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Archive for the ‘Sanctions’ Category

May

26

SEC To TSRA: Drop Dead!

Posted by Clif Burns at 10:05 pm on May 26, 2011

Category: SEC • Sanctions

UPS Truck You may never have heard of the SEC’s Office of Global Security Risk and probably have no idea what they do. Well, although I know what they are supposed to do, I have always wondered what the people at that office do during the work day.

Now we know. They surf websites looking for sanctioned countries, like Syria and Sudan, in drop down address lists on the websites of U.S. companies. Allegedly this is to advise U.S. investors about publicly-traded companies that supposedly jeopardize their stockholders’ investments by dealing with sanctioned countries.

After a heavy day of web surfing the Office of Global Security Risk fired off this missive to UPS in respect to a price table it found on the UPS site.

We also note an Air Freight peak season surcharge table on your website which lists surcharge amounts for regions including Latin America and Europe, Middle East, Africa in the Destination section. According to the notes section, the destinations listed include Cuba under “Latin America (All Other Countries)” and Iran, Sudan and Syria under “Europe, Middle East, Africa.” Iran, Sudan and Cuba are identified by the U.S. State Department as state sponsors of terrorism and are subject to U.S. economic sanctions and export controls.

Apparently the SEC thinks that all exports to these countries are banned. The time that the OGS staff spent surfing the web apparently did not extend to researching economic sanctions laws and discovering, say, TSRA, which permits exports of agricultural products, medicine and medical devices to sanctioned countries. Or the Berman amendment which permits export of informational materials. Never mind any of the other exceptions.

UPS replied by saying this:

The appearance of any country on the sanctions list on a UPS listing of surcharge amounts, explained [UPS Vice-President Norman] Brothers, applies only to lawful deliveries. “During the period July 10, 2006 through December 31, 2010, UPS rejected at least 55 shipments destined for Syria because they were determined to be impermissible under U.S. export controls.”

The SEC was reportedly unembarrassed its crude understanding of U.S. export laws and immediately returned to more web surfing. You can start humming that Gershwin tune: “Nice work if you can get it.”

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Mar

14

The Meaning Of “Of”

Posted by Clif Burns at 5:25 pm on March 14, 2011

Category: OFAC • Sanctions

Chinhoyi Satellite View According to an article in The Herald, the state-controlled newspaper of Zimbabwe, the Office of Foreign Assets Control (“OFAC”) refused to unblock $30,000 that a U.K. couple wired to purchase land in Chinhoyi Municipality, Zimbabwe, and that was blocked by HSBC. The funds were blocked by HSBC because they were wired to an account that the municipality maintained at the ZB Bank, a bank which has been designated by OFAC under the Zimbabwe sanctions program.

A letter from an OFAC official explained the agency’s decision not to unblock the funds by saying that U.S. financial institutions are required to “block all wire transfers in which a sanctions target has an interest and that come within the institution’s possession or control, even if the institution is an intermediary and an underlying transaction does not otherwise involve a person subject to US jurisdiction.” Section 541.201 of the Zimbabwe sanctions does require the blocking of “property or interests in property of” designated entities that come within the control of U.S. financial institutions or their overseas branches. And section 541.308 of the Zimbabwe sanctions regulations defines property broadly enough to include wire transfers of funds.

But that hardly ends the inquiry. The wire transfer can only be blocked if it is the “property or [an interest] in property of” the intermediary financial institution, in this case, ZB Bank, Ltd. Nothing in OFAC’s regulations anywhere defines “property of.” And it stretches any conceivable meaning of that term to say that the funds being wired were the property of the bank rather than the property of the U.K. couple and/or Chinhoyi municipality. If that’s not clear on its face, consider this: if I had a judgment against ZB Bank (leaving aside the blocking issue), could I get a court anywhere in the world to allow me to levy on the wire transfer in this case? Of course not.

OFAC might be free to promulgate a regulation blocking funds that are about to come into the possession or control of a blocked person or entity, which it hasn’t done here or anywhere else. But the agency is not free to say that words such as “property of” mean something that those words simply don’t mean or to say that bank accounts are “property of” the bank. And once OFAC engages in such behavior, is the agency any better than the tin-pot dictator that the U.S. seeks to sanction?

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Nov

29

Wikileaks: Armenia Threatened with Sanctions after Iran Arms Deal

Posted by Clif Burns at 10:22 pm on November 29, 2010

Category: Armenia • Arms Export • Sanctions • Wassenaar

ABOVE: Armenian President Serzh
Sarkisian

According to one of the Wikileak cables published by the Guardian, Armenia, in 2003, sold machine guns and rockets to Iran which were later used in a fatal attack on U.S. forces in Iraq by Shia militants. Secretary Rice discussed this with Armenian President Serzh Sarkisian, who denied any involvement in the arms transfer.

In December 2008 the State Department sent a letter to Sarkisian threatening U.S. sanctions on Armenia unless Armenia signed a written agreement that it would undertake certain specified steps to prevent further arms transfers to Iran or other terrorist states. Those steps were to include:

Adopt the Wassenaar Arrangement control lists
Ensure that Armenian-based brokers aren’t involved in arms transfers
Accept periodic unannounced inspections by the United States
Consult with the United States on all arms transfers to countries that are not members of NATO, the E.U., or the Wassenaar Arrangement.

There is no indication that Armenia entered into such an agreement other than, of course, the absence of current U.S. sanctions against Armenia.

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Jan

5

The Name Game Chinese Style

Posted by Clif Burns at 8:16 pm on January 5, 2010

Category: China • OFAC • Sanctions

Tiananmen Square An interesting story in today’s Wall Street Journal details instances in which a number of U.S. companies imported items from China Precision Machinery Import Export Corporation despite the fact that CPMIEC is on the Office of Foreign Assets Control’s Specially Designated Nationals List. The reason for this, asserts the story, is that Chinese companies on the SDN list “have proved adept at creating aliases or subsidiary shell companies to mask their ownership.”

Consider this example cited in the article:

John Iliff, general manager of American Forge & Foundry, says the single shipment of oil-drainage tanks it received in 2006 from the CPMIEC unit set off no alarms. “Trading in illegal goods certainly never crossed our minds,” he says.

The shipment came from China JMM Import & Export Shanghai Pudong Corp., which didn’t appear on any sanctions list until Thursday. Records indicate the company shares an address and phone number with a CPMIEC unit that was previously banned: CPMIEC Shanghai Pudong Corp. The Treasury determined that the two companies are affiliated.

That designation of JMM Import & Export occurred just a few days ago on December 31, 2009, almost three years after the cited shipment. But there were several red flags that American companies might have picked up on before OFAC’s belated designation of the CPMIEC affiliate. Not only is there a similarity in the names of the two companies, but they shared the same street address. Standard procedure should be not only to check names on the SDN list but addresses as well.

But the larger issue here is that the obvious ease with which Chinese companies can morph into new entities effectively renders company-based sanctions almost completely ineffective. It’s obviously as easy for Chinese companies to rename themselves as it is for underage Chinese gymnasts to acquire new, earlier and eligible birth dates on official documents. I’m not so sure what the solution is here but it doesn’t appear to be imposing penalties or additional compliance obligations on U.S. companies that deal with affiliates of companies on the SDN list.

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May

26

Microsoft Shuts Off IM Service in Sudan and Other Sanctioned Countries

Posted by Clif Burns at 2:42 pm on May 26, 2009

Category: Sanctions • Sudan

Live Messenger in Sudan Economic sanctions continue to spread into cyberspace as Microsoft announced last Friday that customers in sanctioned countries would receive an error message if they tried to log into their Windows Live Messenger accounts and would no longer be able to use the service.

When you try to sign in to Windows Live Messenger, you receive the following error message:

810003c1: We were unable to sign you in to the .NET Messenger Service.

Microsoft has discontinued providing Instant Messenger services in certain countries subject to United States sanctions. Details of these sanctions are available from the United States Office of Foreign Assets Control ["OFAC"].

Why it took Windows so long to get with the program when arch-rival Google had disabled downloads to Sudan and other sanctioned countries ages ago is not clear.

Although the shutoff applies to Cuba, North Korea, Iran, Sudan and Syria, Sudan seems to have taken it most to heart, judging from this report on the shutoff in the Sudan Tribune, a Paris-based on-line newspaper covering Sudan:

The software, Microsoft’s Windows Live Messenger, allows users to chat directly with one another, send photos, play games or send messages to mobile phones. The Messenger is widely used by the Sudanese diaspora to contact their families and until last week had been available for free downloading in the countries targeted by US sanctions.

Of course, Microsoft’s action is incredibly easy for users to circumvent. First, users can log back into their accounts and change their country to a non-sanctioned country. (Oddly, Microsoft’s drop-down list for countries on its Live Messenger sign up page- still includes Sudan — not to mention Cuba, North Korea, Iran and Syria!) Second, if Microsoft is also using geolocation filters on the IP addresses, the user can always connect through a proxy server located in a non-sanctioned country. Et voilà, the Sudanese (or Syrian, Cuban, Iranian or North Korean) resident can IM to his or her hearts content, Microsoft is in full compliance with the law, and OFAC is none the wiser and can still believe that it has hastened the downfall of these governments by keeping their citizens from communicating with their family and friends.

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