Archive for the ‘Sanctions’ Category

Jan

29

Another Reason not to Hire the Russian Mob

Posted by at 11:09 pm on January 29, 2018
Category: OFAC • Sanctions • SDN List

Hotel Vesna via https://images.trvl-media.com/hotels/5000000/4730000/4724200/4724109/4724109_48_d.jpg [Fair Use]This story is on some month-old news that I missed at the time of the announcement. But without much else going on right now, I thought it worthy of a belated mention. Back in December, OFAC designated Thieves in Law («Вор в закoне»), a Russian organized crime group, under the agency’s Transnational Criminal Organization Sanctions Regulations (“TCO Sanctions”). The Thieves in Law apparently originated in the Russian gulags after the Russian Revolution. Unlike the Mafia, you could not belong to the group unless you had already been in jail. And like the Boy Scouts, they have their own code of conduct which, unlike the Boy Scout Code, forbids marriage and work. They sound like The Lost Boys in Peter Pan, except with tattoos and machine guns.

On one level, it seems somewhat odd to designate an organized crime organization since it is more a concept than a legal entity. It is not like the Thieves in Law own property, want to open a checking account for the group, or want to enter into legal contracts (as opposed to, say, the hit “contracts” often entered into by criminal gangs). Designating an unorganized group is rather like designating, say, the Beliebers, although on further reflection I might actually be completely in favor of blocking the Beliebers.

Of course, at the same time that OFAC designated Thieves in Law, it also designated some of the groups more visible adherents and supporter, which seems more logical since they will own property that can be blocked and may seek to do business with others. As a result, the Vesna Hotel and Spa, which is in Sochi and which is owned by Ruben Tatulian, was also blocked and added to the SDN List. Tatulian was designated for allegedly providing material support to Thieves in Law.

Although I doubt many Americans are traveling to Sochi these days, this designation might create a trap for unwary travelers. Executive Order 13581, which serves as the basis for the TCO Sanctions, was promulgated under the International Emergency Economic Powers Act, meaning that the travel exemption in section 1702(b)(4) of that Act would apply.  The travel exemption permits “any transactions ordinarily incident to travel to or from any country.” It seems to me that, even though the exemption would on its face cover travel by U.S. persons which involved staying in that hotel, it could also be argued that staying at that hotel is not ordinarily incident to travel to Russia.  This would be because there are plenty of other places to stay in Sochi not to mention within Russia. Moreover, a broad reading of the travel exemption would completely negate the designation of the hotel, so there is a good chance that OFAC would take the position that the exemption would not apply.

Permalink Comments (1)

Bookmark and Share


Copyright © 2018 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Feb

23

Federal Judge Protects Banks from Injured Sailors and Widows

Posted by at 5:15 pm on February 23, 2017
Category: OFAC • Sanctions • Sudan • Terrorism Risk Insurance Act

Image viahttps://commons.wikimedia.org/wiki/File:INTEL-COGNITIVE-Cole.jpg [Public Domain]A recent decision by a federal district court in New York prohibited sailors and their families holding a $314 million judgement against Sudan from collecting any of the judgment from funds that had been wired by a Sudanese bank to various other banks and that were then blocked under the Sudanese Sanctions Regulations.  The judgment arose from Sudan’s participation in Al Qaeda’s bombing of the U.S.S. Cole on October 12, 2000.  Instead, now that the Sudanese Sanctions have been lifted, those funds will go to the banks and not to the sailors and their families.

The decision is premised on a highly questionable reading of section 201(a) the Terrorism Risk Insurance Act. That section permits victims of terrorism to execute judgments arising from a terrorist act “against the blocked assets of that terrorist party,” including the blocked assets of “any agency or instrumentality of” that terrorist party.

At issue were funds transferred by El Nilein Bank.  The bank was an instrumentality of the Sudanese government when the funds were blocked, which is why they were blocked in the first place, but not at the time the plaintiff sought to attach the assets. The court held that the TRIA did not apply because El Nilein was not an agency of the Sudanese government at the time the plaintiffs attempted to attach the funds and because the blocked funds, under New York law, were the property of the blocking bank and not El Nilein.

Oddly, the court reached these conclusions without even citing the definition of “blocked assets” in section 201(d)(2) of the TRIA, a definition which would seem to mandate the exact opposite conclusion.

The term “blocked asset” means— (A) any asset seized or frozen by the United States under section 5(b) of the Trading With the Enemy Act (50 U.S.C. App. 5(b)) or under sections 202 and 203 of the International Emergency Economic Powers Act (50 U.S.C. 1701; 1702)

As readers of this blog know well, OFAC takes the position that assets can be frozen under IEEPA even if they are not legally owned by the blocked party and are legally owned by another party. It is sufficient that the blocked person have some interest, direct or indirect, including a contingent interest. So an asset can be a “blocked asset” of a party even if it is not the property of that party.   Moreover, under the court’s analysis, a wire blocked by an intermediate bank can never be levied against under TRIA unless the intermediate bank was itself a blocked party — an absurd result that Congress never could have intended.

This definition of “blocked asset” also is inconsistent with the Court’s idea that the blocked assets could not be seized because Nilein Bank was not an agency of Sudan at the time the plaintiffs sought to attach the blocked assets. The definition is, significantly, in the past tense. As a result, under this definition and under OFAC rules, the wires did not become unblocked when Nilein Bank was allegedly privatized. The blocked funds did not cease being the “blocked assets” of an agency of Sudan because of that privatization; they would only cease to be such blocked assets when they were unblocked. Nor is their any conceivable reason why Congress would want to create, as the Court did, a class of blocked assets of unblocked parties that are somehow exempt from the TRIA.

Permalink Comments Off on Federal Judge Protects Banks from Injured Sailors and Widows

Bookmark and Share


Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Jan

24

OFAC Designation of Putin’s Spy Agency May Trip Up U.S. Exports

Posted by at 9:47 pm on January 24, 2017
Category: BIS • Encryption • OFAC • Russia Sanctions • Sanctions

Vladimir Putin via http://en.kremlin.ru/events/president/news/27394 [Fair Use]The recent OFAC sanctions on Russia’s FSB né KGB, which is the Kremlin’s spy agency, may have unintended consequences. According to this article on the Russian website by my friend Иван Ткачёв (Ivan Tkachev) the FSB, besides doing typical spy things, is also responsible for overseeing the importation of encryption devices into Russia. This shouldn’t come as a big surprise since the NSA, our very own spy agency, has its nose in the encryption export business as anyone who has ever filed an annual self-classification report or a semi-annual sales report for encryption products knows perfectly well.

For items where encryption is a primary function, an FSB approval of the product is necessary prior to import. For items where encryption is ancillary (such as mobile phones, laptops, etc.) notification must be given to the FSB. Clearly a request for approval filed by a U.S company with the FSB is now forbidden. Even a notification for ancillary encryption products may be problematic.

A prior designation of FAU Glavgosekspertiza Rossii, a Russian federal agency that it is required to approve construction project designs, created similar unintended consequences and led OFAC, on December 20, 2016, to issue a general license permitting U.S. companies to seek reviews from FAU Glavgosekspertiza Rossii for certain construction projects in Russia. Perhaps a general license will be issued to permit filing these encryption notices and approval requests with the FSB, but there is no telling when at this point.

The other issue which may occur and which would require action by the Bureau of Industry and Security is that the FSB was also added to the Entity List. If the notifications or approval requests contain any technology subject to the EAR, a BIS license is required. It seems likely that this will be the case given the broad definition of technology in the EAR unless all the information in the documents supplied to the FSB has been “published” as defined in section 734.7 of the EAR.

 

Permalink Comments (2)

Bookmark and Share


Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Dec

7

Economic Sanctions and War

Posted by at 8:08 pm on December 7, 2016
Category: Sanctions • Trading with the Enemy Act

via https://en.wikipedia.org/wiki/National_Pearl_Harbor_Remembrance_Day#/media/File:Pearl_harbour.png

As the year (and the current administration) draws to an end, there has not been much news on the export front.  So, I’m using today, which is Pearl Harbor Day, to raise the question as to whether U.S. sanctions on Japan for its aggression in China were effective at anything other than forcing the Japanese to attack the United States.   Economic sanctions are usually seen as a diplomatic alternative short of war without remembering that, at least on one occasion, many think economic sanctions may have precipitated war.

In 1939 the United States, concerned about Japanese aggression in China, terminated the 1911 commercial treaty with Japan, which laid the groundwork for cutting of exports to Japan. On July 31, under the authority of the Export Control Act passed earlier that month, exports of fuels, lubricant, certain metals  to Japan were prohibited.   Effective October 16 of that year, exports of scrap iron and steel to Japan were cut off.  Finally, on July 26, 1941, Roosevelt, utilizing the provisions of the Trading with the Enemy Act, froze all Japanese assets in the United States.

These actions had a significant impact on Japan.  An intercepted and decrypted cable between Foreign Minister Teijiro Toyoda  to Ambassador Kichisaburo Nomura on July 31 said this:

Commercial and economic relations between Japan and third countries, led by England and the United States, are gradually becoming so horribly strained that we cannot endure it much longer. Consequently, our Empire, to save its very life, must take measures to secure the raw materials of the South Seas.

The economic impact of the embargo forced Japan to seize the missing resources and the U.S. naval presence in the Pacific was seen by them as something that could hinder that.  That is the germ of the argument that in the case of Japan sanctions may have provoked war rather than deterred it.

Here’s an article with an opposite view.  It argues that Japanese aggression caused the sanctions.

I think the truth is somewhere in the middle of these two arguments. Sanctions alone did not force Japan to war. It was probably headed down that road prior to the imposition of economic sanctions. But it certainly was a factor that increased the chance of war and accelerated its onset.

Permalink Comments (1)

Bookmark and Share


Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Sep

6

Bizarre Sanctions Battle Brews in the Bayou

Posted by at 9:34 am on September 6, 2014
Category: Economic Sanctions • OFAC • Sanctions • SDN List • Venezuela

By User:Lunarsurface (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html), CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/) or CC-BY-SA-2.5-2.0-1.0 (http://creativecommons.org/licenses/by-sa/2.5-2.0-1.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ACitgo_sign_and_Yawkey_way.jpg

With the calendar turning to September, Sen. Mary Landrieu will be displayed prominently in election media coverage as an incumbent in the proverbial hot seat.  The most intriguing fodder her opponents have used against her has been her curious opposition to the Venezuela Defense of Human Rights and Civil Society Act of 2014.  The House passed its version by voice vote in May, but the Act has stalled in the Senate principally because Landrieu’s opposition has derailed others from bringing the Act to vote through unanimous consent.

The Act includes sanctions against individuals and entities associated with the Venezuelan government that the President determines committed, directed or “materially assisted, sponsored, or provided significant … support for” those who have committed or directed human rights abuses against anti-government protestors in that country.  Like many similar sanctions bills, Congress would give the President wide discretion in determining whether persons meet standards like “materially assisted” or provided “significant” support.  The Act would certainly not require the President to designate any company affiliated with the Venezuelan government as an SDN and, as a result, block their U.S. assets.

Sen. Landrieu, however, has opposed the bill out of fear that 2,000 workers at a Citgo oil refinery in Louisiana may be at jeopardy.  She has said that “once a simple sentence that protects these hard working Louisianans is added to the bill, I will be happy to support the legislation.”  So, what would Sen. Landrieu’s “simple sentence” look like?  It can’t possibly be a carve out for 2,000 workers at a Louisiana Citgo refinery; then every member of Congress with a Citgo presence in their state would want similar protection for their constituents.  It can’t possibly be a carve out to protect any U.S. companies owned by a Venezuelan parent, like Citgo is; then the sanctions would be bereft of any heft to affect possible change in Venezuela.

This week, Sen. Marco Rubio entered the fray in a letter to Sen. Harry Reid to ensure the Act is brought to the Senate floor for a vote over Sen. Landrieu’s opposition.  In his letter, Sen. Rubio described the Act as “target[ing] individuals only and pose[] no threat to American jobs or Venezuelan firms.”  Not so fast, Marco, the Act includes sanctions against “persons.”  Someone forgot to tell Sen. Rubio that every OFAC sanctions regime defines persons to mean individuals and entities.  Someone also forgot to tell him about the three Citgo storage facilities, hundreds of gas stations and thousands of affiliated jobs the company has in Florida.

One upshot of this situation is that members of Congress don’t understand how U.S. economic sanctions work.  It is odd that Sen. Landrieu has stuck her political neck out in a situation where the President would be the one under the Act who would have to designate Petróleos de Venezuela, Citgo’s Venezuelan parent, as an SDN if he determined it met the conditions under the Act.  Doing so would not be a decision taken lightly and would have repercussions beyond just Louisiana (ask any Boston Red Sox fan about what would happen to the Citgo sign above left field).  It is also odd that Sen. Rubio would put his name to a letter that declares no U.S. jobs would be threatened by these sanctions.  The fact is that threat remains under the Act, no matter how unlikely, and the President, not Congress, would be in control of imposing sanctions.

A simple moral to this story is a classroom adage: Read Carefully and Think Critically.  Here’s hoping politicians start doing a little bit more of both.

Clif adds: In my somewhat more cynical view, the likelihood that members of Congress will ever “Read Carefully and Think Critically” is exactly equal to the likelihood that I will ever debut as Wotan in a production of The Ring Cycle at the Met.

Permalink Comments Off on Bizarre Sanctions Battle Brews in the Bayou

Bookmark and Share


Copyright © 2014 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

« Older Entries