Mar

24

Question of the Day

Posted by at 11:24 pm on March 24, 2016
Category: Iran Sanctions • OFAC
Cyan Headquarters via Google Maps [Fair Use]
ABOVE: Cyan Headquarters

Today’s question is this: say you are a UK-based company that manufactures a product with U.S.-origin content which you want to sell to Iran? How do you do it?

According to this article, you sell the stuff to Iran through your subsidiary in India. Yes, seriously, that’s the answer that was given:

Cyan was also required to check if an export license would be required to export its products from both the UK and the US, since there is an element of its product that originates in the US. “UKTI (UK Trade & Investment) was very helpful in assisting us and confirming that no license would be required if we ship our products from our subsidiary in India …,” explains John [Cronin, Chairman of Cyan].

Oh dear. Let’s hope that’s a misquote or a misunderstanding. If you are a foreign person with a product with U.S. origin content, section 560.205 of the Iran Transactions and Sanctions Regulations quite clearly state the circumstances in which that product can be sold to Iran. That export is permissible only if the U.S. content has been “substantially transformed” into a new product or if all such content which would require a license from the United States constitutes less than 10 percent of the total value of the foreign product.

It does not say that the foreign person can, as the article suggests the Cyan chairman says, sell the product with U.S. content to Iran if you simply try to sell it through another non-U.S. subsidiary in India or elsewhere. I suspect that, as European companies rush to exploit the Iran market after Implementation Day, this will not be the first possible misunderstanding of the scope of the remaining U.S. rules and when they apply. (I am, of course, assuming that Cyan, in fact, determined the exceptions in section 560.205 applied and that Cronin was either misquoted or misunderstood the actual reason his exports to Iran passed the test.)

Photo Credit:Cyan Headquarters via Google Maps [Fair Use]

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4 Comments:

Are you saying that UKTI wrongly advised Cyan as to UK export laws and regulations?

Or are you saying that US export regulations apply in the UK?

If the latter, what is the public international law that allows for the extraterritorial application of US regulations in this manner?

And also, in the latter situation, does the US Government and US exporters accept the application of UK export laws and regulations when exporting items from the US that incorporate UK origin items?

Comment by Garforth Mortimer on March 29th, 2016 @ 6:05 pm

    I am saying that U.S. courts take that position with respect to items that originated wholly or in part in the United States. The so-called “protective” principle of public international law covers assertion of extraterritorial jurisdiction by a state if its national security interests are implicated and that is what U.S. courts have relied on to the extent that they have analyzed the situation with respect to the extraterritorial application of U.S. re-export restrictions. The use of the “protective principal” under international law is controversial and not all courts and countries agree on its scope. Nevertheless, U.S. courts accept the extraterritorial application and there are non-U.S. persons sitting in U.S. jails now for re-exports that took place in foreign countries in violation of U.S. law, usually after getting nabbed after stepping off a plane in the United States. If you have been a regular reader of my blog, you will know that I have expressed skepticism about stretching the protective principal so broadly. As to your second question, I am not aware that the UK asserts jurisdiction over such re-exports, but, if it did, the U.S. would have little room to complain.

    Comment by Clif Burns on March 29th, 2016 @ 6:56 pm

Oh, I suspect the US would complain very loudly indeed. A frustrated US exporter would doubtless complain to his Representative in Congress, maybe even a Senator, and I’m sure that would get the Administration exercised. I doubt the “sauce for the goose/ sauce for the gander” argument would get much traction – we’re more likely to get bullshit comments like “American exceptionalism”.

One day the Administration bureaucrats will get themselves caught in the wringer over this.

Comment by Garforth Mortimer on March 29th, 2016 @ 7:51 pm

    Since you appear to believe that the U.S. is singularly guilty of asserting extraterritorial reach of its legislation, perhaps you would care to commment on the extraterritorial reach of the U.K Bribery Act and elucidate the principles of private international law that justify it?

    Comment by Clif Burns on March 30th, 2016 @ 9:17 am