ExportLawBlog

Archive for the ‘OFAC’ Category

May

7

Incorporating in Delaware Leads to Huge OFAC Fine for Argentinian Company

Posted by Clif Burns at 11:51 pm on May 7, 2014

By Almonroth (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3AU.S._Treasury-3.jpg Yesterday the Office of Foreign Assets Control (“OFAC”) announced that it had imposed a $2,809,800 fine on Argentina-based Decolar.com, Inc. Decolar is an online travel agency and attracted the ire of OFAC for booking trips by non-U.S. persons to Cuba, trips for 17,836 people to be precise. This made OFAC very, very angry:

Decolar demonstrated reckless disregard for U.S. sanctions requirements when it failed to ascertain the U.S. sanctions requirements applicable to its business operations, relying instead upon a third party’s oral assurances that Decolar’s conduct did not require an OFAC license. With the exercise of appropriate due diligence, Decolar’s senior
management reasonably should have been aware of the applicable prohibitions under the CACR. Based upon the number of apparent violations and the length of time over which they occurred, the apparent violations also appear to have resulted from a pattern or practice of conduct

So, you’re no doubt wondering where OFAC gets the right to fine a company based in Argentina for violating the U.S. sanctions on Cuba. Simple. Even though the company was based in Argentina, it was incorporated in Delaware. This was probably the most expensive incorporation in Delaware ever.

One thing that Â is odd about the OFAC release is its coy reference to the “third party” that told Decolar that it had nothing to worry about. My guess, particularly due to OFAC’s reluctance to identify this party, is that it was likely a lawyer. Saying that relying on a lawyer is “reckless” is harsh, even by OFAC standards, but it seems that if this mysteriously anonymous third party had been, say, the company janitor, OFAC could not have resisted mentioning that. After all, that would indeed be reckless. And, of course, the company was even more reckless for not ignoring their legal counsel and doing the research themselves. You know, by looking at the Spanish version of the Cuba sanctions which OFAC keeps on its website. Oh wait, there isn’t a Spanish version.

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Apr

29

Bad Times for Timchenko

Posted by Clif Burns at 9:45 pm on April 29, 2014

Gennady Timchenko via http://www.timchenkofoundation.org/en/about/trustees/1/ [Fair Use] The Bureau of Industry and Security (“BIS”) yesterday added thirteen companies to the Entity List as part of new sanctions against Russia. Many of these companies are connected to Gennady Timchenko who was added to the SDN List in the first round of sanctions and whom we have discussed previously on this blog. Under the Export Administration Rules, licenses are required for exports of all items “subject to the EAR” (i.e., U.S. origin items or foreign produced items with specified percentages of U.S. content) to anyone placed on the Entity List. BIS has said that there will be a presumption of denial for license applications to export items to the thirteen companies newly added to the list.

The companies added to the entity list are the following:

Stroytransgaz Holding, located in Cyprus; Volga Group, located in Luxembourg and Russia; and Aquanika, Avia Group LLC, Avia Group Nord LLC, CJSC Zest, Sakhatrans LLC, Stroygazmontazh, Stroytransgaz Group, Stroytransgaz LLC, Stroytransgaz-M LLC, Stroytransgaz OJSC, and Transoil, all located in Russia.

The Volga Group is owned by Timchenko and itself owns Aquanika, Avia Group, Avia Group Nord, Transoil, Sakhatrans and Stroytransgaz. The only company on the list not connected to Timchenko is CJSCÂ Zest, which is a leasing company owned by Rossiya Bank.

Interestingly, if you are on pins and needles about whether Justin Timberlake will perform at Hartwall Arena in Finland, the Volga Group, owned by Timchenko, is the vehicle by which Timchenko owns 50 percent of Hartwell Arena. Volga Group, like all of the thirteen companies listed above that have been added to the Entity List, was added yesterday by the Office of Foreign Assets Control to the SDN List. So Justin Timberlake fans planning on heading to Helsinki might want to see if they can get refunds.

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Apr

23

Stuck Between a Rock and an OFAC Place

Posted by Clif Burns at 9:40 pm on April 23, 2014

Category: Cuba Sanctions • OFAC

Carlson Wagonlit US HQ via http://careers.carlsonwagonlit.com/jc/external/en/global/meetUs/Locations-Country-DetailPages/USA-Pages/USA_overview.html [Fair Use] Last week the Office of Foreign Assets Control announced that it whacked Carlson Wagonlit with a massive $5,990,490 fine for doing business in Europe as an American. Specifically, the massive fine was levied because Carlson was involved in arranging travel for Europeans to Cuba. Carlson became subject to U.S. sanctions on Cuba in 2006 when French hotel chain Accor sold its 50 percent stake in Carlson Wagonlit to Carlson and JPMorgan Chase, resulting in control of Carlson Wagonlit by U.S. companies.

In justifying the massive fine OFAC tut-tuts that Carlson Wagonlit was a sophisticated international company that processed Cuba travel for “four years before recognizing that it was subject to U.S. jurisdiction” and that it had either no compliance program or an “inadequate” one. Of course, OFAC omits from its chastisement of Carlson Wagonlit one significant fact: the 900-pound E.U. Council Regulation that made it illegal for Carlson Wagonlit to refuse to book travel to Cuba

In essence, and as I’ve said before, OFAC’s enforcement of the Cuba Sanctions against U.S. companies in Europe in these circumstances is tantamount to making it illegal for American companies to do business in Europe. This is particularly true for travel companies which simply cannot avoid being requested to book travel for Cuba. If the Company refuses, it violates E.U. law; if it complies, it violates U.S. laws. Sanctioned if you do; sanctioned if you don’t.

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Apr

18

Oh, The Places You’ll Go!

Posted by Clif Burns at 3:25 pm on April 18, 2014

Category: BIS • Iran Sanctions • OFAC

By Alec Wilson [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/awilson154/12221595055/sizes/l
N604EP in Zurich last January (Alec Wilson via Flickr, CC-BY-SA-2.0)

According to an article in the New York Times, and a picture snapped by one of its reporters in Tehran, a U.S. registered corporate jet with a discreet U.S. flag painted on the tail and with the registration number N604EP was spotted three days ago on the runway of Mehrabad Airport in Tehran, Iran. At first, apparently not having seen the photographic evidence, Director General of Tehran’s Mehrabad Airport Nasrollah Mansouri Shirazi told the Tasnim News Agency, an IRGC-affiliated group, that no U.S. planes had landed at his airport. (Baghdad Bob is alive and well at the Mehrabad Airport!)

The appearance of the U.S. plane in Tehran has, of course, resulted in a whirlwind of speculation about what it is doing there. As the Times correctly points out, its unlikely to be a covert diplomatic mission what with the U.S. flag emblazoned on the tail and the jet sitting in full daylight in a spot where a reporter could snap a photograph. (Such trenchant observations are why the New York Times is, after all, the U.S. newspaper of record.)

The whole affair has the Bank of Utah, which owns the plane in trust for some shadowy and undisclosed investors, all flustered.

Brett King, one of its executives in Salt Lake City, said, â€œWe have no idea why that plane was at that airport.

â€¦

Mr. King, who helps run the bankâ€™s trust services business, said the bank had no â€œoperational controlâ€ or â€œfinancial exposureâ€ to any of the planes.

â€¦

For his part, Mr. King said Thursday in an interview that he was trying to get to the bottom of the aircraftâ€™s presence in Tehran. â€œThe Bank of Utah is very conservative, and located in the conservative state of Utah,â€ he said. â€œIf there is any hint of illegal activity, we are going to find out and see whether we need to resignâ€ as trustee.

If the jet was in Iran without authorization, the Bank, as the legal owner of the plane, is going to have a hard time trying to wash its hands of the matter simply by resigning as “trustee” and trying to walk away from the issue. It will certainly need to demonstrate to federal regulators that it took all necessary steps in its dealings with the mysterious owners to prevent them from flying the plane to embargoed destinations without authorization.

One final amusing note is that the New York TimesÂ cannot figure out which agency needed to authorize the plane to land in Iran:

Under United States law, any American aircraft would usually need prior approval from the [Treasury Department’s Office of Foreign Assets Control] to go to Iran without violating a complicated patchwork of rules governing trade.

In the case of this particular aircraft, powered by engines made by General Electric, the Commerce Department typically would have to grant its own clearance for American-made parts to touch down on Iranian soil.”

Er, no, the license from OFAC would be enough. If the Times reporter spent a few moments with Google he would have easily found the Commerce Deparment saying this:

Although BIS maintains license requirements for Iran, OFAC is responsible for administering most Iran sanctions. You are not required to seek separate authorization from BIS to export or reexport an item subject to both BISâ€™s Export Administration Regulations (EAR) and OFACâ€™s Iranian Transactions and Sanctions Regulations (ITSR) (31 CFR Part 560). However, you will also violate the EAR if you do not obtain an OFAC authorization if one is required.

I guess the fact-checkers at the Gray Lady aren’t what they used to be. . . .

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Apr

16

Music of My Hartwall Arena

Posted by Clif Burns at 10:29 pm on April 16, 2014

Category: OFAC • Russia Sanctions

By Paul Holloway from Birmingham, United Kingdom (The Hartwall Arena Uploaded by FÃ¦) [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3AThe_Hartwall_Arena_(100452288).jpg Yesterday, my colleague George Murphy posted an analysis on the potential impact (or lack thereof) of the Russia/Ukraine sanctions on a series of concerts by U.S. artists such as Justin Timberlake at Hartwall Arena in Helsinki, Finland. The post noted that the performances would still go on despite the ownership interests by three newly-designated SDNs in Hartwall Arena: Boris and Arkady Rotenberg and Gennady Timchenko. The post speculated that this was because none of the three named individuals had a fifty percent interest or greater in the venue. Under current rules as interpreted by OFAC, a company would not be blocked even if owned entirely by blocked individuals if no single blocked individual owned 5o percent or more of the company.

That post generated an email to us from an official at Live Nation, the concert promoter for the events at Hartwall, taking issue with the post.

I wanted to reach out because there has been quite a bit of erroneous information out in the public domain about the ownership of the Helsinki venue. The shows are going to continue because the venue is not subject to the US sanctions, not â€œdespiteâ€ the sanctions.

I replied that the post had said the concert would go on “despite” the ownership of the venue by the three SDNs, not “despite” the sanctions, a very different thing, particularly since the post speculated that the venue wasn’t subject to the sanctions due to the 50 percent rule.

This led to another response:

They do not own 100% of the venue, there several dozen owners. Based on the best information available to Live Nation they own 100% of an entity which owns only a minority interest in the venue itself, which is the reason the sanctions do not apply.

That was certainly not what numerous new sources (such as The Guardian) were reporting as to the ownership of Hartwall Arena, and the official did not respond to my request to document the assertion about the Rotenberg and Timchenko interests in Hartwall . I did a little digging myself and sent to the Live Nation official this presentation made by Roman Rotenberg, the son of Boris Rotenberg and chairman of the Hartwall Arena. That presentation contains a slide that helpfully diagrams the precise ownership of the Arena. It states that the “owners” of Hartwall Arena are Gennady Timchenko and “Rotenberg family via LÃ¥ngvik Capital.” The organizational diagram shows a “company based in Luxembourg” owned by Timchenko that owns 50 percent of Arena Events Oy that, in turns, owns the Hartwall Arena. It also shows that “Oy LÃ¥ngvik Capital Ltd (Finland)” — owned by the Rotenberg family — owns the other 50 percent of the Arena Events Oy.

If Live Nation is trying to assert that Arena Events only owns a minority interest in Hartwall Arena, that is not consistent with what Roman Rotenberg says. The organizational chart shows that Arena Events Oy owns Helsinki Halli OyÂ (Hartwall Arena) and owns 49% of Jokerit Hockey Club Oy, the company that owns the Â hockey team based at Hartwall Arena. It is not clear why the chart would indicate the 49% minority interest in Jokerit but not a corresponding minority interest in Helsinki Halli Oy if, in fact, that was also a minority interest as the Live Nation official asserts.

I also checked the records relating to Arena Events Oy on the Finnish Trade Register which is the official source for corporate records maintained by the Government of Finland. Those records do not indicate the stock ownership of Arena Events Oy and, thus, nothing in those publicly available corporate records contradicts Roman Rotenberg’s charts and statements showing that Timchenko and the Rotenberg family each own 50 percent of Hartwall Arena.

This information, if true, raises the possibility that concerts by Americans at Hartwall Arena might be problematic. Timchenko’s ownership of the Luxembourg holding company would mean that this holding company is blocked, and the Luxembourg holding company’s 50 percent in Helsinki Halli would result in Helsinki Halli being blocked as well. If Helsinki Halli is blocked, no U.S. person or company can be involved in events there. Whether or not Oy LÃ¥ngvik Capital is blocked is not clear, since we don’t know the ownership interests of Boris and Arkady Rotenberg in that company, but this does not matter if Helsinki Halli is blocked by virtue of Timchenko’s 50 percent stake.

So if Justin Timberlake sings a few songs at Hartwall he better hope that Live Nation is right and Roman Rotenberg is wrong about the ownership of the concert venue. Otherwise, he may be the next Dennis Rodman.

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