ExportLawBlog

Archive for the ‘OFAC’ Category

Jun

15

So Easy Even a Kingpin Can Do It

Posted by Clif Burns at 7:51 pm on June 15, 2010

Category: OFAC

Bad Gecko Yesterday when I posted on the latest release of civil penalty information by the Office of Foreign Assets Control (“OFAC”), I promised to do a second post on the $11,000 penalty paid to OFAC by GEICO General Insurance Company (“GEICO”). The penalty was paid to settle charges that GEICO provided an automobile insurance policy to a Specially Designated Narcotics Trafficker (“SDNTK”).

There is no indication whether this violation was voluntarily disclosed. My cynical guess (not based on a single fact) is that the whole deal came to light when the SDNTK ran into someone. GEICO then suddenly discovered its insured was an SDNTK and tried to use that as an excuse not to pay out for the damages to the other driver.

But here’s what is most interesting about OFAC’s announcement of the GEICO penalty settlement. The agency noted:

The settlement amount reflects OFACâ€™s consideration of the following General Factors: GEICO does not screen its existing policyholders database for SDNs as the SDN list is updated but only on an annual basis. GEICO has committed to making improvements to remedy this gap in its OFAC compliance program.

Based on this statement, it would appear that the SDNTK was listed as such by OFAC after GEICO had issued the policy. Because GEICO screened its database of customers annually, it continued to provide insurance for a period of time after the designation. Bad gecko.

But this is a problem that bedevils every compliance program. How often should customer lists be scanned? Based on this statement from OFAC, annually is not enough. Instead the agency seems to suggest that every company must rescan its customer list each and every time OFAC adds someone to the SDN list. This seems overly burdensome and not justified by any significant benefit. A better policy would be for OFAC to establish a safe harbor for companies that rescan their customer lists at specified intervals, such as monthly or bi-weekly.

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Jun

14

Two Packages to Sudan Net $5k Fine for KLM

Posted by Clif Burns at 7:59 pm on June 14, 2010

Category: OFAC • Sudan

Khartoum Airport While I was traveling earlier this month, I missed the latest release of civil penalty information by the Treasury Department’s Office of Foreign Assets Control (“OFAC”). Both KLM and Geico were fined. We’ll look at the KLM case today and GEICO tomorrow because both penalty cases raise interesting issues.

KLM was fined $5,336.26 in connection with two cargo shipments it carried between KLM’s cargo facilities at O’Hare Airport in Chicago and the Khartoum International Airport. One shipment consisted of oil field equipment and the other contained hydraulic hoses. The offending shipments were not voluntarily disclosed to OFAC.M

OFAC’s initial nastygram to KLM (or “Prepenalty Notice” in OFAC-speak) proposed a $6,277.95 penalty. KLM’s reply admitted that its compliance program didn’t mention embargoed destinations but sought clemency from OFAC on the grounds that it had now circulated a notice to all U.S. operations reminding them about “bookings that cannot be accepted.” That delayed stab at compliance, however, did net KLM a savings of $941.69 or about 15% of the originally proposed penalty.

What is interesting here is that it now appears that KLM has circulated a bulletin to all of it’s cargo operations instructing them not to take any packages to Sudan or other embargoed destinations. That, of course, is an excessive, but understandable, response to the OFAC penalty proceeding. Yet, as we all know, not all cargo to Sudan is prohibited. A box of books would be fine under the information exemption. But KLM doesn’t want to have to inspect cargo and determine whether an export license is or isn’t required. And who can blame them?

Yes, yes, KLM broke the rules here, and it’s hard to muster up an abundance of sympathy for a carrier whose compliance program didn’t even mention that whole business of embargoed countries. Yet, yet, busting an airline for something like this (even if the fine is less than a first-class transatlantic ticket) will necessarily result in the airline doing exactly what it did here: overreact. This will make it difficult for shippers to send perfectly legal cargo to the country, violating the spirit, if not the letter, of the Berman Amendment, which established the exception for informational materials.

If OFAC needed a couple of whipping boys here, the shippers were better targets. They, of course, knew what they are shipping and should have known it wasn’t exempt.

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Jun

7

Export Reform Boulder Moves Further Up Mountain

Posted by Clif Burns at 3:56 pm on June 7, 2010

Category: BIS • DDTC • Export Reform • OFAC

Export Reform An article (subscription required) in the latest issue of Inside U.S. Trade describes an interview the publication held with a “senior administration official” on the White House’s proposed export control reforms. According to the official, an interagency agreement should occur shortly that will allow the agencies to move forward in implementing one export license application form for BIS, OFAC and DDTC and to paring down the various export control lists to one list of critical items and technologies.

Probably the most significant of the contemplated reforms is the paring down of the United States Munitions List to a “positive list” of items. Currently, the list has both positive listings of items that are controlled (e.g., firearms or the specific chemical agents listed in Category XIV) and indirect (dare I say “negative”?) listings which cover unspecified items with certain attributes, such as electronics “designed, modified or configured for military application.” This latter category of listings creates conflicting interpretations, confusion and uncertainty about which items require export licenses and which do not.

Other highlights of the interview included the following:

The single IT system will be the Department of Defense’s IT system
The Nuclear Regulatory Commission, which licenses nuclear exports, will not be part of the single export agency.
There will be common definitions of terms, including “U.S. Person” and “export.”
The single list will be the United States Munitions List. Dual use items will be added to the list and the Commerce Control List will disappear

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Jun

4

BP Oil Spill Prompts Cuba Embargo Exception

Posted by Clif Burns at 11:06 am on June 4, 2010

Category: Cuba Sanctions • OFAC

ABOVE: On-shore Cuban oil
rig

An article in the National Journal reveals that OFAC recently granted a license to permit the International Association of Drilling Contractors to send a U.S. delegation to Cuba to train the Cubans on proper off-shore drilling techniques. The exception to the embargo was prompted by concerns that an oil spill by the Cubans could be carried by currents in the Gulf of Mexico to U.S. waters and the U.S. coastline. The same request by IADC had been denied in December by OFAC, but recent events obviously led to a change of heart by the agency. The thinking, of course, was that since the Cubans are going to drill in any event, we ought to do our best to prevent collateral damage when they botch things up.

The same concerns motivated a provision in the Domestic Energy Security Act which would have amended the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”) to permit U.S. companies to drill in Cuban coastal waters. That legislative proposal is now pretty much dead on arrival given that it is unlikely that anyone will think it is a good idea to ban U.S. companies from drilling anywhere in the Gulf except for off the coast of Cuba.

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Apr

22

(Ran)Somalia Payments and OFAC

Posted by Clif Burns at 7:57 pm on April 22, 2010

Category: OFAC • Piracy on the High Seas • Somalia Sanctions

Somalia Last week I posted on the new Somalia “smart” sanctions and noted that the concerns by the maritime industry that the new sanctions would prohibit ransom payments were unfounded. The industry was concerned that language in the executive order, which permitted designations of persons engaged in piracy off the coast of Somalia, would prohibit payments of ransoms to pirates.

Most marine hull insurance covers piracy as does Institute Cargo Clause A. Even under Cargo Clauses B and C, insurers may still be required to contribute to ransom payments under the general average rule. Accordingly, because shippers and vessel owners have insurance coverage paid for and available to pay the ransom, they are anxious not to lose that benefit (or their crews or goods) as a result of any interference by OFAC with ransom payments.

I indicated that these concerns were unfounded because the executive order forbids payments to parties already designated for piratical activities. If a pirate demanding ransom hadn’t been designated yet, nothing in the order would forbid payment of ransom to that pirate or pirate crew. (Of course, it is a little surrealistic to imagine that a vessel owner would demand the pirate’s name and run it against the SDN list before making a ransom payment.)

On April 16, during a meeting with maritime industry officials, a senior government official confirmed my position, namely, that only payments to designated individuals were prohibited by the order. Nothing in the order prohibited ransom payments to pirates in general.

But the bad news is that the official indicated that vessel owners should consult with OFAC before making any payment where the order “might” apply. Because the pirates demanding ransom presumably don’t give their names (or even aliases such as Blackbeard or the like), the order “might” apply to any proposed payment of ransom to pirates.

The utility of meeting with OFAC in such cases certainly doesn’t outweigh the increased danger to crew lives caused by the consequent delay. This is particularly true given that OFAC is unlikely to agree that it won’t pursue criminal or civil penalties should one of the pirates turn out to be a designated individual.

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Archive for the ‘OFAC’ Category

So Easy Even a Kingpin Can Do It

Two Packages to Sudan Net $5k Fine for KLM

Export Reform Boulder Moves Further Up Mountain

BP Oil Spill Prompts Cuba Embargo Exception

(Ran)Somalia Payments and OFAC

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