ExportLawBlog

Archive for the ‘OFAC’ Category

Aug

7

There’s No Crying in Baseball (Unless OFAC Gets Involved)

Posted by Clif Burns at 5:48 pm on August 7, 2013

By boomer-44 on Flickr (Original version)UCinternational (Crop) [CC-BY-2.0] via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3AAlfredo_Despaigne_on_March_9%2C_2013_(2).jpg

ABOVE: Alfredo Despaigne

There is no better proof that comprehensive sanctions are useless and silly than this: U.S. sanctions on Cuba are going to prevent the participation of Cuba’s national baseball team in the Caribbean Series which will take place next February in Venezuela and will not involve any U.S. teams. Founded in 1949, with Cuba as one of the original founders, Cuba played in the annual series until 1961 when Castro banned professional sports on the island.

So there was quite a bit of excitement when several months ago Cuba said it would return to the series. But just as the excitement for mighty Casey faded when he struck out, hopes were quickly dashed for Cuba’s time at bat when OFAC struck them out before they could even get to the plate. Apparently the organizers of the Caribbean Series received a letter from Major League Baseball saying that players signed with the MLB couldn’t play in the tournament if Cuba participated. Most of the Carribean league players already have MLB contracts, even if only with the minor leagues, so excluding players with MLB contracts is a non-starter. And no one knows whether OFAC licenses could be obtained at all, much less in time.

MLB’s theory about the application of the sanctions to players under contract with the League is a bit bizarre, to say the least. Last time I checked, signing a contract with the MLB does not turn the player automatically into a U.S. person (or even an honorary one). I suppose the fear is that even if the player is playing in his personal capacity as a member of one of the Caribbean leagues he is still somehow a Major League player and this would bring down the wrath of OFAC on MLB. That being said, given the huge fines that OFAC can impose and the general perception that OFAC doesn’t play fairly, I can understand MLB’s reticence to run this risk.

One thing is certain: banning Cuba from the Caribbean series will not lead the current Cuban government to abdicate; nor will itwin the U.S. any friends among ordinary Cubans.

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Jul

30

That’s Why It’s Called Dirt

Posted by Clif Burns at 9:24 pm on July 30, 2013

Kim Jong Un Official Photo Source: Korean Central News Agency [fair use] As the result of an FOIA request, the Office of Foreign Asset Controls (“OFAC”) released a pile of requests by U.S. citizens to import all kinds of things from North Korea, including beer, printer cartridges, children’s shoes, blue jeans (!!), columbite, and collectible postage stamps. You can’t help but being intrigued by the concept of importing blue jeans from Pyongyang, that international capital of haute couture best exemplified by the pudgy fashion plate who is the titular ruler of the country.

But more entertaining than picturing what exactly Nork jeans would look like is aÂ singularly clueless articleÂ on the license requests that ran on the aptly named website TechDirt, which apparently dispenses its “dirt” on the tech scene without actually knowing anything or doing any research. The author of the TechDirt post, one Mike Masnick, is all befuddled over requests by several law firms for permission to take steps to register trademarks in North Korea. Masnick sees these requests as just an example of law firms trying to gouge their clients for performing pointless services.

Case in point, he says, was the request by the lawyers by Intel to register its trademarks in North Korea

[W]hy does Intel care about protecting its trademarks in North Korea when it can’t sell its chips into North Korea in the first place?

Hello, Mike, does Google still work on your computer? Obviously not, or you would have easily found this. Exports to North Korea aren’t banned but merely require licenses from the Bureau of Industry and Security (“BIS”). In the case of consumer grade computer chips, license requests are considered on a case-by-case basis. Also, Intel products with less than 10 percent U.S.-origin content could be sold in North Korea without licenses under BIS’s de minimis rules. But, let’s suppose, for the sake of argument, that Intel couldn’t sell anything at all in North Korea, it still might want trademark protection there to prevent other people from outside the United States from selling products in North Korea under that name.

As a bit of background, the real reason for the requests by law firms to help register trademarks in North Korea stems from a curious inconsistency in OFAC’s sanctions regulations. In most if not all of the other sanctions regimes, including those for Cuba and Iran, there are specific provisions permitting registration and protection of trademarks in the sanctioned countries. For reasons that are not clear, the North Korea regulations do not include this exception, hence the request. Whether OFAC granted these requests or not is not revealed by the FOIA documents but I’m fairly certain that the requests would have been granted.

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Jul

23

OFAC Fines American Express $5 Million for Doing Business in Europe

Posted by Clif Burns at 9:27 pm on July 23, 2013

Category: Cuba Sanctions • Foreign Countermeasures • OFAC

American Express Office in Rome, image by User Mattes [CC-BY-3.0] (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File:American_Express_office_in_Rome.jpg According to an announcement released yesterday by the Office of Foreign Assets Control (“OFAC”), the agency fined American Express $5,226,120 because Amex’s overseas offices booked travel to and from Cuba. OFAC justified the size of the fine with a litany of aggravating factors such as (1) reckless disregard for the Cuba sanctions regulations, (2) knowledge by the company that the Cuba transactions “would or might take place,” and (3) OFAC’s provision of a notice in 1995 to Amex that the bookings were a violation of the Cuba sanctions.

What is most interesting is OFAC’s reference to, and treatment of, legislation passed by the European Union to prohibit companies doing business in Europe from complying with the U.S. sanctions on Cuba, legislation which OFAC oddly and uniquely calls “antidote” legislation. (Everyone else in the world calls it “blocking” legislation.) OFAC notes that “many” of the offending bookings occurred in countries with “antidote” legislation, presumably a reference to Council Regulation (EC) No 2271/96 of 22 November 1996 which prohibits companies in the E.U. from complying with the Cuba sanctions.

Now, in that light, consider aggravating factor 6 cited by OFAC:

[A]t the time of the apparent violations, TRSâ€™ [American Express’s] compliance program was inadequate, given the nature of TRSâ€™ [sic] operations, to detect and prevent Cuba travel bookings, particularly fromÂ countries that had adopted antidote measures â€¦

Well, duh, if you’ll forgive my lapse into the vernacular. Of course, it was going to be difficult to comply with the Cuba sanctions where doing so would be illegal. There really is no way to interpret this other than as a statement by OFAC that having offices in Europe is inconsistent with complying with OFAC sanctions and that the only way to have an adequate compliance program is simply to stop doing business in Europe.

But the humdinger of regulatory cluelessness has to be factor number 12.

OFAC also considered as a relevant factor the legal obligations placed on TRS by U.S. law and antidote measures adopted by many of the jurisdictions in which TRSâ€™ foreign branch offices and subsidiaries operate, but, given the facts and circumstances of this case, did not assign any mitigating or aggravating weight to this factor under the Guidelines

Say what? Leaving aside the utter inanity of suggesting for even a moment that E.U. blocking legislation might be an “aggravating” factor in this world or any conceivable alternate universe, it is inconceivable that OFAC can blithely say that blocking legislation was completely irrelevant in its consideration of the case, unless of course you assume that the United States rules the world and the laws of other countries are immaterial and ineffective urgings of foreign vassal states. Or the factor might be irrelevant if OFAC’s real position is that the United States must stop doing business in Europe, Canada and other countries with blocking legislation.

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Jul

11

More Screening Nightmares

Posted by Clif Burns at 9:10 pm on July 11, 2013

Category: OFAC

The Scream I think more needs to be said about OFAC’s greater than 50 percent rule which was covered in yesterday’s post. As you recall, the rule in question says that if a blocked party owns more than 50 percent of another entity that latter entity and all its assets are blocked as well, even if the latter entity is not listed on the SDN list. Since that rule appears to be recursive, it makes it difficult to screen parties because you need to know the owners of the company, and the owners of the owners, and the owners of the owners of the owners and so forth. The rule is also written in such a way as to impose undue hardships on the other owners of the blocked entity where the party owning more than 50 percent is blocked after the other parties invest in the enterprise.

But consider this scenario which brings out even more vividly the problems with OFAC’s rule. Suppose that Mr. A is an SDN and he owns 60 percent of Company B and 45 percent of Company C. Further suppose that Company B owns 40 percent of Company D, and Company C owns 60 percent of Company D. Now, pop quiz. Who and what is blocked under the OFAC rule?

Clearly Company B and its assets are blocked, whereas Company C and its assets are not. But what about Company D? Â Mr. A owns 24 percent of Company D through his 60 percent ownership in Company B. He also owns 27 percent of Company D through his 45 percent interest in Company C. That’s a cumulative interest of 51 percent of Company D. So even though Mr. A cannot control Company D, since he doesn’t control Company C, the majority owner, Company D would be blocked as would all of its assets.

Surely the screening problems that this rule poses are manifest in a situation like this as is the unfairness of this rule to the other (and majority) owners of Company C if Mr. A is designated after his investment in Company C. The question then is how on earth can this happen? Can the agency be that deaf to the business realities of the parties it regulates? Does it even care?

Well, the answer to this question is hidden in the rulemaking itself. Near the end of the Federal Register notice there is this juicy little nugget:

Public Participation

Because these amendments to 31 CFR parts 594, 595, and 597 involve a foreign affairs function, Executive Order 12866Â and the provisions of the Administrative Procedure Act (5 U.S.C. 553) requiring notice of proposed rulemaking, opportunity for public participation, and delay in effective date are inapplicable.

There you have it. The agency has no interest in public participation or input.

Now contrast this to the positions taken by the Bureau of Industry and Security (“BIS”) and the Directorate of Defense Trade Controls (“DDTC”). Both agencies could also argue that they are engaged in a foreign affairs function and yet both regularly put their rules out for public comment, a process which has led to valuable industry feedback and rules that address the real-world concerns of actual businesses. Â OFAC should follow the example of its sister export agencies.

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Jun

27

What Do These Two People Have in Common?

Posted by Clif Burns at 9:42 pm on June 27, 2013

Category: OFAC

Dick Armey and Ringo Starr [fair use]

Indeed, what do former House Majority Leader Richard Armey and former Beatle Ringo Starr have in common? Other than, of course, immense artistic talent and devilish good looks. Well, they both are named Richard and they both were born on July 7, 1940. This means, surprisingly, at least as far as the Office of Foreign Assets Control (“OFAC”) is concerned that they are both not merely 73-year-old men named Richard but are, in fact, one and the same person.

If you don’t believe that, tell that to Wells Fargo Bank which just got whacked by OFAC to the tune of $23,937 for opening up bank accounts for people that had the same birthdates as narcotics kingpens on the SDN list and that had names that shared part of their names with those narcotics kingpens. Wells Fargo opened an account for Carlos A. Ruelas (who had a U.S. address and a U.S. social security number) who allegedly was Carlos Antonio Ruelas Topete who was on the SDN list with a Tijuana, Mexico address. (Ruelas Topete was deleted from the SDN list last January.) The bank also opened an account for Claudia Aguirre (who also had a U.S. address and a U.S. Social Security) who allegedly was Claudia Aguirre Sanchez who is on the SDN list with a Tijuana address.

The moral of the story here, whether or not the account holders were or were not SDNs, is that it’s probably a good idea to screen not just by names but by birthdates as well. Â And the next time you see Dick Armey see if you can get him to play the drum part for “I Wanna Hold Your Hand.”

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