OFAC responded quickly and released several general licenses, dated August 18, 2011, which cover some of the usual exceptions. General License No. 1 covers the provision of goods and services to the diplomatic missions of Syria and their employees in the United States subject to certain restrictions.

General License No. 2 covers the provision of legal services and parallels the provisions normally included in other sanctions regulations. That general license permits, for example, representing the government of Syria or other Syrian persons named as defendants in U.S. legal actions and providing advice to the Syrian government or other Syrian persons on compliance with U.S. laws. The new general license would not, however, cover providing legal services to a French company with respect to business it is conducting in Syria.

General License No. 4 permits exportation of services normally incident to exportation or re-exportation of goods to Syria that have been licensed by the Department of Commerce’s Bureau of Industry and Security.

Finally, General License No. 5 permits the provision of services incident to the exchange of personal communications over the Internet. This would include services relating to instant messages, email, social networking, video and picture sharing and blogging, provided the services are provided without charge and are not provided to the Government of Syria or other blocked persons.

The new Executive Order does not define “exportation of services,” but this term has previously been defined by the Office of Foreign Assets Control (“OFAC”) in connection with other sanctions regulations. Section 560.410 of the Iranian Transaction Regulations defines the exportation of services as the provision of services in the United States or outside the United States by a United states person where the benefit is received in Iran. If any services are provided to the Government of Iran, the benefit of those services is presumed to be received in Iran.

Presumably this same definition will be adopted to apply to Syria. This will broadly prevent, for example, a U.S. person from being employed, with or without compensation, in Syria. A U.S. travel agency cannot book flights to, or hotel rooms in, Syria. A U.S. Law firm cannot provide legal advice to a French company doing business in Syria. Provision of a Twitter account or other social networking services by a U.S. Company to a Syrian will violate the new order. Whether typical exceptions that permit many of these activities in other sanctioned countries remains to be seen.

certain services and software incident to the exchange of personal communications over the Internet, such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, and blogging.

To be eligible the services must be offered free of charge and any software must be EAR99, not subject to the EAR, or mass market software classified under ECCN 5D992. Also, the exporter must not have any reason to believe that the services or software is destined to be used by the government of Sudan or Iran. A similar license was announced for Cuba but it only covered services since BIS controls exports of software to Cuba. Any bets on how long it will take for BIS to act to permit these software exports to Cuba? BIS action will also be necessary for similar exports to Syria.

And here is what hasn’t changed at OFAC. Today OFAC announced that it spent untold tens of thousands of taxpayer dollars to fine some poor schlub $575 for buying Cuban cigars over the Internet. I have to assume that this single cigar purchase will provide funds to the current Cuban government that will keep it in power for about five minutes longer than otherwise would have been the case thereby justifying all the government expense involved in imposing the fine.

In trying to explain how U.S. sanctions have economically damaged Syria, Tabler gets into the weeds of export law and the Export Administration Regulations (the “EAR”) and, frankly, doesn’t come out smelling like roses:

[T]he regime had to ground most of its civilian air fleet—as well as President Assad’s personal jets—because the sanctions forbid the sale of spare parts without an export license. (Sanctions classified anything with more than 10 percent American content as an American product, and since U.S. companies dominate the aerospace industry, even third-party retailers from other parts of the world couldn’t sell the parts to Syria.)

This is clearly a reference to the de minimis rule in section 734.4 of the EAR which, for sanctioned countries, only exempts exports to sanctioned countries with less than 10% controlled U.S. content, not exports with less than 10% of all U.S. content. According to the Guidelines for De Minimis Rules set forth in Supplement 2 to Part 734, controlled content consists of content in the item that has an Export Control Classification Number (ECCN) requiring a license to the sanctioned country in question. There are plenty of items that might be parts of exported items that aren’t controlled content to Syria, so Mr. Tabler’s misstatement of the applicable regulations is a significant error in this regard and suggests that more items are subject to the Syria sanctions than is in fact the case.

The move will particularly affect “requests to export products related to information technology and telecommunication equipment and parts and components related to the safety of civil aviation,” said a State Department spokesman, Andrew J. Laine.

Sanctions on Syria were imposed by Congressional mandate pursuant to the Syrian Accountability and Lebanese Sovereignty Restoration Act of 2003. Section 5 of that Act required the President to block exports of all items on the United States Munitions List and the Commerce Control List to Syria. It also required the President to impose at least two of six specific sanctions set forth in the legislation. The two that he selected were, first, the ban on all exports to Syria other than food and medicine and, second, a prohibition on Syrian aircraft landing in, or overflying, the United States (with the exceptions of aircraft carrying Syrian government officials on government business in the United States).

In implementing the Act and the Executive Order, BIS had considered, on a case-by-case basis license applications to export medical devices, aircraft parts and telecommunications equipment. In February of this year, BIS approved the export of aircraft parts to put two mothballed Syrian Arab Airlines 747s back in service.

Section 5(b) of the Syria Accountability Act permits the President to waive any of the acts required export controls if the President finds that such a waiver is in the interest of national security and reports those reasons to the relevant Congressional committees. Although Andrew Laine’s statement re-affirms the more liberal policy towards aircraft parts and telecommunications, the White House’s statements also suggest that the waiver power may be exercised outside the pre-existing categories of medical devices, aircraft parts, and telecommunications equipment.

One area the the White House should consider further liberalizing would be medical devices and the elimination of a license requirement for exports to Syria of medical devices. Under the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”), medical devices could be exported to Syria without a license. Because the Syria Accountability Act only referred to exceptions for “food and medicine,” the prior administration had interpreted this as over-ruling TSRA and as requiring licenses for medical devices, even though it seems likely that the phrase “food and medicine” was simply a sloppy reference to TSRA and not intended to affect the status of medical devices. Use of the waiver procedure under section 5(b) would allow the President to correct this mistake.

Back in May, the Bureau of Industry and Security (“BIS”) issued a Temporary Denial Order against Spanish airline Orionair in connection with a pending export of two aircraft owned by Orionair to Syrian airline Syrian Pearl. An article that appeared on June 26 in Madrid-based Spanish-language daily CincoDías provides some interesting background surrounding the TDO and its effects. (Yes, I know that the article is almost two weeks old, but it’s harder to find things in the foreign language press. And none of this has yet been reported in the U.S. press.)

According to the article, Orionair had bought two BAe 146-300 aircraft to add to its one-aircraft fleet. The company basically chartered its aircraft for sporting events. After the increase in the cost of fuel, the company began to face financial difficulties and sought to alleviate them by entering into a wet-lease agreement with Syrian Pearl. Under a wet lease agreement, the leasing company (here, Orionair) provides the aircraft, flight crew, maintenance and insurance and the lessee (in this case, Syrian Pearl) pays for fuel, airport fees and the like as well as for an hourly fee for the operation of the aircraft. The aircraft subject to a wet lease is flown under the lessee’s flight numbers and the craft is painted with the lessee’s insignia. In return, Syrian Pearl agreed to guarantee 6,000 hours for the two aircraft as well as to pay the fees for the re-fitting of the aircraft.

The premiere flight under the Agreement took place on May 4 between Damascus and Aleppo. But only two days before, two U.S government officials, presumably from BIS, were in Orion’s offices in Madrid advising the company that its arrangement with Syrian Pearl required permission from Washington, D.C. because the aircraft had more than 10 percent U.S. origin parts and components. The Orion officials were unimpressed, noting that the BAe aircraft were made in England, that the aircraft were being leased and not sold, and that Spain was friends with Syria. Orion also consulted with the Spanish government officials who seemed to doubt that the U.S. would force the issue. Wrong.

BIS apparently went straight to BAe and informed the company that it would be issuing a Temporary Denial Order against Orionair. As a result, BAe immediately told Orionair, even before the TDO was signed or published, that it was not continuing the modifications of the aircraft and that, moreover, the aircraft would have to remain in the United Kingdom. When the TDO was published on May 7, Orionair attempted to invoke its force majeure clause with Syrian Pearl to excuse its anticipated inability to perform any further under the wet lease. Syria was not, so to speak, amused and seized the other of the two aircraft, which was in Syria at the time. The Syrians also detained, for good measure, Orionair flight crews and employees in Damascus, although they have just recently been allowed to return to Spain.

Orionair now doesn’t have either of the two BAe aircraft, is facing a lawsuit from Syrian Pearl for breach of contract, and will probably soon be receiving charging letters from BIS seeking fines and, probably, worse. Syria’s embassy in Madrid is not commenting, characterizing the dispute as “private.”

I can’t imagine that the Spanish Government is happy about all this. Just to understand the reason why the Spanish might be annoyed, suppose that the Spanish government covertly sent over two government law enforcement officials to advise a U.S. company on U.S. soil that it couldn’t complete a transaction with Mexico without the permission of the Spanish government. Imagine further that when the U.S. company declined to obtain such permission, the Spanish government encouraged a company in the U.K. to detain the property of the U.S. company that it had been servicing under contract. Do you think that the U.S. government would sit idly by and do nothing? I don’t. We would be squawking about sovereign rights, territorial inviolability, secondary boycotts, WTO obligations, extraterritorial application of Spanish law and would be threatening some kind of retaliation, including burning copies of Don Quixote in mass bonfires, pouring Rioja down the gutter, and renaming Paella as “Freedom Chicken and Rice.”

A blogger at PBS’s Mediashift Blog notes that Google has blocked downloads of its new browser Chrome, as well as other Google programs, to residents of Syria and Iran. Well, sorta:

Iranian blogger, Hamid Tehrani, who edits the Iran section for Global Voices, [reports] that Chrome is blocked, along with other Google downloads, in Iran. But it’s relatively easy for Iranian users to get around this obstacle. [Another Iranian blogger reported] in an email (from his Gmail account) that he is still able to access Google services by using a proxy.

“Currently, we are using all of the search engines and portals without any restriction, using the latest versions of Google Earth, Chrome, GTalk and any other downloadable product,” he said. In addition to helping users get around government filtering and censorship, proxies and anonymizers can also fool Google’s servers into thinking that the downloads were going elsewhere rather than to users in Iran.

What’s going on here is that normally each user is assigned an IP address that identifies the user as he or she surfs the Internet. IP addresses are assigned, in part, based on geographical location, and there are blocks of IP addresses that would identify an Internet surfer as Iranian or Syrian (or French, etc.) Google has, apparently, blocked downloads from users with IP addresses allocated to sanctioned countries. An open proxy server, however, can be used by most browsers to connect to the Internet, thereby making the user appear to be coming from the country in which that proxy server is located rather than from the country in which the user is actually located.

The article reports that other web-based service providers have taken alternate approaches to dealing with U.S. sanctions.

Although Yahoo removed Iran from the drop-down list, Iranians were still using Yahoo services, according to Kourosh Ziabari, an Iranian journalist and blogger who wrote about the issue for the citizen journalism site OhMyNews.

“[Iranians are using] Yahoo services, downloading new versions of Messenger, using the different web site parts but not finding the name of their country in the sign-up list,” Ziabari wrote. “In fact, if an Iranian user wanted to sign up for a new account in Yahoo mail, he should have selected the name of the other countries, and then he would proceed.”

Although removing Iran, Cuba, Syria and other sanctioned countries from drop-down lists is certainly a good idea to demonstrate compliance with U.S. economic sanctions, it can hardly be considered sufficient. Websites that provide web services, such as downloads, should also capture IP addresses in order to determine whether a web-based customer is coming from sanctioned country. Arguably, websites that sell non-virtual products (you know, computers, GPS equipment, bricks, etc.) should also capture those addresses. A web-based order from Iran for a shipment to the UAE is a bit of a red flag, n’est-ce pas?

But given the ease of using proxy servers, should websites do more to implement U.S. sanctions? Should Google (and other browser providers) put “kill switches” in downloadable software that would make a direct connection to the Internet, “call home,” and then shut the program down if the home servers indicated the verification connection was coming from a sanctioned country? Or should the program require activation using a code sent to an email address other than a web-based email address? Any other ideas? Or is this just a losing battle that should be abandoned?

The basis for this objection, as stated in that fax, is that Syriatel is owned by more than 7,500 shareholder and not only by Rami Makhluf whose ownership of Syriatel served as the basis for the designation. The company is going to need a stronger argument than that because OFAC seemed to be quite aware, judging by its press release announcing the designation, that Makhluf was not the only owner of Syriatel but simply the majority owner.

Syriatel’s efforts to contest the designation may face a larger barrier. A recent guidance document from OFAC suggests that OFAC is going to limit the fees paid to lawyers representing SDNs to $125 per hour, with a cap of $7,000 per lawyer for up to two lawyers. We’ll be interested to see who agrees to represent Syriatel under these conditions.

Today OFAC designated two of Makhluf’s most visible business enterprises as SDNs — Syriatel and Ramak Duty Free, a chain of duty free stores that includes Damascus Duty Free at the Damascus International Airport. As a result of that designation, U.S. citizens are prohibited from doing business with either entity. (OFAC’s press release on the designation can be found here.)

This may catch many Americans traveling to Syria unaware. The Damascus Duty Free at the airport is reputed to have a large selection of goods at attractive discounts and is popular among travelers departing the airport. The State Department’s guidance page on travel to Syria has not yet been updated to reflect this new restriction, stating only that, because Syria is a designated state sponsor of terrorism, U.S. citizens “are prohibited from engaging in financial transactions which a U.S. person knows or has reasonable cause to believe pose a risk of furthering terrorists’ acts in the United States.”

Americans traveling in Syria with unlocked GSM phones might also violate the sanctions if they bought a pre-paid SIM card from Syriatel for use in Syria. Buying telcom services from Syriatel is arguably exempt under the Berman Amendment, but the purchase of the hardware — the SIM card — arguably could overstep the line.

One major American company is currently providing service to Syriatel. Network Solutions is the registrar for syriatel.com, which, as of this posting, was still functioning. Given the increased penalties for violating U.S. sanctions laws, it won’t be surprising if that website disappears shortly.

Today the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) designated as an SDN Rami Makhluf, the maternal cousin of Syria’s President Bashar al-Assad and owner of Syriatel, Syria’s largest mobile phone provider. The basis for the designation was novel. It was not because of any allegation that Makhluf was involved in destabilizing the peace process in the Middle East or destabilizing Lebanon. Rather, it was because he is alleged to be a corrupt guy who exploits his close family ties to the Syrian government to further his business interests in Syria.

Come again? Hear for yourself, straight from the lips of Stuart Levey, the Department of Treasury’s Under Secretary for Terrorism and Financial Intelligence:

Rami Makhluf has used intimidation and his close ties to the Asad regime to obtain improper business advantages at the expense of ordinary Syrians,” said Stuart Levey, Under Secretary for Terrorism and Financial Intelligence. The Asad regime’s cronyism and corruption has a corrosive effect, disadvantaging innocent Syrian businessmen and entrenching a regime that pursues oppressive and destabilizing policies, including beyond Syria’s borders, in Iraq, Lebanon, and the Palestinian territories.

This novel theory of designation was set up by Executive Order 13460, signed by President Bush last week on February 15 and which found that

the conduct of certain members of the Government of Syria and other persons contributing to public corruption related to Syria, including by misusing Syrian public assets or by misusing public authority, entrenches and enriches the Government of Syria and its supporters and thereby enables the Government of Syria to continue to engage in certain conduct that formed the basis for the national emergency declared in Executive Order 13338.

Executive Order 13338 was based on Syria’s occupation of Lebanon, it’s pursuit of WMD, and its interference with the stabilization and reconstruction of Iraq.

Executive Order 13460 and the designation of Rami Makhluf, both promulgated under the International Economic Emergency Powers Act (“IEEPA”) must meet the standards set forth therein. That statute permits such designations if the President finds that it is necessary to meet an extraordinary threat to the national security, foreign policy or economy of the United States. Such a finding is clearly a leap when applied to foreign government “cronyism” with foreign companies and their executives. Exploiting family ties to the Syrian government officials doesn’t entrench the government; rather it entrenches the people exploiting those ties.

Another problem with this designation was pointed out by commenter Ex-OFAC in his comment on yesterday’s post on OFAC’s 50 percent rule. The designation prohibits U.S. persons from doing business with Makhluf, and by extension of the 50 percent rule, with any business in which Makhluf owns a 50 percent interest or greater. If Makhluf in fact owns a majority-stake in Syriatel, are American telephone companies violating the law when they connect U.S. outbound calls to that network and pay the connection fee? Makhluf’s other business holdings are alleged to be enormous and so any company doing business with Syria does so at the peril of finding out that Rami is a controlling shareholder.