In my last post on the new Cuba regulations, I hadn’t yet seen the regulations published by the Bureau of Industry and Security (“BIS”) in the Federal Register on September 8 but had only seen press reports about their supposed contents. Both BIS and the Office of Foreign Assets Control (“OFAC”) issued regulations to implement the White House’s relaxation of parts of the embargo as announced in April of this year. Both agencies needed to issue regulations because OFAC regulates payments and provision of services to Cuba while BIS regulates exports of goods to Cuba.

The new BIS regulations amend existing License Exception GFT which covers gift parcels and create a new license exception CCD which covers exports of certain consumer communications devices to Cuba. Although both license exceptions expand unlicensed exports to Cuba, they differ in significant ways.

Prior to the amendments, license exception GFT permitted individuals to send gift packages to members of their immediate family (excluding designated officials of the Cuban government and the Communist Party) of food, medicine, medical devices, and certain mobile phones. Packages were limited in value to $400 for all items other than food As amended, license exception GFT now covers gift parcels with a value up to $800 for all items other than food. The recipients of these packages no longer need to be immediate family members of the sender but can be anyone in Cuba (other than Cuban government and party officials). And the items in the package can now include clothing, personal hygiene items, veterinary items, fishing equipment and soap-making equipment. Significantly the packages can now also include items normally sent as gifts between individuals.

The new license exception CCD covers consumer communication devices and specifically lists, among other things, computers and peripherals, mobile phones, storage media, audio and video players and recorders, digital cameras and batteries and chargers for these devices. Although there are some overlaps between license exceptions GFT and CCD, there are some significant differences. For example, in terms of overlap, many of the items listed as eligible for exception CCD might also qualify under GFT as items normally sent as gifts between individuals.

Even if a computer might be exchanged as a gift, three computers would not normally be such a gift, meaning that multiple computers would not be eligble under exception GFT but would be eligible under exception CCD. Additionally, license exception CCD can cover exports from groups and companies, whereas exception GFT only covers exports by individuals. Finally, there is no limitation on the value of items sent under exception CCD. Nor is there a frequency limitation under exception CCD as opposed to the one parcel per month limitation under exception GFT. In essence, the only significant restriction under exception CCD, at least for the specific consumer communications devices enumerated, is that they can’t be sent to Cuban government or Communist Party officials.

An article published Wednesday in the Miami Herald breathlessly announced that the reporter had been told that the new OFAC and BIS rules implementing the changes to the Cuba embargo announced by the administration in April would appear in Thursday’s Federal Register. But that didn’t happen. Late on Thursday afternoon, OFAC’s new regulations appeared at the Federal Register Public Inspection Desk with an indication that they would be published next Tuesday, September 8, but were effective as of September 3 when they were made available to the Public Inspection Desk.

The BIS’s implementing regulations, however, are still missing in action, notwithstanding the newspaper article’s indication that they too would be published on Thursday. And there is no indication at the Public Inspection desk of any future publication date for the BIS’s piece of this action.

The OFAC regulations pretty much track what was promised in the April announcement with some interesting additions. First, the definition of family for purposes of travel to Cuba now includes “persons who share a common dwelling as a family with a licensed family traveler,” which apparently means that common-law spouses and, perhaps, domestic partners are authorized to travel to Cuba with persons who have close relatives in Cuba.

Second, although the new regulations, as promised, increase the amount that can be spent during family visits to Cuba from $50 per day to the maximum per diem rate payed for government travel to Cuba, the comments to the new regulations state that no imports into the United States of Cuban merchandise by returning travelers is allowed. So, for those of you hoping that the war on Cuban cigars might be coming to an end in the foreseeable future, dream on. (By the way, I think that the maximum per diem for Cuba is $180 per day, but I’ll be darned if I can verify that from the link given by OFAC for computing that rate.)

The BIS regulations, when they appear, will deal with authorized exports to Cuba, including increasing the baggage weight limitation for travelers to Cuba. The article in the Herald suggests that the BIS regulations might also be somewhat broader than the description of changes in the April announcement:

Among the changes that take effect Thursday afternoon:

• The items people can send to Cuba now include things like digital cameras, personal computers, seeds, fishing equipment, TVs and radios. (Before, packages were limited to food and medicine.)

• The limit on the value of those packages was doubled to $800.

The April announcement indicated that gift parcels could contain “clothing, personal hygiene items, seeds, veterinary medicines and supplies, fishing equipment and supplies, and soap-making equipment” as well as reasonable quantities of items “normally exchanged as gifts by individuals.” No explicit mention was made of several of the items listed in the news report, namely digital cameras, personal computers, televisions and radios. Perhaps these items are going to added because they aren’t clearly things normally exchanged as gifts and because these items are generally consistent with the goal of the rules to increase and enhance communications by Cubans among themselves and with the outside world.

NOTE:Export Law Blog is taking brief vacation for the Labor Day weekend, so the next new post won’t appear until the end of next week. Comments will be checked periodically to release them from the moderation queue. Have a pleasant and safe holiday, everyone, and we’ll see you all again next week.

The Office of Foreign Assets Control (“OFAC”) released last Friday its monthly report of civil penalties it imposed for violations of the economic sanctions programs administered by the agency. I was particularly interested in the announcement of a $10,341.00 fine imposed against, and paid by, MGE UPS based on allegations that the California-based company “sold electrical regulators ultimately destined for Cuba.” According to the penalty report, MGE didn’t voluntarily disclose the violation.

The allegation that the goods were “ultimately destined for Cuba” is interesting because it indicates that MGE didn’t ship the goods to Cuba but shipped the goods outside the country — likely to Schneider Electric, its parent company in France — and that the goods were then sent from outside the U.S. to Cuba. The penalty notice provides further information as to what occurred when it cites the following “aggravating factor” relied on by OFAC in assessing the penalty:

OFAC also determines that the following aggravating factor is present: the regional sales manager should have recognized that the shipment in question might be destined for Cuba and taken steps to stop the transaction.

Notice that MGE isn’t being fined for exporting directly to Cuba. Nor is it being fined for an export knowing that it was going to be re-exported to Cuba. It was fined because one its regional sales managers “should have recognized that the shipment … might be destined for Cuba.” It seems to me that if OFAC is going to fine exporters because an employee should have known that something might go to Cuba — a standard that could arguably be applied to any export to an E.U. country — the agency has an obligation to the export community to indicate what red flags were ignored here and what sorts of other “red flags” can serve as a basis for liability under such a theory.

Another interesting factor here is that OFAC was probably tipped off to the export of the MGE equipment to Cuba by the Cubans themselves who complained that Schneider Electric’s acquisition of API somehow or other derailed planned exports of MGE products to Cuba. Look at this from the website of Cuba’s Permanent Mission to the United Nations:

The merger resulting in the formation of ARC-MGE between the manufacturer MGE UPS Systems, part of the French Schneider Electric, and the American manufacturer APC, has created serious problems for supply of three-phase UPSs to Cuba’s Ecosol. After lengthy delays in arranging purchases of this product, accompanied by false promises that the merger would not affect supply, the French APC-MGE told the Cuban company that it was to cease operations on the instructions of APC and would not be honouring its contractual commitments. Its executives in the Dominican Republic as well as those in France requested that they should not be contacted again, as this would place them in a difficult position. The supplies in question were destined for the University of Computing Sciences (UCI), the Neurological Hospital, the Institute of Cardiovascular Surgery and an amusement park.

Schneider bought APC in 2006. The exports resulting in the OFAC fine occurred in September 2005, prior to APC’s objection to Cuba sales.

Zachary Sanders, a Brooklyn attorney, filed* suit in federal district court against the Office of Foreign Assets Control (“OFAC”) in connection with a $9,000 fine imposed on him by OFAC for failing to respond to a Request for Information (“RFI”) that the agency sent to him in 2000. The RFI sought information about suspected travel by Sanders to Cuba in 1998.

Although courts have tossed out challenges to the constitutionality of the travel embargo, this case presents a different issue. OFAC was not charging Sanders with travelling to Cuba but only with failing to answer questions OFAC asked about whether he had traveled to Cuba. In this case, the issue is whether penalizing Sanders for failing to answer the RFI violates the Fifth Amendment of the U.S. Constitution.

The story begins with Mr. Sander’s return to the United States on July 6, 1998. Customs officials became suspicious because Mr. Sander’s passport and travel papers showed that he had visited Mexico and then returned to the United States through the Bahamas on a transit visa. That, apparently, is a good indication that the traveler likely travelled to Cuba. Mr. Sander’s case wasn’t helped when Customs found a box of Cuban cigars in his luggage that weren’t listed on his customs declaration.

Almost two years later, on March 1, 2000, OFAC finally got around to sending the RFI at issue, which asked Sanders, among other things, whether he had travelled to Cuba, what he had done there and how much he had spent there. On February 13, 2002, OFAC sent a pre-penalty notice relating to Sander’s failure to respond to the RFI. The complaint for failure to answer the RFI was filed with the assigned ALJ on March 2, 2000. By the time that the administrative complaint was filed in 2005 by OFAC, the five-year statute of limitations contained in 28 U.S. § 2462 prevented the agency from including any charges based on the alleged 1998 trip.

A one-day hearing was held before the ALJ on June 27, 2005. It took the ALJ more than three years to write and to issue his five-page opinion, which he finally released on September 4, 2008. Such a lengthy gestation did not prevent the ALJ’s opinion from being an utter mess. Among other things, the ALJ wondered, even though no party argued this, whether OFAC could effectively extend the statute of limitations by simply filing RFIs and starting the five-year limitations period all over again. But after raising this issue, he never bothered to answer it.

More oddly, the ALJ acknowledged that the Fifth Amendment privilege against self-incrimination was applicable to the RFI because of the possibility of criminal prosecution for travel to Cuba. But he nonetheless imposed a $1,000 penalty assessment against Sanders, relying on the U.S. Supreme Court decision in Baxter v. Palmigiano, 425 U.S. 308 (1976), Baxter held that an adverse inference could be drawn in a civil proceeding based on a refusal to testify. Thus, if OFAC had charged Sanders with Cuba travel, it could draw an adverse inference from his refusal to say whether he had been to Cuba and could, in conjunction with other evidence, such as the smoking Cuban cigar box, find him guilty of travelling to Cuba. But the Baxter court did not say, and no court that I am aware of has said, that an agency could impose a civil penalty based solely and directly on a proper assertion of the Fifth Amendment privilege.

Upon review of the ALJ’s recommended decision and order, OFAC accepted everything in it, except the proposed penalty, which it increased to $9,000. Sanders’s district court complaint followed on July 16, 2009, more than 11 years after the alleged trip at issue, making this matter OFAC’s own version of Jarndyce and Jarndyce.

As an interesting detour in this case, Mr. Sander’s application for admission to the New Jersey Bar was denied over the alleged 1998 trip to Cuba and its aftermath, as well as two other Cuba trips not raised by the OFAC proceedings. But the decision ultimately appeared to be based on Sanders failure to declare the Cuban cigars in his baggage which occurred on his first two trips and not on the travel itself or the refusal to answer the RFI. Apparently Sanders finally wised up and, on the third trip, he didn’t pack any Cuban cigars in his luggage.

*PACER subscription required. I haven’t uploaded the large pdf file of the complaint to avoid undue bandwidth costs. If you don’t have a PACER subscription and want a copy of the complaint, email me and I’ll send it to you