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Archive for the ‘OFAC’ Category

Sep

12

Maybe Their Phones Aren’t Working

Posted by Clif Burns at 3:27 pm on September 12, 2014

By CFTC via https://www.flickr.com/photos/cftc/4406624868/sizes/z/ [Public Domain] Both the Commodity FuturesÂ TradingÂ Â Commission and the Office of Foreign Assets Control announced settlement agreements under which they imposed fines of $150,000 and $200,000 respectively on the oddly named Zulutrade, an online foreign exchange broker. Â Zulutrade has nothing to do with Africa but is located in Pireaus, Greece, incorporated in Delaware and registered with the CFTC (which is how OFAC and CFTC got their hooks into a company located in Greece). The OFAC announcement is here and the CFTC announcement is here.

The reason for the fines is that Zulutrade allegedly maintained accounts for over 400 persons in Iran,Â Sudan, and Syria. On this much, the CFTC and OFAC agree. Beyond that the two agencies have different stories about how the violations, which were not voluntarily disclosed by Zulutrade, occurred. OFAC’s explanation is simply that Zulutrade had no idea it needed to comply with U.S. sanctions, perhaps not surprising in the case of a company sitting in Greece even if incorporated in Delaware.

Zulutrade failed to screen or otherwise monitor its customer base for OFACÂ compliance purposes at the time of the apparent violations. This failure was the result of a lackÂ of awareness regarding U.S. sanctions regulations.

But to listen to CFTC the problem was that Zulutrade was aware of its responsibilities, tried to comply with them and botched it. Â The Zulutrade compliance program, according to CFTC, provided that Zulutrade

may delegate implementation to third party service providers or agents. The procedure also says that if implementation is delegated, “Zulutrade shall have a written agreement with the other entity outlining the other entity’s responsibilities, and shall actively monitor the delegation to assure that the procedures are being conducted in an effective manner.” However, Respondent did not follow its procedure for OF AC screening. Specifically, Respondent relied entirely upon third parties to implement its procedures but Respondent did not have written agreements with all such third parties and OF AC screening was not performed.

I do not see any way to read these two narratives as consistent. OFAC says Zulutrade had no idea it needed to comply, but CFTC says that Zulutrade knew it need to comply but delegated the responsibility to third parties, although not in the fashion required by its compliance program and, apparently, without checking to see if the third parties were in fact screening. It’s hard to explain these two different accounts of what happened other than by the fact that OFAC and CFTC are in different parts of Washington and their telephones must not be working.

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Sep

10

Sen. Landrieu Attempts to Clarify the Record â€¦ But Doesnâ€™t

Posted by George Murphy at 8:28 pm on September 10, 2014

Category: Economic Sanctions • OFAC • SDN List • Venezuela

Sen. Landrieu [Official Portrait, Public Domain]

On Sunday, in Lafayette, LA, The Advertiser printed an opinion from Sen. Mary Landrieu entitled, “Sanctions, as written, will hurt La. workers.”Â While we hoped Sen. Landrieu was writing to clarify the record in response to our post last week, she was writing instead to respond to an earlier opinion in The Advertiser written by Sen. Marco Rubio and Rep. Bill Cassidy.

Sen. Landrieu began by referring to the Lake Charles, LA oil refinery as “owned by Citgo, a Venezuelan company with a strong and respected reputation in Louisiana.”Â Citgo, however, is quite clearly a U.S. company, founded and incorporated in the United States over a hundred years ago. Â It became wholly owned U.S. subsidiary of PetrÃ³leos de Venezuela, the Venezuelan national oil company, in 1990, but remained a U.S. company.Â The hawkish view on U.S. sanctions is, of course, thatÂ Citgo, even though a U.S. companyÂ employing U.S. persons,Â is notÂ immune from the conduct of its foreign parent if, in this case,Â PetrÃ³leos de Venezuela’s conduct were found to be at variance with U.S. economic sanctions and was added to the SDN List, its subsidiary Citgo would be equally blocked and unable to employ U.S. workers.

In her opinion, Sen. LandrieuÂ continued toÂ defend her oppositionÂ to the Venezuela Defense of Human Rights and Civil Society Act of 2014 because she believed that “the legislation as written was too vague” and “will continue to oppose it unless the language of this resolution makes crystal clear that there will be no threat to the [Lake Charles] refinery.”Â But, as we pointed out last week, Sen. Landrieuâ€™s references to amending the Act have led to no clear (crystal or otherwise) suggestions on how to do so.Â We think we can help her out.

The Act, like other sanctions bills,Â already permits the President to waive the application of sanctions against a person ifÂ he determines that such waiver isÂ necessary for the “national security interestsÂ of the United States.”Â The amendment we recommend to Sen. Landrieu is to rewrite the waiver in Section 5(c)(1) to read, “The President may waive the application of sanctions under subsection (b) with respect to a person if the President determines that such a waiver is in the national security or economicÂ interests of the United States.”Â By adding simply “or economic” to the waiver condition, the President has another avenue to defend not imposing sanctions against otherwise sanctionable foreign persons.Â Â Again, as we pointed out last week, the President would not take lightly a decision to block Citgo’s assets in Louisiana or anywhere else in United States.Â Congress, moreover,Â would beÂ hard-pressed to oppose a waiver if the President were able to show that imposing sanctions wouldÂ have tremendous economic ramifications.

IfÂ Sen. LandrieuÂ wants to take the position that U.S. economic sanctions against human rights violators can’t comeÂ with aÂ cost that significantly harms the U.S. economy, there is a way to protect that interest.Â Whether or notÂ her position wins the day on the Senate floor, we think the only practical way to do so is to give the President more discretion in how he may choose not to impose sanctions.Â A tidy addition of the two words “or economic” should do the trick and put to bed another oddÂ episode of “How a Bill Becomes a Law.”

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Sep

6

Bizarre Sanctions Battle Brews in the Bayou

Posted by George Murphy at 9:34 am on September 6, 2014

Category: Economic Sanctions • OFAC • Sanctions • SDN List • Venezuela

By User:Lunarsurface (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html), CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/) or CC-BY-SA-2.5-2.0-1.0 (http://creativecommons.org/licenses/by-sa/2.5-2.0-1.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ACitgo_sign_and_Yawkey_way.jpg

With the calendar turning to September, Sen. Mary Landrieu will be displayed prominently in election media coverage as an incumbent in the proverbial hot seat.Â The most intriguing fodder her opponents have used against her has been her curious opposition to the Venezuela Defense of Human Rights and Civil Society Act of 2014.Â The House passed its version by voice vote in May, but the Act has stalled in the Senate principally because Landrieuâ€™s opposition has derailed others from bringing the Act to vote through unanimous consent.

The Act includes sanctions against individuals and entities associated with the Venezuelan government that the President determines committed, directed or “materially assisted, sponsored, or provided significant â€¦ support for” those who have committed or directed human rights abuses against anti-government protestors in that country.Â Like many similar sanctions bills, Congress would give the President wideÂ discretion in determining whether persons meet standards like “materially assisted” or provided “significant” support.Â The Act would certainly not require the President to designate any company affiliated with the Venezuelan government as an SDN and, as a result, block their U.S. assets.

Sen. Landrieu, however, has opposed the bill out of fear that 2,000 workers at a Citgo oil refinery in Louisiana may be at jeopardy.Â She has said that “once a simple sentence that protects these hard working Louisianans is added to the bill, I will be happy to support the legislation.”Â So, what would Sen. Landrieuâ€™s “simple sentence” look like?Â It canâ€™t possibly be a carve out for 2,000 workers at a Louisiana Citgo refinery; then every member of Congress with a Citgo presence in their state would want similar protection for their constituents.Â It canâ€™t possibly be a carve out to protect any U.S. companies owned by aÂ Venezuelan parent, like Citgo is; then the sanctions would be bereft of any heft to affect possible change in Venezuela.

This week, Sen. Marco Rubio entered the fray in a letter to Sen. Harry Reid to ensure the Act is brought to the Senate floor for a vote over Sen. Landrieuâ€™s opposition.Â In his letter, Sen. Rubio described the Act as “target[ing] individuals only and pose[] no threat to American jobs or Venezuelan firms.”Â Not so fast, Marco, the Act includes sanctions against “persons.”Â Someone forgot to tell Sen. Rubio that every OFAC sanctions regime defines persons to mean individuals and entities.Â Someone also forgot to tell him about the three Citgo storage facilities, hundreds of gas stations and thousands of affiliated jobs the company has in Florida.

One upshot of this situation is that members of Congress donâ€™t understand how U.S. economic sanctions work.Â It is odd that Sen. Landrieu has stuck her political neck out in a situation where the President would be the one under the Act who would have to designate PetrÃ³leos de Venezuela, Citgo’s Venezuelan parent,Â as an SDN if he determined it met the conditions under the Act.Â Doing so would not be a decision taken lightly and would have repercussions beyond just Louisiana (ask any Boston Red Sox fan about what would happen to the Citgo sign above left field).Â It is also odd that Sen. Rubio would put his name to a letter that declares no U.S. jobs would be threatened by these sanctions.Â The fact is that threat remains under the Act, no matter how unlikely, and the President, not Congress, would be in control of imposing sanctions.

A simple moral to this story is a classroom adage: Read Carefully and Think Critically.Â Hereâ€™s hoping politicians start doing a little bit more of both.

Clif adds: In my somewhat more cynical view, the likelihood that members of Congress will ever “Read Carefully and Think Critically” is exactly equal to the likelihood that I will ever debut as Wotan in a production of The Ring Cycle at the Met.

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Sep

4

Lost in Translation

Posted by Clif Burns at 5:24 pm on September 4, 2014

Category: OFAC • SDN List

By Uris at en.wikipedia [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], from Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ACitibank_Chinatown.jpg Yesterday the Office of Foreign Assets Control (“OFAC”) announced that it had fined Citigroup $217,841 in connection with its processing certain transactions involving Iran and one involving a Syrian entity on the Specially Designated Nationals and Blocked Persons List (the “SDN List”).

The SDN List issue is particularly interesting because the SDN List had what may be an incorrect name for the SDN involved and Citigroup, which had what appears to be the correct name, failed to block the transaction. At issue is Syria’s Higher Institute for Applied Science and TechnologyÂ (“HIAST”) which appears on the SDN List as the Higher Institute of Applied Science and Technology. When Citibank ran a computer program to screen the name”Higher Institute for Applied Science and Technology” it didn’t pick up the “Higher Institute of Applied Science and Technology” because it was not an exact match.

Notwithstanding OFAC arguably getting HIAST’s name wrong,* it is fairly clear that screening procedures need to employ at least some fuzzy logic and not insist on exact word-for-word, letter-for-letter matches, particularly where many of the names on the SDN List have been transliterated or translated into English. The OFAC announcement indicated that Citigroup had “implemented a programmatic fix” of some kind, one which would apparently allow “of” to match “for” and vice versa.

*HIAST’s Facebook page uses “Higher Institute for Applied Science and Technology” as does Wikipedia and most other sources. Oddly, HIAST’s webpage uses “Higher Institute of Applied Sciences and Technology.” Only OFAC appears to be using “Higher Institute of Applied Science and Technology.” Given OFAC’s almost comical reliance on AKAs for many other listings, there is no reason for it to fail to add all the known variants in HIAST’s listing. That way even stupid systems would pick up the match

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Aug

21

Posted by Clif Burns at 8:23 pm on August 21, 2014

Category: Cuba Sanctions • OFAC

Back in April 2013, Jay-Z and BeyoncÃ© took a trip to Cuba, which provoked a round of wailing, teeth gnashing and threats of jail time from the usual suspects on the Hill, namely, certain South Florida members of Congress, including Rep. Ileana Ros-Lehtinen and Rep. Mario Diaz-Balart, who exhibit a near Pavlovian response anytime they hear the word Cuba. Jay-Z rapped back something to the effect that going to Cuba wasn’t a real crime like buying a kilo for Chief Keef. (If you don’t get the Chief Keef reference, just remember that Wikipedia is your friend in such matters.)

OFAC agreed with Jay-Z and not with Reps. Ros-Lehtinen and Diaz-Balart. Â The trip was, OFAC said, a properly licensed “people-to-people” educational exchange tour and, therefore, violated no U.S. laws.

Apparently, the two representatives kept making a commotion about the trip, perhaps believing Â that BeyoncÃ© and Jay-Z didn’t qualify for the license because they either weren’t people or weren’t educational. Â So the Treasury Department’s Inspector General was called in to review OFAC’s determination that the the famous couple were both people and educational.

In making the determination that OFAC properly declined to fine Jay-Z and BeyoncÃ© for the trip, the Inspector General actually reviewed what BeyoncÃ© and Jay-Z did in Cuba (your tax dollars at work!) and concluded:

Our review found these activities were consistent with the activities for which OFAC authorized the people-to-people license. For example, one article reported the trip included a visit to a children’s theater group and several clubs, where the couple heard live music and occasionally took to the dance floor. According to the article, they also toured Cuba’s top art school, where they met with young artists, and ate at some of Havanaâ€™s privately run restaurants, known as â€œpaladares.â€ One of the city’s leading architects led the couple on an architectural tour of the Old City of Havana, during which the article stated the couple was mobbed by Cuban spectators.

Okay, so let’s suppose that Jay-Z and BeyoncÃ© did nothing in Cuba but lounge on the beach and sip mojitos. What would be the problem with that? Does anyone believe that a regime that has withstood fifty years of U.S. sanctions was on the verge of crumbling but managed to hang on because two pop music stars vacationed in Cuba instead of, say, Aruba?

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