ExportLawBlog

Archive for the ‘OFAC’ Category

Oct

21

Court Holds US Can Jail Anyone Anywhere for Dollar Based Transactions

Posted by Clif Burns at 7:58 am on October 21, 2016

Reza Zarrab via Facebook https://www.facebook.com/reza.zarrab.9 [Fair Use]

ABOVE: Reza Zarrab

I often joke about the number of foreigners who arrive in the United States with their families hoping to see Mickey Mouse but who wind up seeing Elliot Ness and a jail cell instead. Controversial Turkish businessman Reza Zarrab showed up in Miami on March 19 of this year to take his wife and daughterÂ to Disneyland and was arrested at the airport. Â His application for bail was denied, and he is still languishing in jail, despite having retained fifteen lawyers from top-flight law firms.

Zarrab is accused of violating U.S. sanctions on Iran by processing payments through his financial network for companies in Iran. Â His dream team of lawyers sought to dismiss the indictment, arguing that U.S. sanctions could not reach a foreign citizen requesting foreign banks to send money from foreign citizens to persons in Iran. Judge Berman, writing for the United States District Court for the Southern District of New York, just issued an opinion disagreeing with the defendant’s claim and asserting that the United States could prosecute anyone anywhere in the world engaged in any transactions involving U.S. Dollars.

There are two questions here, one much easier than the other. Â The first is whether the Iran Transactions and Sanctions Regulations prohibit this conduct. Â The court held that since dollar-based transactions were involved, the transactions ran afoul of the prohibition in the regulations against the export of services from the United States to Iran. Â If a U.S. bank was used to clear the dollar transaction, it might be arguedÂ that financial services were exported from the United States to Iran in violation of the prohibitionÂ in section 560.204Â on the export of services from the United States to Iran.

The second and harder question is whether Congress, when it passed the International Emergency Economic Powers Act, under which the regulations were promulgated and which establishes criminal penalties for violations of those regulations, intended to reach extraterritorial conduct. And on this issue, Judge Berman reaches the conclusion that Congress intended in IEEPA intended to criminalize any conduct involving U.S. dollars but he does so by misquoting the relevant statutory provision:

50 U.S.C. Â§ 1702(a)(l)(B) grants the President broad powers, including the power to
“investigate, block during the pendency of an investigation, regulate, direct and compel … any property in which any foreign country or a national thereof has any interest … subject to the jurisdiction of the United States.”

Except here is what the statute really says with the omitted portions bolded and the significant provisions underlined:

investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States

The significance of Judge Berman’s misquotation is that he omits a significant qualification regarding “property subject to the jurisdiction of the United States.” The actual language gives the President the power “with respect to, or transactions involving,” property in which a foreign national has an interest but omits the power with respect toÂ “transactions involving” property “subject to the jurisdiction of the United States.” This is significant because Congress’s omission of “transactions involving” underlines the common understanding that Congress granted authority toÂ block such property but didÂ not go so far as to assert that it can criminalize foreign conduct by foreign persons that could be characterized as “transactions involving” such property.

NOTE: Â My apologies for the sporadic posting but anyone who knows me knows that I am a die-hard Cubs fan, meaning that I’ve been up late, way too late, watching baseball games. Â These games, as you may know, have run so late into the night in large part because pitchers (we’re looking at you Pedro Baez!) are blithely ignoring the never-enforced 12-second rule and are taking the time it takes for Watson to break a 256-bit AES cipher between pitches. Â Once baseball finishes up for the season, I’ll be back to a more regular schedule.

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Oct

14

North Pole Praises Today’s OFAC Actions

Posted by Clif Burns at 4:27 pm on October 14, 2016

Category: BIS • Cuba Sanctions • OFAC

The following just arrived in my email:

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, beÂ 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 “GIFTâ€”Export License Not Required” also marked onÂ 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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Oct

12

DOJ to Exporters: Confession Is Good for the Soul

Posted by Clif Burns at 9:40 pm on October 12, 2016

Category: BIS • Criminal Penalties • DDTC • OFAC • Voluntary Disclosures

Department of Justice by Ryan J. Reilly [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/76Kjf9 [cropped] Apparently the National Security Division at DOJ had a bunch of interns this summer with nothing to do, because this is the only conceivable explanation for the mostly risible “Guidance Regarding Voluntary Disclosures” which the NSD released on October 2. To set the tone for a further discussion of the substance of this Guidance, let’s start with a howler in the Guidance itself. Even if this guidance was written in large part, as it must have been, by eager interns, one would think that a grown-up lawyer would have reviewed this for substance. And, presumably, that grown-up lawyer whose job is to send real people to real jails would understand the laws that he or she is enforcing, right? So how do you explain this statement in the Guidance?

U.S. sanctions regimes and the Department of Commerceâ€™s Export Administration Regulations are currently enforced through IEEPA.

Apparently, no one in the NSD has ever heard of the Trading with the Enemies Act which, as most of this blog’s faithful readers will know, is the statutory basis for the Cuba sanctions and their enforcement. Â This is pretty embarrassing mistake about pretty elementary facts.

The thrust of the Guidance is an interagency power grab by which DOJ wants to take away the first responsibility for review of voluntary disclosures from OFAC, DDTC and BIS. The guidance states that voluntary disclosures should be made to the Counterintelligence and Export Section of NSD when the exporter learns that a violation “may have been willful.” Specifically, the Guidance says:

Ordinarily, when an organization voluntarily self-discloses violations of U.S. exportÂ controls and sanctions, it presents its VSD to the appropriate regulatory agency under theÂ procedures set forth in the agencyâ€™s regulations. … It is not the purpose of this Guidance to alterÂ that practice. However, as discussed further below, when an organization, including its counsel, becomes aware that the violations may have been willful, it should within a reasonably prompt time also submit a VSD to CES.

Actually the purpose is precisely to alter that practice. Remember that the criminal violations involved are violations of the agency regulations themselves. That gives the relevant agencies, and not the DOJ, the principal expertise in determining if a violation has occurred and if it was willful.

The practice until now has been to disclose violationsÂ to the relevant agency or agencies with the understanding that the agenciesÂ could, if warranted, refer the matter to the DOJ. Once the referral was made, Â the prior agency disclosure and continued cooperation with the DOJ investigation would be the basis for credit by the DOJ. No longer. A separate disclosure to DOJ must be made without regard to an agency referral and, if not, the agency disclosure becomes irrelevant to the exercise of prosecutorial discretion if a subsequent referral occurs.

One of the hypotheticals discussed in the Guidance provides ample reason as to why DOJ, which clearly does not understand many of the basics of export control law, should not be usurping the primary role of OFAC, BIS, and DDTC, in export enforcement. In that hypothetical a foreign subsidiary of a U.S. corporation exports U.S. origin items in violation of BIS regulations. Without any suggestion of U.S. participation, the Guidance suggests that the parent would be offered an NPA by DOJ premised on payment of a criminal fine.

However, BIS rules, which have to be the basis of any prosecution in such a case, do not support a theory of vicarious liability by parent corporations. If the parent company did not export the items it could only be held liable, under section 764.2, for causing, aiding or abetting the export. That’s why in the recent Alcon Laboratories case, BIS held the U.S. parent liable for its exports to Iran but not for the exports of its Swiss subsidiary; those exports served only as a basis for a penalty against the Swiss subsidiary.

One last knee-slapper from the Guidance deserves mention. In another hypothetical, the Guidance says this:

Alert customs officers notice a bulky package within a container on a ship at a U.S. port bound to leave on a lengthy voyage overseas. The package contains ITAR-controlled commodities â€¦

Because, you see, all bulky packages are suspicious and probably contain export controlled items. Just remember that when you send a birthday present to your aunt in Slovenia — make sure its just a small package in order to avoid scrutiny by CBP on the way out.

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Oct

10

Burma Sanctions Die and Dead Man Gets a Reprieve

Posted by Clif Burns at 10:58 am on October 10, 2016

Category: Burma Sanctions • OFAC

Bagan by Staffan Scherz [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/aAeXsZ [cropped and processed] On October 7, 2016, President Obama issued an executive order finding that the situation that led to national emergency declared in Executive Order 13047, and which led to the imposition of sanctions on Burma, had terminated. As a result of this expected action, all of the Burma sanctions appear to have been removed effective immediately as of the date of that order. The order revoked the various previous orders that implemented the finding of a national emergency and imposed sanctions. Additionally, it waived the sanctions in section 5(b) of the Tom Lantos Block Burmese JADE (Junta’s Anti-Democratic Efforts) Act of 2008 (Public Law 110-286) (the “JADE Act”). Finally, the President set aside the visa ban and entry restrictions imposed on certain persons in Burma under Presidential Proclamation 8693

As I noted in an earlier post, the Office of Foreign Assets Control (“OFAC”) had previously indicated that the Burmese Sanctions Regulations would no longer be in effect as of the date of the executive order terminating the national emergency with respect to Burma. Even so, the order has now been issued but the regulations are still sitting on the OFAC website as if they were in effect. There is another web page, however, which says that the Burmese Sanctions Regulations are now no longer in effect.

That same web page says that the restrictions on the import of jade and rubies from Burma has been lifted, but it’s not quite clear why (or if) that is the case. The Executive Order just released only waived the provisions of section 4(b) of the Jade Act but not those of section 6 which implements the import ban on jade and rubies. The President has the power to waive the ban in section 6 on import but only after forwarding certifications to the Ways and Means and Foreign Affairs Committees in the House and the Finance and Foreign Relations Committees in the Senate. There is nothing to indicate that this has been done yet, although it is reasonable to assume that this will happen at some point. So it would seem to me that until that certification is made to Congress and an executive order is issued waiving section 6, the import ban is legally still in effect.

At the same time as the executive order, OFAC removedÂ from the SDN List all the individuals and entities that had been designatedÂ under the Burma Sanctions. This includes individuals, such as Steven Law, that were designated under the Burma sanctions as a result of narcotics related activities.

Probably the person who was happiest over being removed from the SDN List was Law’s father, Lo Hsing Han, although Mr. Lo may not be able to express his happiness to those of among the living, Mr. Lo having died in 2013. The removal of dead people from the SDN List long after they have rotted in their graves would, I suppose, be a humorous anecdote illustrating agency ineptitude were it not for the fact that live people with similar names continue to feel the ill effects of SDN List designations. The least that OFAC could decently do to prevent the collateral impact of SDN List designations on innocent people is to scrub corpses from that list in a timely fashion.

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Sep

29

I’ll See You in C.U.B.A.

Posted by Clif Burns at 9:41 pm on September 29, 2016

Category: Cuba Sanctions • OFAC

Image via https://pixabay.com/p-1202440/?no_redirect [Public Domain] Several people have been wondering if I would write something about the allegation that Trump may have violated the Cuban embargo back in 1998. This blog expresses no opinion on political campaigns or figures, so I hesitate to wade into this other than as an opportunity to talk about how the Cuban sanctions are structured. So, for purposes of this post, I will take as hypothetically true for discussion the allegation, which hasÂ not been admitted by the Trump campaign, that in 1998 Trump asked consultants to go to Cuba on his company’s behalf to explore business opportunities there and that he later reimbursed their travel.

To begin with, it has to be observed that there is a five year statute of limitations on criminal and civil penalties related to the Cuba embargo. As a result, the possibility of a criminal prosecution or civil penalties if there was a violation, has long past.

The relevant prohibition of the Cuba sanctions is the oddly phrased prohibition in section 515.201 of the Cuban Assets Control Regulations. That section prohibits any person “subject to the jurisdiction of the United States” from engaging in specified transactions that “involve property in which [Cuba], or any national thereof, has at any time on or since the effective date of this section had any interest of any nature whatsoever, direct or indirect.” Those specified transactions are transfers through banking institutions, foreign exchange transactions, dealings in property and transfers of property outside the United States.

So the first question is whether asking consultants to go to Cuba to explore business opportunities there for your company violates that. Certainly when in Cuba, those consultants will have dealings in property in which Cubans have an interest — they’ll do that the minute they check into a hotel or drink a mojito. But does the U.S. person who simply asks them to go to Cuba by that request transfer anything through banks, engage in a foreign exchange transaction, deal in property or transfer property outside the United States? It would not seem so, which makes it hard to see a violation of this rule as written by sending consultants to Cuba.

The second question is whether the language in section 515.201 prohibits somebody from reimbursingÂ the travel expenses of someone who has traveled to Cuba. It seems to me that there is a good argument that it does not. Unlike the mere travel request, this reimbursement transaction does involve dealing in property as well as a banking transaction. Â But it’s hard to see that it involves any property in which a Cuban has or had an interest. No Cuban has any interest in the money paid to the traveler after he has left Cuba and has already made payments to hotels and restaurants in Cuba. Â And that money seems to be the only property involved in the transaction. Clearly, the consultants engaged in one of the specified transactions involving Cuban property when they paid the hotel bill in Cuba, but it’s not so clear that, once the hotel was paid, any Cuban has or had any interest in the money used later to reimburse the traveler.

That being said, let me say that OFAC, which enforces these rules, takes the position that the reimbursement somehow or other does “involve” the Cuban hotel, which is, by my view, something like saying the butterfly that spreads its wings in Africa is involved in the hurricane that slams into the Outer Banks. In the end, of course, OFAC’s opinion, even if I think it stretches the meaning of “involve,” will control.

But, you say, since the consultants are violating the Cuban embargo, would Trump, if he sent them to Cuba and reimbursed them, have violated the embargo by conspiring with them or by aiding and abetting them in the violation of the sanctions? That is not clear either. The penalties established for violations of the Cuban embargo are set forth in section 501.701Â That sectionÂ prohibits and penalizes violations of the rules but does not include a penalty for aiding and abetting a violation, conspiring with someone to violate or causing a violation. This is in contradistinction to the parallel provision in the Iran sanctions, for example, which punishes anyone who “violates, attempts to violate, conspires to violate, or causes a violation” of the rules.

Again, I have to be clear that OFAC is not troubled by the niceties of the language of the Cuban embargo rules themselves, but wouldÂ unambigously take the position that both sending the consultants to Cuba and the reimbursement of their travel expenses after they return, if that in fact occurred, would violate the Cuban sanctions. Â So, kids, don’t try this at home.

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Archive for the ‘OFAC’ Category

Court Holds US Can Jail Anyone Anywhere for Dollar Based Transactions

North Pole Praises Today’s OFAC Actions

DOJ to Exporters: Confession Is Good for the Soul

Burma Sanctions Die and Dead Man Gets a Reprieve

I’ll See You in C.U.B.A.

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