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Jan

4

Kadyrov’s Cat, Like Schrödinger’s, Is Both Dead and Alive


Posted by at 4:35 pm on January 4, 2018
Category: Magnitsky SanctionsOFAC

Ramzan Kadyrov and Cat via his Instagram account [Fair Use]
ABOVE: Ramzan Kadyrov & Cat

Ramzan Kadyrov, head of the Chechen Republic, Putin toady, serial human rights violator, cat aficionado,* fashion victim and blocked person on the OFAC SDN List is upset that his Facebook account has been deleted. A spokesman at Facebook said this to the New York Times:

We became aware and have now confirmed that the accounts appear to be maintained by or on behalf of parties who appear on the U.S. Specially Designated Nationals List and thus subject to U.S. trade sanctions. … For this reason, Facebook has a legal obligation to disable these accounts.

Er, no. Kadyrov was sanctioned under the Magnitsky Sanctions, and the rules governing those sanctions, clearly set forth an informational materials exception. Section 584.206(b) of the Magnitsky Sanctions Regulations clearly states:

The prohibitions contained in this part do not apply to the importation from any country and the exportation to any country of any information or informational materials, as defined in §584.304, whether commercial or otherwise, regardless of format or medium of transmission

Moreover, if Facebook really believed, as its spokesperson asserted, that it has to disable accounts maintained by SDNs, why does Bashar Al-Assad still have an active account? Or Nicolás Maduro?

Something else is clearly going on here. So, as they say, don’t believe everything you read on Facebook.

____

*Click this link to get the backstory on Ramzan and his kitty cat.

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Jan

3

North Pole Confirms Nice Children in Cuba and U.S. Received Presents on Christmas


Posted by at 10:27 am on January 3, 2018
Category: OFAC

Santa Flanked by F-16

I have received several inquiries regarding the absence this year of the annual Santa vs. OFAC post. The reason, of course, was this press release, set forth below, from October 14, 2016.

A quick call by Export Law Blog to Elf E. McElfface, the head of Santa’s PR department, confirms that this year’s deliveries to children in Cuba and the United States went off without a hitch. Mr. McElfface did caution that there were still a number of Grinches in DC that might at any time reinstate the old rules and urged all Santa supporters to contact their representatives in Congress and the White House to urge that the amended rules stay in place.

FOR IMMEDIATE RELEASE
MEDIA CONTACT: Elf E. McElfface, [email protected] or (951) 262-3062

Santa’s Village, North Pole – Santa Claus today, on behalf of himself, Mrs. Claus and the 40,000 elfployees of the Santa Foundation, expressed his gratitude to the Office of Foreign Assets Control for its timely revision of its rules to grant Santa clear authority this year to visit children both in the United States and Cuba. For years, Santa’s efforts to bring holiday cheer to children of both countries has been thwarted by section 515.207 of the Cuba regulations which would prohibit Santa’s sleigh from landing in the United States while toys for Cuban children remained in the sleigh or in landing in the United States if those toys had been delivered to Cuban children first.

Today’s action waives these restrictions if Santa’s sleigh only carries items that would, if they were subject to the EAR, be EAR99 or controlled only for AT reasons. This ends the long struggle over whether teddy bears and other toys — which are not food, medicine, or personal communications devices — could only be delivered to Cuban children in wrapped parcels with the child’s name and address written on the outside and with the statement “GIFT—Export License Not Required” also marked on the parcel package. Notwithstanding the diligence and timely efforts of Santa’s elfployees, compliance with these requirements for each non-naughty child in Cuba has heretofore been impossible.

News of the OFAC announcement led to loud cheers and applause throughout Santa’s Village. Elf E. McElfface, Santa’s spokeself, wiped a tear of joy from his eye as he said to the elves in one of Santa’s workshops that he never believed that this would occur in his lifetime, which was saying a lot given that the average life expectancy of an elf on the North Pole is currently just over 500 years.

As Christmas approaches, Santa said that he was looking forward to this year’s delivery of toys and goodies to the nice children throughout the world more than ever before and reminded children everywhere, both in Cuba and the United States, that they could call his hotline at +1 (951) 262-3062 to leave their Christmas wishes and toy requests.

This press release may include predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent the Santa Foundation’s current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this press release. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.

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Copyright © 2018 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Dec

13

Do Due Diligence or Penalties May Be Due


Posted by at 7:20 pm on December 13, 2017
Category: Iran SanctionsOFAC

Dentsply Sirona HQ via https://corporate.dentsplysirona.com/en/about-dentsply-sirona/_jcr_content/main/tilesquarecontainer/components/tilesquare_355870153/picture.img.582.HIGH.jpg/1488408622677.jpg [Fair Use]Dentsply Sirona agreed to pay the Office of Foreign Assets Control (“OFAC”) $1,220,400 to settle charges in connection with 37 unlicensed exports of dental equipment to Iran. The value of the shipments was not stated but it would have been close to the $1,695,500 that OFAC asserted was the base penalty amount.

The significant issue is that these were not exports of Dentsply Sirona, but rather of two subsidiaries of Dentsply before it merged into Sirona in February 2016. OFAC, and the other export agencies, apply a rule of successor liability and although that rule is more defensible in a merger case, such as this one, it also has been applied in asset deals. And there is some chance in this case that Sirona may not have known about this sanctions liability until OFAC came knocking on the merged company’s doors given that the matter was not voluntarily disclosed by the parties.

According to the charging documents, the Dentsply subs sold dental products from the United States to foreign distributors with knowledge that they would be re-exported to Iran.  In addition, they continued to do so even after receiving confirmation that the items had, in fact, been re-exported to Iran.

One of the aggravating factors cited by OFAC was that personnel of the subsidiaries deliberately concealed from the parent company their knowledge of and participation in sales to distributors that were going to be re-exported to Iran. Although this case, on the one hand, emphasizes the need for due diligence on sanctions violations as part of the mergers and acquisitions process, it also raises the question here as to how due diligence would have caught these violations. The company’s export records would only show exports to the distributors outside Iran and would not reveal the subsequent re-exports to Iran. And the employees who had been busy lying to the parent company could not be expected to come clean about the scheme when presented with a due diligence questionnaire or in a due diligence interview.

That raises a larger question. Why on earth is it an aggravating factor for a parent company (and a successor entity) that it had rogue employees in its subsidiaries? If the parent had a reasonable compliance program, exercised reasonable review over the sub’s hiring practices with background checks, and had no knowledge of the con game going on, why should the penalty be increased? That hardly seems fair. Rather, the appropriate response should be referring the employees’ violation to the DOJ for criminal prosecution of those employees themselves. After all, the aggravating factor here is itself fairly conclusive proof of criminal intent by the sub’s employees.

 

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Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Dec

7

BIS, For One, Does Not Welcome Our New Robot Overlords


Posted by at 6:28 pm on December 7, 2017
Category: BISCivil PenaltiesEntity List

Pilot Truck via http://www.pilotdelivers.com/images/photo-library/PFS011-web.jpg [Fair Use]The Bureau of Industry and Security (“BIS”) recently announced that Pilot Air Freight had agreed to a $175,000 fine ($75,000 of which was suspended) to settle charges that it had aided and abetted an attempted unlicensed export by one of its customers (against whom there is no record of any enforcement action) to IKAN Engineering Services, a company on the BIS Entity List. This seems rather high for what was essentially a software glitch.

According to the charging documents, Pilot had multiple interfaces for entering shipping data.  Its main interface, called “Navigator,” was linked to proprietary screening software that would screen shipment recipients against the Entity List and other relevant screening lists.   A second interface, called “Co-Pilot,” allowed customers to enter shipment data.   Apparently, entries made in “Co-Pilot” weren’t linked back to the Navigator screening software, so when a customer entered a shipment to IKAN, the shipment was not flagged.   It was apparently intercepted by Customs when it reached the Port of Long Beach.

There is nothing in the charging documents to suggest that Pilot knew of this glitch in its automated screening system.  It apparently thought that shipments were being screened.  This is unlike those cases where the exporter did not know of its obligation to screen shipments or knew of its obligation but decided not to screen certain shipments.   Certainly BIS has every right to penalize Pilot here, but the penalty should have taken into account what appear to have been the innocent and unintentional origins of the problem.   Almost everyone uses automated screening and would now appear to be at the mercy of the robots they employ to do the screening and the techies they hire to program the robots.

There’s another interesting wrinkle in the charging documents that BIS more or less glosses over.

Pilot failed to flag this transaction even though the name and address in its possession closely matched the Entity List listing for IKAN.   As Pilot has acknowledged to BIS during this matter, properly configured screening software would have identified the attempted export as involving a listed entity and flagged it for review.

Even though BIS acknowledges that this was not an exact match, we have no idea how inexact the match was.  Even though Pilot agreed that it was not so inexact that it would have been missed by its screening software , it is hard to tell whether they really believed that or felt compelled to say it to keep BIS happy.  The failure of BIS to reveal the name used by the shipper suggests that the match might not have been as close as BIS would now have us believe.

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Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Dec

5

OFAC Issues Finding of Violation to Foreign Ship Registry for Dealings with Iran


Posted by at 12:38 pm on December 5, 2017
Category: Iran SanctionsOFAC

Dominica Seen From the Ship (10) by Gail Frederick [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/5MYWSL [cropped and processed]Last Tuesday the Office of Foreign Assets Control (“OFAC”) issued a “finding of violation” (but not a fine) against the Dominica Maritime Registry (“DMR”) for entering into a “Binding Memorandum of Understanding” with the National Iranian Tanker Company (“NITC”), an Iranian government entity listed on OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”). Because this was a “contingent contract” in which a blocked party had an interest, DMR’s entry into the contract, according to OFAC, violated section 560.211 of the Iranian Transactions Sanctions Regulations.

The wrinkle in this case is that the Dominica Maritime Registry is located in Fairhaven, Massachusetts, the Government of Domenica having subcontracted its governmental maritime registry functions in 1999 to the Northeast Maritime Institute in Fairhaven, which is why, I suppose, OFAC thought it could sink its teeth into DMR.  Subcontracting maritime registry functions is an unusual, although not unprecedented, situation. The Republic of the Marshall Islands has also subcontracted its maritime registry functions to International Registries, Inc. in Reston, Virginia.

OFAC noted a number of aggravating factors in its decision. DMR, according to OFAC, did not voluntarily disclose the violation; it “knew” that NITC was on the SDN list; it failed to exercise a “minimal degree of caution” in signing the contract with NITC; and DMR executives “actively participated” in negotiating and executing the contract. As mitigating factors OFAC noted that DMR was a small company with no prior penalties and that it recently hired trade counsel to assist in OFAC compliance issues.

So here we have what appears to be an intentional violation that was not voluntarily disclosed and yet the only penalty is a finding of violation — or, in more colloquial terms, a half-hearted slap on the wrist followed by a beat-down with a few wet noodles. This is likely because the real mitigating factor was one that OFAC did not want to mention much less admit: sovereign immunity. If OFAC wanted to collect any fine imposed on DMR, it would  have been forced to resort to an action in federal court, where is would have run up against the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq.

Of course, the FSIA issue here is whether the maritime registry function is a commercial activity exempted from the jurisdictional restrictions of the FSIA. The Supreme Court in Republic of Argentina v. Westover spelled out the test for making this determination

the question is not whether the foreign government is acting with a profit motive or instead with the aim of fulfilling uniquely sovereign objectives. Rather, the issue is whether the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in “trade and traffic or commerce.

Dominica’s International Maritime Act of 2000 sets forth the various conditions for registration of vessels entitling them to fly a Dominican flag, including a determination of seaworthiness and compliance with various other regulatory requirements, including vessel marking. Once registered the vessel is accorded certain rights by the Dominican government, including the right to freely enter its ports. It seems beyond doubt that maritime registration, even if subcontracted to a U.S. corporation, is a governmental and not a commercial function.

Based on this, the real mitigating factor in this case had nothing to do with this being a first violation or that DMR was small and agreed to hire trade counsel. No, the real mitigating factor was that OFAC probably could not have collected any fine that it imposed.

Photo Credit: Dominica Seen From the Ship (10) by Gail Frederick [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/5MYWSL [cropped and processed]. Copyright 2008 Gail Frederick

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Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)