to Iran:
Pursuant to Section 560.204 of the [Iranian Transaction Regulations], maintained by the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), an export to a third country intended for transshipment to Iran is a transaction subject to the ITR and requires OFAC authorization. Pursuant to Section 746.7 of the [Export Administration] Regulations, no person may engage in the exportation of an item subject to both the Regulations and the ITR without authorization from OFAC. No OFAC authorization was obtained for the exports described herein. In so doing, Flowserve UK committed two violations of section 764.2(b) of the Regulations.
The problem with this, at least in terms of simple fairness, is that OFAC, which administers the ITR had already extracted a fine from Flowserve for this very violation of OFAC’s own regulations. When Congress upped the possible fines for export violations to $250,000, it is quite clear that it had no idea that the export agencies would engage in such piling on and that neither of the agencies made clear to Congress that they intended to engage in such behavior.
Sep
22
U.K. Tribunal Rules That Export Agency Can Keep Iran Licenses Secret
Posted by Clif Burns at 5:00 pm on September 22, 2011
Category: Foreign Export Controls • Iran Sanctions
This blog reported earlier on a lawsuit brought by Bloomberg Business Week against the U.K. Export Control Organization (“ECO”) which had rejected a request by Bloomberg to release information on licenses the ECO had granted to permit U.K. companies to export dual-use materials to Iran. The United Kingdom complies with U.N. sanctions and does not allow export of arms and materiel to Iran but does allow licensed export of dual-use goods listed on the Wassenaar list to Iran.
The ECO argued that disclosure of these names could cause these companies to lose their ability to use U.S. commercial banking facilities, and the Tribunal, saying the the possibility of U.S. meddling was “disturbing,” agreed:
There is a significant public interest in protecting large and small firms, which trade lawfully and legitimately, from economic harm from a form of embargo imposed by banks, competitors, suppliers, clients and possibly foreign governments. … The tribunal felt some concern at the prospect of a U.K. company, trading quite lawfully in terms of U.K., EU and international law, suffering possibly fatal commercial damage through the extraterritorial intervention of our closest ally.
Bloomberg‘s editor Matthew Winkler objected to the tribunal’s ruling, noting that the tribunal relied on “secret evidence” asserting that “banks will withdraw funding for companies if the public knew who is doing business with whom.”
Aug
5
UK Export Agency Helps UK Companies Evade US Sanctions on Iran
Posted by Clif Burns at 6:06 pm on August 5, 2011
Category: Iran Sanctions • OFAC
This article in Bloomberg Business Week details efforts by the U.K. Export Control Organization (“ECO”) to prevent U.K. companies that trade with Iran from becoming subject to U.S sanctions on Iran. Bloomberg filed a lawsuit in the United Kingdom seeking to force the ECO to reveal the names of companies that had applied for licenses to export controlled items to Iran. The United Kingdom observes UN sanctions, which prohibit exports of arms and materiel to Iran, but does not prohibit exports of controlled dual use items as long as licenses are obtained. In a court filing in that case, the ECO argued against releasing the information, saying that U.S. sanctions had caused banks to withdraw banking facilities from companies doing business with Iran.
Early versions of the Bloomberg story contained an interesting statement from a source at OFAC who wished to remain anonymous.
U.S. trade-secrets laws prevent the Treasury from disclosing the names of companies seeking licenses to export goods that would otherwise be prohibited by sanctions, according to a U.S. Treasury spokeswoman, who declined to be identified and said she couldn’t comment on the U.K. case.
That, of course, is simply not even close to being true, which may be why the spokeswoman wanted her name withheld. The spokeswoman seems to have forgotten somehow the release by OFAC to the New York Times of hundreds of names of corporations that received licenses to export items to Iran and other sanctioned countries. This blog reported on that release here. When I brought this to the attention of Erik Larsen, the reporter who wrote the story, the OFAC quotation was removed and a statement from me on the New York Times disclosures was substituted in its place.
The moral of the story: don’t believe everything that OFAC tells you during a phone conversation.
[Thanks to reader Russ VanDegrift, compliance director at Christie Digital Systems USA, Inc. for alerting me to the original Bloomberg story.]
Jul
20
Update on Update 2011: Sanctions
Posted by Clif Burns at 5:58 pm on July 20, 2011
Category: Iran Sanctions • OFAC
Nothing much of interest at the Sanctions breakout yesterday during the 2011 Update conference held by the Bureau of Industry and Security. The panel members included two people from the Office of Foreign Assets Control (“OFAC”) who went over some aspects of the new Libya sanctions and who conceded, during the Q&A session, that all the work on these new sanctions had slowed down their processing of licenses to Iran for food, medicine and medical devices. (Those exports are permitted under the Trade Sanctions Reform and Export Enhancement Act of 2000, commonly known as TSRA.)
The real jaw-dropper came from panel member John-Marshall Klein, Foreign Affairs Officer, Office of Terrorism Finance and Economics Sanctions Policy, at the State Department. In discussing the recent sanctions on Iran Air, he noted that these sanctions did not preclude travel on Iran Air due to the provisions of 50 U.S.C. § 1702(b)(4) added by the Berman Amendment. But Mr. Klein didn’t stop there. He went on to say that he wouldn’t advise Americans to travel now on Iran Air because the sanctions would prevent Iran Air from getting spare parts.
Because Iran Air is now designated under the Weapons of Mass Destruction Proliferators Regulations, this means that the provision in section 560.528 of the Iranian Transaction Regulations which permits OFAC to license on a case-by-case basis spare parts necessary for the safety of civil aviation would not be strictly applicable. But that is not an exception made by OFAC out of the goodness of its own heart; that exception is required by the United States’s adherence to the Convention on International Civil Aviation, article 44 of which would prohibit the United States from taking actions that endanger civil aviation. And there is nothing that would prohibit a case-by-case licensing policy under the WMD proliferation regulations in cases of parts needed to promote the safety of civil aviation.
What Mr. Klein is saying is that it’s now the policy of the United States to use the sanctions against Iran Air in a way that will endanger the safety of its aircraft and its passengers. Even if true, and even if consistent with the United States’s treaty obligations, is this something that the U.S. government should openly admit? It can only be hoped that Mr. Klein was wrong.
