The recent addition by OFAC of two South African individuals and one company to the SDN list illustrates the perils that may face companies engaged in Internet services and commerce. OFAC designated Farhad and Junaid Dockrat, both alleged to be Al-Qaeda financiers, as Specially Designated Global Terrorists. OFAC also designated the company Sniper Africa, in which Junaid Dockrat holds a seventy-percent interest. Sniper Africa, which sells camouflage gear to hunters in South Africa, has a website, and this website is specifically cited in the OFAC designation.

The problem occurs because the domain name for the site, www.africasniper.com, was registered by Tucows, Inc., a U.S.-based domain name registrar. This registration service provided by Tucows permits Sniper Africa to reserve its website address for its own use and also provides the routing service necessary for the domain name to point to web servers designated by Sniper Africa. Typically a name is registered to an individual or company by a completely automated process that takes place over the Internet without any human intervention by the registrar.

Once a company or individual has been designated by OFAC as a Specially Designated Global Terrorist, OFAC regulations §§ 594.406 and 594.407 forbid U.S. companies from providing services, in the United States or abroad, to the designated company. Specifically the U.S. company may not provide:

legal, accounting, financial, brokering, freight forwarding, transportation, public relations, educational, or other services

The provision of domain name registration services to a designated individual appears to possibly run afoul of these prohibitions, potentially subjecting Tucows to substantial civil and criminal penalties. Nevertheless, Tucows continues to provide the domain registration services to Sniper Africa, without which the website would disappear from the face of the Internet.

Tucows provides its domain name services through resellers, but this doesn’t seem to provide a valid defense here. The whois record clearly shows that, although Tucows may be selling the services through a reseller, it is providing the services to the name registrant and not the reseller. Perhaps Tucows might find some solace in this case because the named registrant here is HQ Clothing Enterprises, although the fact that the name of the designated company, the name of the website and the website address are all Sniper Africa suggest that this might not be such a strong defense.

Another possible defense might be that provided by § 594.508 which exempts the provision of “telecommunications” services. That exemption, however, seems to cover only traditional telecommunications services, such as the provision of telephone service, rather than the provision of domain name registration services.

Notwithstanding the possibility that Tucows may have run afoul of OFAC’s Global Terrorism Sanctions regime, it is clear that Tucows is in an awkward position. Companies that provide domain name registration services are not often well-positioned to determine whether the ultimate party to whom the service is provided is on the SDN list or not. The transaction takes place completely over the Internet which provides only limited ability for the registrar to verify the identity of its customer. As the joke goes, you can be anyone you want on the Internet.

OFAC has released its monthly civil penalty report for January. As usual, OFAC seems to be in competition with BIS to provide even less information about penalties imposed by the agency. Only two penalties are listed: one for “an individual” who traveled to Cuba and another for the human resources consulting firm Organization Resource Counselors. According to the report, “ORC imported services from Libya without an OFAC license.”

The OFAC report is typically silent on what services ORC imported from Libya. Frankly, that caused me to wonder as to what services anyone would import from Libya and, worse yet, break the law to do so. It is not like Libya is a hotbed of consultants and service providers. But with a little investigation (and the requisite speculation), I think I have a pretty good idea of what got ORC in trouble (assuming that a fine of $746.35 can really be considered “trouble.”)

One of the services provided by ORC is to advise companies on appropriate compensation levels for expatriate executives. You can see the page describing that service by clicking here. And, it would appear that ORC is offering information on cost-of-living and related data for Tripoli, Libya, information which no doubt had to be provided from Libya and is the imported service at issue.

The page also offers to provide that information for Cuba, which raises the question as to why OFAC might have penalized ORC for paying for someone in Libya to provide that information. Of course, the Cuban Assets Control Regulations provide, in 31 C.F.R. § 515.545, for an exemption for the import and export of informational materials whereas the Libyan Sanctions Regulations did not. An important caveat, of course, is that ORC could import under the Cuban regulations information that was already in existence concerning cost of living in Havana, but it could not pay for a report to be specifically created for its own needs or engage consulting services on these matters.

The Treasury Department announced today the imposition of sanctions on Iran’s fifth-largest state-owned bank, Bank Sepah, because of its financial support of Iranian firms engaged in nuclear and missile proliferation. According to Treasury, Bank Sepah has been involved, among other things, in assisting Iran’s Aerospace Industries Organization (AIO) in arranging payments to North Korea for transfer of missile technology to Iran and in financing a sale of missile components from a Chinese firm to Iran.

Bank Sepah’s participation in these transactions shouldn’t be that surprising given its name. “Sepah” means “army” in Farsi making Bank Sepah, literally, the Army Bank.

Treasury’s action here against Bank Sepah is more saber-rattling than anything else. As a state-owned bank, Bank Sepah and its branches and subsidiaries are already subject to comprehensive restrictions on their dealings with U.S. persons and firms. The effect of the designation will be to restrict Bank Sepah from involvement in the few activities otherwise permissible to Iranian banks, e.g., involvement in non-commercial monetary remissions or the financing of licensed transactions.

In addition to designating Bank Sepah, the Treasury action also designated Ahmad Derakhshandeh, the bank’s managing director and chairman of the board. Why Mr. Derakshandeh was singled out for designation among the many officers and directors of the bank is not clear. Again the designation may be more symbolic than anything else, meaning simply that Mr. Derakshandeh will have to avoid staying in the Prince de Galles, the Intercontinental or any other American-owned hotel on his next trip Paris.

Tucked away in the penalty notices released by OFAC last week was this typically terse and unhelpful entry:

IXTLAN Corporation and Four Individuals Settle Cuban Embargo Allegations: IXTLAN Corporation, Santa Monica, California (“IXTLAN”), and four individuals have agreed to a settlement for $6,322.20 to resolve allegations of violations of the Cuban embargo occurring between February 2002 and May 2003. OFAC alleged that IXTLAN and four individuals dealt in services in which the government of Cuba or a Cuban national has an interest incident to the making of a documentary film. This matter was not voluntarily disclosed to OFAC.

Film buffs (and only a few others) will immediately recognize IXTLAN Corporation as film-maker Oliver Stone’s production company. Stone aficionados (and probably no one else other than a few Cuba crusaders at OFAC) will probably also realize that the documentary involved was Comandante — Stone’s ill-fated 2003 homage to El Presidente Castro. A slated showing on HBO was cancelled by the network, and the film was never commercially released in the United States.

Figuring out what exactly Stone (presumably one of the four unnamed individuals) and IXTLAN were whacked for is not quite so easy. The penalty notice charged Stone and company with dealing “in services in which the government of Cuba or a Cuban national has an interest incident to the making of a documentary film.” If Stone went to Cuba without a general or specific license from OFAC, the violation should have simply been categorized as a travel violation. If he had a specific license or was covered under a general license (as a journalist perhaps), then he would have been permitted to obtain necessary and incidental services from Cuba or Cuban nationals.

Any speculation you have on what was going on here is welcome in the comments section. And saying that Comandante (the film or the dictator) is a stinker doesn’t count.

What happens when a rebel group on the OFAC SDN list lays down its arms, renounces terrorism and joins a government friendly to the United States? If you said they would be removed from the list, you would be wrong. If you said it would result in the U.S. requiring U.S. companies to obtain licenses to deal with the government, you might be right.

In 2003 the Communist Party of Nepal, generally referred to simply as the Maoists, was added to the SDN list. Last week the Maoist rebels reached a peace accord with the government of Nepal pursuant to which they would lock up their weapons and then join an interim coalition government. The United States, skeptical that the Maoists will keep their promise to end violence, has refused to remove the Maoists from the SDN list.

If the Maoists remain on the list, the effect of their joining the government may mean that certain transactions with the government of Nepal may, in effect, be transactions benefiting the SDN-listed Maoists and might, accordingly, require a license. As a result, NGOs in Nepal may now need to obtain OFAC licenses to continue operations in Nepal after implementation of the peace accords. Exports from the U.S. to the government of Nepal or to companies owned by it may be subject to the same restrictions.

A “highly-placed” source told the Kathmandu Post that the U.S. Embassy had requested that OFAC grant licenses to permit NGOs to continue to operate in Nepal when the Maoists join the coalition government on December 1. That source indicated that the grant of the licenses was almost certain.

A similar situation was posed when Hamas, also on the SDN list, became the majority party of the Palestinian Legislative Council of the Palestinian Authority after the January 2006 elections. As a result, members of Hamas hold high-level positions of authority in the government, including the post of Prime Minister. Accordingly, OFAC determined that transactions with the Palestinian Authority would require OFAC licenses and issued a series of six general licenses to permit certain transactions with the Palestinian Authority. These general licenses include a general license permitting U.S. citizens to act as employees of the U.N. in the West Bank and Gaza and another general license permitting in-kind donations of medicine, medical services and medical devices.

Whether or not the Maoist participation in the Nepal government will be analogous to the Hamas situation with the Palestinian Authority is difficult to determine at this time since the final details of the accord between the Maoists and Nepal are unknown. Accordingly, any exporter dealing with the government of Nepal or its state-owned enterprises should exercise caution until the situation becomes clear — both as to the level of the Maoist’s participation in the coalition government and as to OFAC’s response to such participation.