Archive for the ‘Sanctions’ Category


Jun

16

It’s A Small World After All, Even For Economic Sanctions


Posted by and at 8:02 pm on June 16, 2014
Category: ChinaEconomic SanctionsEURussia SanctionsSanctionsSudan

It's A Small World by Darren Wittko https://www.flickr.com/photos/disneyworldsecets/2767829714/ CC BY 2.0 [https://creativecommons.org/licenses/by/2.0/] (cropped)G-7 countries recent meeting in Brussels understandably grabbed global headlines for their unified message that they “stand ready to intensify targeted sanctions and to implement significant additional restrictive measures to impose further costs on Russia should events so require.”

While sanctions imposed by G-7 countries, as well as the EU, drive the engine of global sanctions enforcement, there are almost 200 other countries in the world and many of them want to have their position on sanctions known.  Last week, for example, Serbian President Tomislav Nikolić surprised no one on Earth (or anywhere else for that matter) when he told Serbian media, “It’s impossible to imagine Serbia imposing sanctions on Russia.”  Of course, Nikolić’s pronouncement is hardly going to cause the E.U. to rethink, even for a fraction of a nanosecond, its position on Russian sanctions.  On the other hand, the E.U. sanctions may cause Serbia, given that Russia is one of it’s largest trading partners, to rethink the wisdom of its application to become a member of the E.U.

Besting Serbia’s population by over a billion, China is emerging as a critical Russian ally and the most important country that is not imposing sanctions against it.  As with Serbia, economic self-interest and the volume of China’s trade with Russia may be at the heart of this.  In fact, reports on the recent $400 billion, 30-year deal for Gazprom to supply natural gas to China suggest the deal would be based on a ruble-yuan exchange and bypass Western financial systems altogether.

With developed countries like China and Serbia using economic self-interest to justify trading with Russia despite its shenanigans in Ukraine, some developing countries may be acting against their own economic self-interest in imposing sanctions to deal with regional conflicts.  Reuters reported this week, for example, that members of the Intergovernmental Agency for Development, an East African trade group made up of Djibouti, Eritrea, Ethiopia, Kenya, Somalia, South Sudan, Sudan and Uganda, have threatened sanctions against South Sudan if warring factions do not cooperate to end conflict in that country.  The United States imposed sanctions in early May against military leaders involved in the conflict, but they likely will provide no meaningful impact.  However, when everyday trade with your neighboring countries starts to become restricted, sanctions are far more likely to achieve the goal of ending conflict.  If East African sanctions succeed against South Sudan while E.U and U.S. sanctions have no impact on Ukraine,  then we will certainly have a situation where it’s the mice that roar while the elephants squeak.

Sanctions news runs on the front page when it involves the United States and Europe but also on the back pages as it involves the rest of the world.  You have to read the whole paper to make sure you have the full story.

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Copyright © 2014 Clif Burns. All Rights Reserved.
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May

30

Having Baggage Is Not A Crime


Posted by at 5:10 pm on May 30, 2014
Category: Criminal PenaltiesDoJEconomic SanctionsIran SanctionsSanctions

Please Report Any Unattended Luggage by Kenneth Lu https://www.flickr.com/photos/toasty/2619866851/in/photolist-DLUFQ-5z9X21-K3Ta2-4Zvv98-JHpPQ-AEW4c CC BY 2.0 [https://creativecommons.org/licenses/by/2.0/] (cropped)

A federal jury in Ft. Lauderdale, Florida recently acquitted Patrick Campbell on charges that alleged he attempted and conspired to violate U.S. economic sanctions against Iran.  As we reported at the time of his arrest last year, Campbell, who is from Sierra Leone, was detained at JFK Airport as soon as he cleared customs and was found to have uranium inside shoes packed in his luggage.  Prior to his U.S. arrival (and immediate arrest), according to the government, Campbell had been communicating with an undercover ICE agent in Ft. Lauderdale in order to arrange the sale of uranium from Sierra Leone to Iran.

We surmised at the time of his initial charging that Campbell had arguably done nothing in the United States that constituted an attempt or conspiracy to commit a U.S. sanctions violation simply by entering the United States.  Because the Iran Transactions and Sanctions Regulations cover only exports from the United States (which this was not) or exports by a U.S. person (which Campbell was only by virtue of being physically present in the United States), he could only be convicted for what he actually did while in the United States.  The Justice Department tested those boundaries, and a jury wasn’t convinced.  A great deal of credit should be given to Campbell’s attorney, Richard Serafini.

We spoke with Mr. Serafini about the case and the arguments he made to the jury in Campbell’s defense.  Mr. Serafini said that he emphasized to the jury that the Justice Department had not shown beyond a reasonable doubt that Campbell had done anything with the specific intent to violate U.S. sanctions.  In addition, he said that he told the jury that Campbell should not be considered to have committed any criminal acts as a U.S. person simply because he was lured to enter the United States by law enforcement.  Mr. Serafini said that he finally impressed upon the jury that, regardless of any criminal act that may have been committed, Campbell had been entrapped by the ICE agent to do so.

While no one can know what may have led the jury to acquit, it is certainly noteworthy that one or more of those arguments possibly resonated with jurors.  The jury instructions shed a little more light in that the court explained an attempt must be “more than simply preparing” and have a “substantial step … that would normally result in committing the offence.”  What did Campbell do in the United States to meet that requirement?  Having uranium in your luggage could be seen by a jury as “simply preparing.”  As for conspiracy, the jury rightfully asked the court during deliberation whether the undercover agent could be part of the conspiracy.  The court responded simply, “No, a government agent cannot be a co-conspirator.”  In sum, it looks like the facts didn’t fit the crime and a well-marshaled defense portrayed that.

In so far as Campbell’s case has a bearing on subsequent sanctions prosecutions, we may have been clairvoyant in our warning last September:

As the stretch of sanctions includes more foreign individuals and their subsequent imprisonment, the United States may find itself retreating from expanding prosecution after a successful defense or even international criticism that U.S. sanctions as so applied are too attenuated for a reasonable interpretation of the sanctions’ purpose or the laws themselves.

Campbell’s acquittal sends the Justice Department back to the drawing board to reconsider future prosecutions based on undercover operations targeting foreign persons and inviting them to the United States for their unbeknownst arrest.  As we reported in the case of a Russian caught up a similar operation last year, the resulting arrest stirred U.S.-Russian diplomatic waters and resulted in his return to Russia after pleading guilty.  Be careful what you do on the Internet, and that goes for the government too.

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Copyright © 2014 Clif Burns. All Rights Reserved.
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May

19

There’s More Than One Way to Sanction a Russian under U.S. Sanctions


Posted by at 9:09 pm on May 19, 2014
Category: Economic SanctionsOFACRussia SanctionsSanctionsSDN ListSyria

By Rakkar at en.wikipedia (Transferred from en.wikipedia) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ABashar_and_Asmaa_al-Assad_in_Moscow.jpg
ABOVE: Assad in Moscow

OFAC recently announced the designation of Russian bank Tempbank and one of its Russian officials, Mikhail Gagloev, to its Specially Designated Nationals List “for providing material support and services to the Government of Syria.”  According to OFAC, Tempbank “arranged to deliver millions of dollars in cash” to a Russian airport for pickup by “cash couriers” for the Central Bank of Syria and Gagloev “personally travelled to Damascus to make deals with the Syrian regime on behalf of Tempbank.”  Six senior officials of the Syrian government and two Syrian companies were also designated for apparently unrelated reasons.

Not surprisingly, the Russian Foreign Ministry responded that Russia believes the designations of Tempbank and Gagloev are “absolutely unacceptable” and “would like to remind the U.S. side yet again that the language of sanctions is useless and counterproductive.”  To the Russian government, the basis for which a Russian individual or entity is designated as a U.S. sanctions target is, of course, irrelevant.  Russia can, moreover, understandably disregard the reason behind OFAC’s designations because the resulting sanctions against the identified Russians are effectively the same.

In light of the designations of Tempbank and Gagloev, it is reasonable to suspect that OFAC may start designating more Russians to the SDN List for reasons unrelated to Ukraine to augment the U.S. sanctions target range.  Indeed, it is peculiar that no one had been designated to the SDN List under sanctions against Syria for almost a year until this latest development.

Perhaps, OFAC is changing course from designating Russians to the SDN List for shaky reasons like being part of Putin’s “Inner Circle,” as was the justification given for targeting the likes of Gennady Timchenko, Arkady Rotenberg and Boris Rotenberg.  Targeting someone for sanctions just because he is a Putin crony may be enough under IEEPA’s broad authorization to the President, but doing so has not been met with the same enthusiasm by others, namely the EU.  The EU has, for sure, its own reasons not to tread into designating Russian businesses and businessmen with substantial ties and influence on European markets.  However, the result, which we recently pointed out, is that U.S., EU and even Canadian sanctions relating to Russia are becoming quite the confusing patchwork to follow.

 

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

May

13

Russian Sanctions Creep


Posted by at 6:39 pm on May 13, 2014
Category: Economic SanctionsEURussia SanctionsSanctionsSDN List

By President of Russia [CC-BY-3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File:Volodin_V_V.jpeg?uselang=ru
ABOVE: Vyacheslav Volodin


The EU yesterday added new names to its sanctions list.  The latest additions include Russian President Putin’s deputy chief of staff, Vyacheslav Volodin, and Vladimir Shamanov, the commander of the paratroop unit that allegedly took part, despite Russian denials, in the annexation of Crimea.

Also added were a number of Crimean companies:  One is Chernomorneftegaz, a Crimean gas company; another is Feodosia, a Crimean oil supplier.

Volodin but not Shamanov and Chernomorneftegaz, but not Feodosia, are on the U.S. sanctions list. Differences like these suggest incoherence and, at the least, create compliance challenges for multinationals.

Being on a U.S. or EU sanctions list means that the assets of the listed person are frozen and dealings with them by those subject to U.S. or EU jurisdiction are prohibited.

Whether these sanctions will deter further Russian involvement in the Ukrainian crisis is anyone’s guess.  The reluctance to impose so-called sectoral sanctions, that is, prohibitions on dealings with anyone in a given sector like oil and gas, exposes concerns about the double-edged sword of sanctions:  They truly cut both ways.

Individuated sanctions are, nonetheless, a headache for companies subject to U.S. and EU law because of the broad-based shadow lists of those subject to sanctions under the U.S. rule freezing the assets of any company that is 50% or more owned by a designated person and the EU rule  freezing any assets “controlled by” a designated person.

Shadowing the shadow list means that simple screening of listed persons is not enough.

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

May

8

“Too Big” May Be the Perfect Size for U.S. Sanctions Enforcement


Posted by at 5:09 pm on May 8, 2014
Category: Criminal PenaltiesDoJEconomic SanctionsOFACSanctions

By Laurent Vincenti (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ALaurent_Vincenti_BNP_Paribas.jpg

The Washington Post this week reported on U.S. Attorney General Eric Holder’s Monday video message reiterating that no company can be “too big” to be “immune from prosecution.”  The Post went on to report, as others have, that the Justice Department, in keeping with its own edict, is “getting closer to wrapping up an investigation” of French bank BNP Paribas, “which allegedly allowed millions of dollars from [Cuba, Iran, Sudan and other countries] to illegally move through the U.S. financial system.”

As the Post partially excerpts, BNP’s 2013 annual financial report stated that BNP “identified a significant volume of transactions that could be considered impermissible under U.S. laws and regulations including, in particular, those of the Office of Foreign Assets Control (OFAC).”  The report went on to state the following:

The Bank has presented the findings of this review to the U.S. authorities and commenced subsequent discussion with them.  Although the amount of financial consequences, fines or penalties cannot be determined at this stage, the Bank has, in accordance with [International Financial Reporting Standards] requirements, recorded a provision of USD 1.1 billion (EUR 0.8 billion) in its financial statements for the fourth quarter of 2013.

Because BNP claims there “have been no discussions” with U.S. authorities as to the amount of any penalty, “[t]he actual amount [of a penalty] could thus be different, possibly very different, from the amount of the provision.”  (I am sure BNP hopes “different” means “less.”)

A set-aside of $1.1 billion is, of course, remarkable for costs associated with a sanctions penalty, but BNP’s situation should sound very familiar as OFAC, in partnership with the Justice Department, has not shied away from going after “too big” banks for sanctions violations.  Banks that have settled OFAC enforcement actions with significant penalties chronologically over the last few years is a who’s who in the global banking community: Royal Bank of Scotland (over $33 million), HSBC ($375 million), Standard Chartered ($132 million), ING ($619 million), JP Morgan Chase (over $88 million), Barclays ($176 million), Lloyds TSB ($217 million) and Credit Suisse ($536 million).

What must not be lost in any action against BNP or other banks is what this means for everyone else.  With credit to OFAC, the global banking system has become an effective deputy for U.S. sanctions enforcement.  Banks hawkishly review activity transiting through it with sophisticated software and a discretion erring on the side of caution if anything, in the words of BNP, “could be considered impermissible.”  The trickle-down effect is that any company thinking about a U.S. dollar transaction, which will almost certainly transit a U.S. correspondent account, has to ensure itself that its transactions are free and clear of U.S. sanctions violations unless it is willing to risk having funds blocked in the United States.

Although it is right to observe that OFAC has preferred of late to hunt big game, OFAC has astutely turned the game into successful hounds.

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