Feb

21

OFAC: Just One Letter Short of FCPA

Posted by at 5:46 pm on February 21, 2008
Category: Sanctions • Syria
Rami Makhtuf
ABOVE: Rami Makhluf

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.

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Copyright © 2008 Clif Burns. All Rights Reserved.
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4 Comments:

If OFAC’s creating a list for Specially Designated Cronies, what’s next? May I offer a name to start up a list of Specially Designated Mothers-in-Law?!

Comment by EdO on February 21st, 2008 @ 7:46 pm

This relates to your question: “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?” OFAC has long ago put out advice that telephonic message traffic constitutes “information or informational materials” trade in which is exempted from direct or indirect Presidential regulation or prohibition under the International Emergency Economic Powers Act or the Trading with the Enemy Act by the (Rep. Howard) Berman Amendments to IEEPA and TWEA. The bar to direct or indirect regulation or prohibition would also exempt payments for connection to a blocked telephone company’s network, with — as usual — a Cuban quirk: telecommunications between the United States and Cuba (only) are permitted but payments to Cuba must be licensed by OFAC as authorized in the Cuban Democracy Act of 1992. (My simplified statements ignore the possibility that some telephonic message traffic is not covered by the Berman Amendments because it includes technical data controlled for export by the Commerce Department or defense information controlled by criminal espionage prohibitions. I do not believe OFAC has asserted licensing authority over the broader telecommunications services industry on the basis of these non-exempt categories of message traffic.)

Comment by Ex-OFAC on February 22nd, 2008 @ 4:14 pm

Good point, Ex-OFAC. If I’d thought that example through more carefully I’d have realized it was a bad one. Here’s a better example: could a U.S. company, say Motorola, sell Syriatel handsets for resale to its customers?

Comment by Clif Burns on February 22nd, 2008 @ 4:19 pm

In addition to the Berman Amendment, as confirmed and expanded in 1994 by the Free Trade in Ideas Act, IEEPA 1702(b) also includes an exemption for communications of no commercial value, thus OFAC is doubly restrained by statute, not that they ever mind the statutes. The legislative history of the FTIA amendments to IEEPA make it clear that Congressional intent in the original Berman Amendment, which was a part of the 1988 Omnibus Trade Act that extensively revised the EAA, was to grant a statutory exclusion for information from the grant of emergency powers to the President that was at least as broad as the First Amendment. In Junger v. Daley, the 6th Circuit found that encryption source code – controlled per Section 5 of the EAA – was entitled to First Amendment protection, but because of its functionality (in the sense that some machines can read source code directly), source code was entitled only to an intermediate level of protection. It is questionable whether restrictions on communications conveying pure information that have no direct functional capability can pass muster under either the Berman/FTIA amendment or the First Amendment. Moreover, given the expiration according to its terms of the EAA and with it the Congressional findings of necessity, its questionable whether export controls on tecnology, which are de facto permanent prima facie regulations on content instead of conduct, can pass muster even under intermediate scrutiny.

Comment by Mike Deal on February 29th, 2008 @ 10:24 am