Archive for the ‘OFAC’ Category


May

16

Palestine: A Reminder of the OFAC Regulatory Labyrinth


Posted by at 1:36 pm on May 16, 2013
Category: Economic SanctionsOFACSanctionsSDN List

SUPARCO HQ http://www.suparco.gov.pk/assets/images/hq.jpg [Fair Use]

OFAC this week issued a general license redefining the term “Palestinian Authority” as that term is used in three sets of U.S. sanctions regulations relating to terrorism. The change was only to add a phrase to account for Prime Minister Salam Fayyad’s resignation. You may be asking yourself how we got to the point where OFAC issues licenses to redefine a regulatory term because of the resignation of a foreign political leader. The answer is, not surprisingly, not so simple.

The Palestinian Authority (PA) is not, and never has been, on the SDN List. But back in 2006, OFAC announced, by virtue of the Hamas victory in the PA legislative elections, it determined that Hamas “has a property interest in the transactions of” the PA and, therefore, “U.S. persons are prohibited from engaging in transactions with” the PA. The strained logic that an entity has a property interest in the transactions of a government because individuals affiliated with the entity won a plurality of a legislative election vote was implemented into the terrorism regulations as interpretive provisions, which still exist. This was a harbinger for things to come.

In 2007, as a result of Prime Minister Fayyad’s appointment, OFAC issued a general license authorizing U.S. persons to engage in all transactions with the PA that were otherwise prohibited by defining the PA to be the government of President Abbas and Prime Minister Fayyad. OFAC could have, instead, at that point explained the situation and removed the interpretive provisions from the terrorism regulations. It did not, and we commented here on the oddity of this situation over five years ago. The new general license this week perpetuates the situation further. Now the regulations include the interpretive provisions, the 2007 general license and the new general license clarifying the other general license.

It should not be this complicated. If OFAC’s goal is to hedge its bets that the PA may at any time fall back under control of Hamas, which the Gaza Strip effectively has been since 2007, there are more direct ways to make the PA subject to sanctions that are easier for U.S. persons to follow and understand. The most obvious candidate, if the United States believed there was a Hamas-related terrorism threat with the PA, would be adding the PA to the SDN List or some form of direct sanctions. If not direct, then an interpretive provision is second-best, but one that provides a more realistic justification than the current “property interest” logic. Of course, a new interpretive provision would put the onus on OFAC to explain further notions of ownership and control that have thus far not received enough attention.

Until then, we will wait for the next general license when the new prime minister is determined.

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Copyright © 2013 Clif Burns. All Rights Reserved.
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May

14

On the Internet, Nobody Knows You’re a Syrian


Posted by at 7:59 pm on May 14, 2013
Category: OFACSyria

SEA Banner http://sea.sy/uploaded_files/images/71.jpg [Fair Use]According to this report, Network Solutions in April seized over 700 domain names relating to Syria. Among these were sites used by the Syrian Electronic Army, a pro-Assad hacker group that has achieved some notoriety for taking over the AP’s Twitter account and pushing out a false tweet about alleged explosions at the White House. They also hacked The Onion’s Twitter account which led to this memorable story and headline on the satire site: “Syrian Electronic Army Has A Little Fun Before Inevitable Upcoming Death At Hands of Rebels.” All of the domains now show the owner as “OFAC Holding.” A complete list can be found here.

Frequent readers of this blog will no doubt be aware that OFAC has issued a series of general licenses permitting provision in sanctioned countries of services incident to personal communications over the Internet. However, General License No. 5 for Syria explicitly excludes from the General License “domain name registration services.”

Of course, shutting down the sites now does not negate the violation that occurred in providing these web hosting services to Syria in the first place. And a large part of the problem here is that domain services are normally provided without any human involvement. A registrant fills out a web form, hands over a credit card number to pay for the annual fee, and a computer program takes care of the rest. Add to that, as the famous New Yorker cartoon caption suggests, “on the Internet, nobody knows you’re a dog.” It is simply not clear how Network Solutions could screen out every registration from an embargoed country. Instead, it seems the best an Internet registrar can do is shut down the domain names once it learns of the problem.

The big questions, then,  are this: does Network Solutions have a voluntary disclosure pending at OFAC on this and what will OFAC’s response be?

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May

12

Re:  Burma (or is it Myanmar?):  Why We Are All Lost in Translation


Posted by at 10:33 am on May 12, 2013
Category: Burma SanctionsEconomic SanctionsOFACSanctions

Baganmyo http://commons.wikimedia.org/wiki/File:Baganmyo.jpg [Public Domain]The White House last week issued a notice continuing the national emergency with respect to Burma. The notice itself is an annual rite of passage for all U.S. sanctions programs under IEEPA, including those relating to Burma. What is surprising this time around is that nothing has changed from past notices.  The current notice still refers to the “unusual and extraordinary threat to the national security and foreign policy of the United States” by “the actions and policies of the Government of Burma.”

This is where the head-scratching should begin.  A lot has happened in the past year or so that one would think warrants an updated (and apt) notice.  In late 2011, Secretary of State Clinton made the first State visit to Burma since 1955.  Last May, the President nominated the first U.S. ambassador to the country in over two decades.  Just this past November, the President became the first sitting president to visit Burma.  Most important to U.S. businesses was OFAC’s significant relaxation last year of countrywide sanctions prohibiting the export of financial services to Burma, new investments in Burma and imports from Burma.

All of these events are major developments in U.S.-Burmese relations.  So why would the White House use a boilerplate notice when it could have taken the opportunity to depict an accurate picture of what U.S. foreign policy currently is?  The notice is, of course, a legal requirement and the Burmese government has not shed all doubt over its commitment to democracy and human rights.  But describing the situation as an “unusual and extraordinary threat” to the United States without any further context?  In light of all this Administration has accomplished with Burma, it seems odd and misleading to use an off-the-shelf response in this instance.

One consequence of this on the U.S. business community will likely be time and resources many spend confirming that the sanctions that have been lifted against Burma have now not been repealed.  Such a sanity check would be reasonable given the notice and especially for those who have begun exploring business with Burma.

The Administration should have a complete and consistent script of what U.S. foreign policy is with respect to Burma so it, and the rest of us, can all be on the same page.

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May

8

Man Charged with Attempted Import of Traffic Lights


Posted by at 10:51 pm on May 8, 2013
Category: Criminal PenaltiesOFACWMD Sanctions

LED Traffic Lights http://commons.wikimedia.org/wiki/File:Led_traffic_lights.jpg [Public Domain]A federal district court in Chicago recently unsealed a criminal complaint against an Illinois man for importing an oil pump and attempting to import some LED traffic lights from Taiwan to the United States.

The reason that these activities are alleged to be illegal is that the lights and the pump were imported from a company that had been designated by the Office of Foreign Assets Control (“OFAC”) as a Specially Designated National (“SDN”). Any transaction with an SDN, whether an import or an export, is prohibited.

As background, the indicted man, Gary Tsai is the son of Alex Tsai, a resident of Taiwan.  The father Alex Tsai was designated along with companies he controlled by OFAC on January 16, 2009, after he had been convicted in a Taiwanese court for sales of machinery to North Korea. Although the complaint details a number of exports by Gary Tsai to Alex Tsai and his designated companies prior to their designation by OFAC, these are not, and obviously cannot be, alleged to be illegal. Instead, I suppose, all the pre-designation transactions are provided for a bit of color. Who says prosecutors don’t like to have fun?

Most interesting, however, is that the imports in question are not just charged, as one would predict, as violations of the International Emergency Economic Powers Act, 50 U.S.C. § 1701 et seq., but also under 18 U.S.C. § 371 as a conspiracy to defraud the United States by obstructing enforcement of laws relating to the proliferation of weapons of mass destruction. That section is more widely known for its prohibition on conspiracies to commit any offense against the United States, but it also prohibits conspiracies “to defraud the United States.”

The statute in question was originally enacted in 1867 and appended to “An Act to amend existing Laws relating to Internal Revenue and for other Purposes.” Originally conceived as a revenue protection measure, the “defraud” prong of 18 U.S.C. § 371 has typically been employed in tax evasion cases.

In Haas v. Henkel, 216 U.S. 462 (1910), the Supreme Court expanded the scope of the provision and held

it is not essential that such a conspiracy shall contemplate a financial loss or that one shall result. The statute is broad enough in its terms to include any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any department of government.

Of course, that formulation alone is overly broad and would criminalize any concerted action that somehow or other made the federal government’s activities more difficult. As the Ninth Circuit said in United States v. Caldwell, 989 F.2d 1056 (9th Cir. 1993), such a reading would make it illegal to agree not sell land to the government and force it to use eminent domain instead. In that regard, the Supreme Court in Hammerschmidt v. United States, 265 U.S. 182 (1924) said that the obstruction must occur through “deceit, craft or trickery.”

It is not at all clear from the criminal complaint what “deceit, craft or trickery” was used by Gary Tsai in importing the items in question from his SDN father. The best I can tell is that the government somehow thinks that because Gary Tsai and his father used Gmail accounts that did not contain their real names, this was some kind of trickery. It is hard to believe that any court will find some duty to use real names only for email addresses.

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Copyright © 2013 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Apr

30

The Bad News Is You’re Still on the SDN List


Posted by at 6:37 pm on April 30, 2013
Category: Burma SanctionsEconomic SanctionsOFACSanctionsSDN ListZimbabwe Sanctions

U.S. Navy photo by Mass Communication Specialist 2nd Class Jesse B. Awalt/Released (DefenseImagery.mil, VIRIN 090202-N-0506A-310) [Public domain], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ARobert_Mugabe%2C_12th_AU_Summit%2C_090202-N-0506A-310.jpg
ABOVE: Robert Mugabe

OFAC last week issued its first general license for U.S. sanctions relating to Zimbabwe. The license authorizes for the most part “all transactions involving Agricultural Development Bank of Zimbabwe and Infrastructure Development Bank of Zimbabwe.” Both banks, however, are on OFAC’s SDN List.

Since the two banks have been and remain on the SDN List, the license does not unblock the banks’ property interests that had been blocked as of the date of the license. OFAC issued a similar general license in February of this year authorizing dealings with four banks in Burma but kept the banks on the SDN List and continue to block the banks’ property interests blocked prior to the license. A major development from these licenses is, of course, giving U.S. exporters local banking options that were previously unavailable and without them likely stymied business development in those countries.

Exporters should also take note, however, of how OFAC’s easing of sanctions through these licenses has an onerous side-effect on U.S. companies. If a company’s policy is to determine whether to deal with entities or individuals based on their presence on the SDN List or other relevant sanctioned party lists, the authorization granted to deal with listed banks through these general licenses would go unnoticed. Exporters now must check all the lists they routinely do as well as stay on top of licenses issued by OFAC to know whether someone has, from most exporters’ perspectives, been in effect delisted.

If these SDN-lite designations continue, exporters will either need to monitor closely OFAC’s daily activity or make sure their screening software is doing so for them, at least if they want to be sure they are not unnecessarily limiting their export opportunities.

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Copyright © 2013 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)