The new OFAC penalty disclosure for August came out on Saturday with some embarrassing news about Travelocity’s Roaming Gnome. Seems that for for six years, between 1998 and 2004, the Travelocity site booked 1,458 reservations for travel to Cuba. The gnome, or rather his employer Travelocity, agreed to a fine of $182,750.

The report of the Travelocity fine follows the general OFAC “the less you know the better” policy and reveals no more about the violation than described above. But some educated guesses can be made. First, the violation was not voluntarily disclosed because the OFAC report almost always notes that fact if there has been a voluntary disclosure. Second, given the time frame, this violation probably involved Travelocity booking trips to Cuba through the sites of its foreign subsidiaries.

You may remember this letter which OFAC sent in 2002 to an unidentified company that operated travel websites in the United States and in foreign countries. That company (probably Travelocity, Orbitz or Expedia) had sent a letter to OFAC requesting OFAC to declare that those operations were permissible or, alternatively, to issue a license to cover them. In OFAC’s responding letter, OFAC asserted that the Cuban Assets Control Regulations apply to overseas subsidiaries and that the Berman Amendment’s exception for information didn’t apply to actually booking reservations but only to providing information about available flights. Accordingly OFAC held that the company’s overseas operations violated the CACR and declined to issue a license to permit such operations.

It’s now pretty safe to assume that the 2002 OFAC letter did not involve Travelocity. Travelocity appears not to have disclosed the violations leading to the fine, and the company involved in the 2002 letter had at least fessed up to its overseas operations. (My money is on Expedia, and not Orbitz, given the length of the whited-out references to the company in the letter.)

One part of the letter has an intriguing passage:

Your letter indicates that there are many U.S.-owned or controlled companies located in third countries that engage in providing travel services. OFAC has not granted a license authorizing any such companies to provide services associated with the tourism and business travel of third country nationals to Cuba. If you have specific information concerning apparent violations of the CACR by such companies, you may submit the information, preferably in writing, to the attention of OFAC’s Chief of Enforcement.

Does anybody else wonder if Expedia (or maybe Orbitz) snitched on Travelocity?

In other OFAC penalty news, the August disclosure indicates that your tax dollars are still being spent on fining individuals who bought Cuban cigars over the Internet, with one individual being fined $999.45 and another $510.00. Given what’s involved in the penalty process, it’s safe to assume that these fines won’t recoup the time spent by OFAC enforcement staff on chasing down the stogie-puffing miscreants, sending penalty notices and negotiating a settlement. Shouldn’t OFAC be chasing terrorists or something?

A federal district court judge in Washington, D.C., on Monday rejected challenges by a professor and a student at Johns Hopkins University in Baltimore to changes made in 2004 by the Office of Foreign Assets Control (“OFAC”) to its regulations relating to academic study in Cuba. The regulations at issue required eligible academic programs to be at least 10 weeks and be restricted to students enrolled at the academic institution conducting the course in Cuba.

The student and professor challenged the regulations under the First Amendment and the Fifth Amendment. The court rejected the First Amendment claim by noting that OFAC’s rules were content neutral:

The regulations place no restrictions on what universities and their professors may teach their students about Cuba–they merely restrict them in limited circumstances from teaching students in Cuba. Thus, there can be no question that the 2004 CARC amendments are content neutral.

Because the regulations were content neutral, their incidental burden on First Amendment rights could be justified if they further an “important or substantial governmental interest.” The Court ruled that these regulations did meet that standard, noting that the “interest in denying hard currency to embargoed countries such as Cuba is ‘important’ and ‘substantial.’ ”

The challenge by the Johns Hopkins student and the professor under the Fifth Amendment was premised on a “right to travel” which the Supreme Court has ruled is created by the Fifth Amendment. The District Court, however, noted that the Supreme Court has said that the right to international travel under the Fifth Amendment could be circumscribed if the government has a “rational, or at most an important, reason for restricting such travel.” The government’s interest in denying currency to the Castro regime was, according to the court, a sufficient justification under this standard

The House today adopted legislation that would roll back restrictive rules adopted by the Office of Foreign Assets Control (“OFAC”) in February 2005 regarding shipments of agricultural goods to Cuba under the Trade Sanctions Reform Act of 2005 (“TSRA”). Under those rules, payment was required prior to the departure of the ships carrying the agricultural goods.

The language of TSRA only requires that payment be made in one of two ways: (i) “payment of cash in advance” or (ii) through financing by third-country (i.e. non-U.S. and non-Cuban) financial institutions. Because of Cuba’s credit standing and inability to obtain third-country financing facilities, most transactions have been structured as “payment of cash in advance.”

The statutory term “payment of cash in advance” does not specify in advance of what. Prior to February 2005, OFAC had taken the position that a standard “cash against documents” transaction complied with that
term.

In a “cash against documents” transaction, the seller delivers the goods to the shipper and obtains a negotiable bill of lading from the shipper. The Cuban buyer’s bank (usually either Paris-based Banque National de Paris or Société Générale) pays the seller upon presentation of the bill of lading. The bill of lading is then provided to the Cuban buyer by the French bank. That bill of lading authorizes the shipper to unload the cargo and permits the Cuban buyer to take possession of the cargo.

Under prevailing commercial case law, the delivery of a negotiable bill of lading is seen as equivalent to delivery of the goods themselves. Accordingly, payment in advance of obtaining the bill of lading was seen as complying with the statutory requirement of payment in advance.

Under the “cash against documents” method, the goods are usually shipped shortly after the U.S. seller obtains the bill of lading. Because of the short shipping distance from southern ports to Cuba the goods often arrived at the port in Cuba before the French bank has confirmed the issuance of the bill of lading and made payment to the seller’s account. For this reason, OFAC began to advise the sellers’ banks that the transactions did not conform to the TSRA “payment in advance” requirement. And in February 2005, it adopted rules requiring payment prior to the departure of the ship transporting the purchased goods.

The House bill would restore the “cash against documents” rule. The Bush administration recently threatened to veto any legislation that would “weaken” the current sanctions, and it is widely believed that this threat was specifically directed at plans to restore the “cash against documents” rule.

A bill was introduced in the Senate on June 21 that would also restore the “cash against documents” rule. That bill would also lift all restrictions on travel to Cuba. A copy of the Senate bill can be found here.

Here’s more on Moore — which is a transparent ploy by me to start another food fight in the comments section to this post about whether Moore is a big fat liar or a champion of the people. Export Law Blog has no official position on whether Moore is a BFL or a COTP (notwithstanding the title of this post, which is simply an opportunity to make a cheap Shakespearean pun)

Update 1:

Moore has responded to the inquiry of the Office of Foreign Assets Control (“OFAC”) through high-profile lawyer David Boies. After noting that Moore has been critical of the Bush administration, Moore’s lawyer stated:

For this reason, I am concerned that Mr. Moore has been selected for discriminatory treatment by your office.

Unfortunately, all I could find were stories that quoted parts of the Boies response. A full copy of the response, which presumably would provide some better documentation of this charge of discrimination, has not yet been released. We’ll post it when we find a copy.

Update 2:

The New York Post reports that the three workers from Ground Zero who accompanied Moore to Cuba to “demand” medical treatment at Guantanamo are also being investigated by OFAC. Unlike Moore, they can’t even claim to be eligible for the general license for journalists. Even so, every dollar spent by OFAC investigating these Ground Zero rescue workers is a dollar that OFAC can’t spend investigating the terrorists that were responsible for creating Ground Zero.

Update 3:

Michael Moore has announced that he has secreted a copy of Sicko in Canada out of fear that OFAC will confiscate a copy of the film. I’m not clear what under what theory OFAC could do such a thing unless Moore gave the Cuban government a financial interest in the film. Even then, the film couldn’t be blocked under the information exception to the Cuba embargo, which clearly permits transactions relating to films and other informational material. I don’t think I’m being cynical in suggesting that Moore is taking maximum advantage of OFAC’s decision to investigate him.