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Archive for the ‘Iran Sanctions’ Category

Jul

7

Who Elected Ben Lawsky to Conduct U.S. Foreign Policy?

Posted by Clif Burns at 5:18 pm on July 7, 2014

Official Portrait of Ben Lawsky http://www.dfs.ny.gov/about/staff_bios/blawsky.htm [Fair Use]
ABOVE: Ben Lawsky

Of the $8.9 billion fine being paid by BNP Paribas for violations of U.S. sanctions on Cuba, Iran and Sudan, $2.24 billion is going to the State of New York and, specifically, to Ben Lawsky’s Department of Financial Services. All of this will gild Lawsky’s credentials, overstuff the NYDFS’s coffers, and pay for NYDFS’s holiday parties and expensive lunches for eons to come, while not a single cent of this astonishing sum of money being handed over to the New York agency will go to anyone whom the sanctions seek to protect like, say, Sudanese refugees.

The NYDFS consent order justifies this mega-fine, in part, on BNP’s processing of $160 billion in dollar-denominated transactions for Iranian customers. This is the overwhelming bulk of the $190 billion total of dollar-denominated transactions at issue here for all three sanctioned countries. This amount for Iran covers, according to the consent order, the ten-year period between 2002 and 2012. Astute readers will remember, from the NYDFS/Standard Chartered fiasco, that we’ve been here before with NYDFS. Prior to November 2008 — i.e., for most of the period cited by NYDFS — it was perfectly legal for BNP’s NY branch to process off-shore dollar-denominated Iranian transactions under the so-called U-Turn transactions rule.

So, when Lawsky and his crew complain in the consent decree that the failure of BNP to include references to Iran in the legal U-turn transactions “rendered its New York Branch and other New York-based financial institutions helpless to detect payments that should have been rejected or blocked under U.S. law,” they are spouting utter nonsense given that these payments were legal before November 2008 and not required to be rejected or blocked. But Lawsky’s goal is to enrich NYDFS here, not to observe legal niceties like what OFAC’s rules actually said before November 2008.

There are two major problems here. First, NYDFS’s case is completely dependent upon the scope and extent of federal sanctions, because without a federal sanctions violations, none of the record keeping issues are material. And, obviously, the New York state regulators either have no clue, or do not care, as to the actual scope of those sanctions. Second, and more importantly, to the extent that everything is based ultimately on federal sanctions, the enforcement of those sanctions is ultimately a matter of U.S. foreign policy, something that should be in the hands of OFAC, the DOJ and the rest of the federal government and not in the hands of either the State of New York or, worse, the hands of a single New York regulator.

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Jun

5

Beat the Fokkers

Posted by Clif Burns at 9:32 pm on June 5, 2014

Fokker Services Building in Hoofddorp via http://www.fokker.com/sites/default/files/styles/carousel_innovations/public/media/Images/Services/Contact_Fokker_Services_Location_Hoofddorp_637x286.jpg?itok=NYP0cc2k [Fair Use] The Office of Foreign Assets Control (“OFAC”) announced today that a $21 million fine had been extracted from the Dutch company Fokker Services BV in connection with its export of U.S. origin spare aircraft parts from the Netherlands to Iran and Sudan. The re-exports to Iran and Sudan by a Dutch company were prohibited under section 560.205 of the Iran regulations and section 538.507(b) of the Sudan regulations because the aircraft parts were presumably ECCN 9A991, although this fact is not expressly stated.

Half of the $21 million dollars is being paid in connection with a deferred prosecution agreement with the U.S. Attorney for the District of Columbia. This is disturbing because the OFAC announcement makes clear that the exports were voluntarily disclosed by Fokker to OFAC. One of the major incentives for a voluntary disclosure is to avoid criminal prosecution. After the Fokker case, people are certainly going to think twice about making a voluntary disclosure.

Nothing in OFAC’s description of the reasons for the penalty justify turning a voluntary disclosure into a criminal prosecution. OFAC describes the violation as “wilful and reckless” because Fokker knew that these were U.S. origin parts. Note that there is no claim that Fokker knew that its export of these parts from the Netherlands to the embargoed countries was a violation of U.S. law, only that it knew that the parts were U.S. origin. Foreign persons might well not understand that exports of U.S. origin parts from their own country and in compliance with their own laws would be illegal, so OFAC is making an unjustifiable leap from knowledge of the parts’ origin to a “wilful and reckless” violation of law. Another aggravating factor was the absence of a U.S. sanctions compliance program at the Dutch company, again hardly a sound reason for turning a voluntary disclosure into a criminal prosecution.

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May

30

Having Baggage Is Not A Crime

Posted by George Murphy at 5:10 pm on May 30, 2014

Category: Criminal Penalties • DoJ • Economic Sanctions • Iran Sanctions • Sanctions

Please Report Any Unattended Luggage by Kenneth Lu https://www.flickr.com/photos/toasty/2619866851/in/photolist-DLUFQ-5z9X21-K3Ta2-4Zvv98-JHpPQ-AEW4c CC BY 2.0 [https://creativecommons.org/licenses/by/2.0/] (cropped)

A federal jury in Ft. Lauderdale, Florida recently acquitted Patrick Campbell on chargesÂ that alleged he attempted and conspired to violate U.S. economic sanctions against Iran.Â As we reported at the time of his arrest last year, Campbell, whoÂ is from Sierra Leone, was detained at JFK Airport as soon as he cleared customs and was found to have uraniumÂ inside shoes packed in his luggage.Â Prior to his U.S. arrival (and immediate arrest), according to the government, Campbell had been communicating with an undercover ICE agent in Ft. Lauderdale in order to arrange the sale of uranium from Sierra Leone to Iran.

WeÂ surmised at the time of his initial charging thatÂ Campbell had arguably done nothing in the United States that constituted an attempt or conspiracy to commit a U.S. sanctions violation simply by entering the United States. Â Because the Iran Transactions and Sanctions Regulations cover only exports from the United States (which this was not) or exports by a U.S. person (which Campbell was only by virtue of being physically present in the United States), he could only be convicted for what he actually did while in the United States. Â The Justice Department tested those boundaries, and a jury wasnâ€™t convinced.Â A great deal of credit should be given to Campbell’s attorney, Richard Serafini.

We spoke with Mr. Serafini about the case andÂ the arguments he made to the jury in Campbell’s defense.Â Mr. Serafini said thatÂ heÂ emphasizedÂ toÂ the jury that the Justice Department had not shown beyond a reasonable doubt that Campbell had done anything with the specific intent to violateÂ U.S. sanctions.Â In addition, he said that he told the jury that CampbellÂ should not be consideredÂ to have committed any criminal acts as a U.S. person simplyÂ because he was lured to enter the United States by law enforcement.Â Mr. Serafini said that he finally impressed uponÂ the jury that, regardless of any criminal act that may have been committed, Campbell had been entrapped by the ICE agent to do so.

While no one can know what may have led the jury to acquit,Â it is certainly noteworthy that one or more of those argumentsÂ possibly resonated with jurors.Â The jury instructions shed a little more light in that the court explained an attempt must be “more than simply preparing” andÂ haveÂ aÂ “substantialÂ step … that would normally result in committing the offence.”Â What did Campbell do in the United States to meet that requirement?Â Having uranium in your luggage could be seen by a jury as “simply preparing.”Â As for conspiracy, the jury rightfully asked the court during deliberation whether the undercover agent could be part of the conspiracy.Â The court responded simply, “No, a government agent cannot be a co-conspirator.”Â In sum, it looks like the facts didn’t fit the crime and a well-marshaled defense portrayed that.

In so far as Campbellâ€™s case has a bearing on subsequent sanctions prosecutions, we may have been clairvoyant in our warning last September:

As the stretch of sanctions includes more foreign individuals and their subsequent imprisonment, the United States may find itself retreating from expanding prosecution after a successful defense or even international criticism that U.S. sanctions as so applied are too attenuated for a reasonable interpretation of the sanctionsâ€™ purpose or the laws themselves.

Campbell’s acquittalÂ sendsÂ the Justice Department back to the drawing boardÂ to reconsider future prosecutionsÂ based on undercover operations targeting foreign persons and inviting them to the United States for their unbeknownst arrest.Â As weÂ reported in the case of a RussianÂ caught upÂ a similar operation last year, the resulting arrest stirred U.S.-Russian diplomatic waters and resulted in his return to Russia after pleading guilty.Â Be careful what you do on the Internet, and that goes for the government too.

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May

28

DoJ Miffs Description of Iran Sanctions

Posted by Clif Burns at 6:09 pm on May 28, 2014

Category: Criminal Penalties • DoJ • Iran Sanctions

By Another Believer (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ADepartment_of_Justice%2C_Washington%2C_D.C._2012.JPG In a recent DoJ press release correcting a previous press release that incorrectly stated that the DoJ had indicted someone on export charges that they hadn’t actually indicted him on (oops!), the DoJ took the opportunity to try to explain the scope of the U.S. sanctions on Iran. Unfortunately the DoJ got it wrong. Of course, when an exporter makes a mistake about the scope of the Iran sanctions, it’s a big deal; but when the DoJ makes a mistake, oh well, we all make mistakes.

At issue are charges against Pennsylvania-based Hetran, Inc. which allegedly shipped a horizontal lathe to Iran via a company in Dubai. This gives the DoJ the opportunity to say this:

American companies are forbidden to ship dual use items – such as the peeler – to Iran without first obtaining a license from the U.S. Department of Commerce

Oh dear, where to start with this? Really, it’s just wrong in so many ways. Let’s start with section 746.7 of the Export Administration Regulations which sets forth the controls by the Department of Commerce’s Bureau of Industry and Security on exports to Iran. That would have been a good place for the DoJ to start as well before attempting to explain U.S. sanctions on Iran.

Subsection (e) says this

No person may export or reexport any item that is subject to the EAR if such transaction is prohibited by the Iranian Transactions Regulations (31 CFR part 560) and not authorized by OFAC.

Subsection (a) says this:

[I]f OFAC authorizes an export or reexport, such authorization is considered authorization for purposes of the EAR as well.

So, where does that leave us?

Error 1: Licenses aren’t just required for exporting dual use items to Iran. OFAC rules forbid all exports to Iran except for certain limited items such as food, medicine, medical devices, informational products and personal telecommunications devices. Plenty of things that aren’t dual use (i.e. listed on the Commerce Control List) require licenses.

Error 2: the requirement for exports to Iran is a license from OFAC, not from BIS. A license from BIS is required only if no license from OFAC has been obtained and the matter is “not subject to OFAC regulatory authority.” Â EAR 746.7(a)(2).

Here’s an idea: maybe people in the DoJ should be required to attend BIS’s annual Update Conference before they are allowed to say things about export law.

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Apr

30

U.S. Long Arm Stretches But Likely Won’t Reach Its Chinese Target

Posted by George Murphy at 6:12 pm on April 30, 2014

Category: China • DoJ • Economic Sanctions • Extradition • Iran Sanctions • SDN List

FBI Wanted Poster [Public Domain]

The U.S. Department of Justice announced yesterday that it charged Li Fangwei, a Chinese national, with violating U.S. sanctions against Iran as well as with federal fraud violations.Â Li, also known by a panoply of aliases including Karl Lee, Sunny Bai and Patric, is accused by the Justice Department of using a number of Chinese companies he controls to sell “metallurgical goods” and other items to Iran that are prohibited from sale to Iran under U.S., UN and other sanctions around the world because of their potential use in nuclear weapons or ballistic missiles. Li himself was added to the SDN List in 2009 and his Chinese companies have been added to the SDN since 2006.Â In fact, OFAC added eight Li companies to the SDN List yesterday.

With respect to U.S. sanctions, Li is alleged to have used front companies to engage in funds transfers through U.S. banks in order to conduct his business with Iran.Â In a related matter, the Justice Department announced yesterday that the U.S. Government has already seized almost $7 million in funds attributable to Liâ€™s companies that were held in U.S. correspondent accounts of foreign banks used by the Chinese companies.

The seizures are, of course, a success for U.S. sanctions enforcement.Â It raises, however, the question of whether a criminal prosecution of Li is fruitful or may be even necessary in an effort to curtail his dealings with Iran.Â In announcing the indictment, Assistant Attorney General John Carlin described the criminal prosecution as “part of the â€˜all toolsâ€™ approach our government is taking against Li Fangwei.”Â Indeed, other tools like those used by OFAC, in cooperation with the FBI and the Marshals Service, have so far seized millions attributable to Li front companies on the SDN List.Â If OFAC can designate entities to the SDN List and funds in the United States attributable to them can be seized, what more can U.S. sanctions be expected to accomplish under the circumstances.

On that score, Li was part of a post here over five years ago when Robert Morgenthau, as then New York County District Attorney, announced a 118-count indictment against Li and one of his companies, LIMMT, alleging Li and LIMMT falsified business records in violation of New York law in transferring funds through New York banks in connection with transactions with Iran.Â Back then, we questioned the legitimacy and efficacy of New York trying, in effect, to enforce U.S. sanctions and wondered whether OFAC wanted any assistance (or ultimately the distraction) from New York in its attempt to enforce U.S. sanctions policy.

History has a funny way of repeating itself.Â Â Although the Justice Department actually has the authority to prosecute a U.S. sanctions violation, the same question of efficacy lingers.Â Under a fair assumption that Li is in China now and the Chinese government knows Liâ€™s exact whereabouts, there is almost no reason to think China will extradite him or even possibly curtail his activities with Iran. Â Perhaps the Department is hoping that the $5 million bounty the FBI placed on Li’s head might prompt someone in China to nab Li, tie him up, put a bag over his head, put him in a container and ship him to the U.S. in order to claim the reward.

The case of Li Fangwei, therefore, should not be sidetracked to the U.S. justice system.Â This is in OFACâ€™s bailiwick and OFAC should lead the charge, in cooperation with other U.S. agencies, to seize blocked property in the United States and liaise with Canadian, EU, Swiss and other foreign sanctions enforcement authorities to convince them that similar seizures should take place around the world and intelligence should be shared with each other on what new companies Li, and possibly others, are using to do impermissible business with Iran.

In the words of the Justice Department, Li Fangwei is a “fugitive.”Â That could not be more of a misnomer.Â The case of Li Fangwei simply does not fit the parlance used by U.S. prosecutors.Â The Justice Department is right, however, that the United States is afforded a lot of tools in sanctions enforcement.Â Sometimes, there are tools best left in the toolbox.

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