ABOVE: Khartoum Hilton

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Yesterday, the Office of Foreign Assets Control (“OFAC”) released its monthly rundown of recent civil penalties. This month’s winner of the coveted highest penalty award goes to Hilton International, a subsidiary of Hilton Worldwide, which agreed to pay $735,407 to OFAC in connection with the chain’s operation of two Hilton hotels in Sudan between June 2002 and February 2006. The alleged violation was self-disclosed by Hilton International in connection with due diligence conducted as part of Hilton’s acquisition, on February 23, 2006, of Hilton Group plc, a British company which, prior to the acquisition, owned and operated all Hilton hotels and resorts outside the United States.

After the disclosure, OFAC alleged that Hilton International had committed 142 violations of the Sudanese Sanctions Regulations. Because Hilton waived the 5-year statute of limitations, the applicable penalty was $11,000 per violation (as opposed to the higher penalty of $250,000 per violation which became effective on October 16, 2007). This meant a maximum penalty of $1,562,000, which OFAC agreed to reduce by slightly more than 50 percent.

The settlement here is about as smelly as, allegedly, the Khartoum Hilton itself. (More, later in this post, on these allegations in unfavorable reviews of the hotel.)

First, during the time period of the alleged violations, the Sudanese hotels were owned and operated by Hilton Group plc, a British company and, more importantly, not a “U.S. person” as defined by the section 538.515 of the Sudanese Sanctions Regulations. Only U.S. persons are subject to the prohibitions of the Sudanese Sanctions Regulations, most notably the prohibition of section 538.205 which forbids the export of goods, technology or services by U.S. persons to Sudan. If Hilton continued to operate the hotels in Sudan after the acquisition in February 2006 of Hilton Group plc, then section 538.205 would apply. But that’s not what is alleged here. There must be something else going on here that isn’t described in the OFAC release to explain why Hilton would agree to such a large fine in this situation.

Even if a violation occurred because of the operation of the hotels by Hilton Group plc, one can only wonder as to how OFAC concocted 142 violations exactly. Since the charges cover a period of approximately three years and 8 months, that’s one violation for each 6.4 days of operation of each hotel. Where did that come from? Why not find a separate violation for each month or year of operation? Heck, why not go for broke and allege that each minute of operation was a separate violation? Although the hotels were alleged to be miserable flea-traps, it’s doubtful that the hotels only had 142 customers or nights of occupancy during the relevant period, so that can’t be the basis for an allegation of exactly 142 violations. Given that the International Emergency Economic Powers Act, which establishes the applicable penalty, doesn’t provide guidance on how to calculate the number of violations here, it seems hard to justify an allegation of any more than two violations, one for each of the Hilton Hotels in Sudan.

On a lighter note, while researching this post I ran across some customer reviews of the Khartoum Hilton which were more than a little harsh and described the hotel as, variously, mosquito-infested, dirty, shabby, run-down, smelly and “grooty,” whatever that is. One highly amusing favorable review could only have been left by the hotel itself:

Hilton Hotel Khartoum is one of the best hotel’s location some gests can get board according to the government regulation and the Legislations , this hotel is good for hunny moons quiet better visit Sudan between Dec-March . for better outdoor activities clean . people are super nice limeted female workers due to culture but guys deliver outstanding services . all nice and Ibelieve its getting better .no hilton has location better than that arround the globe

I don’t know about you, but I’m packing my bags for Khartoum and checking into the Hilton for an extended stay.

Robert J. Cabelly, a D.C.-based lobbyist, has been indicted for violations, among other things, of the International Emergency Economic Powers Act in connection with lobbying and other activities he was alleged to have engaged in on behalf of the Government of Sudan. A copy of the indictment can be read by clicking here.

Under the Sudanese Sanctions Regulations, lobbying services can only be provided to the Government of Sudan under a license granted by the Office of Foreign Assets Control. The odd thing about this case is that Cabelly had applied for and obtained a license to provide such lobbying services. The violations alleged by the indictment related to services performed before and after the period of validity of the license as well as services performed during the validity of the license that allegedly exceeded the scope of the license.

In May 2005, Cabelly applied for an OFAC license seeking permission to provide “strategic counsel, public relations and government relations” services to Sudan. The application specifically noted that Cabelly would not be providing advice on trade and investment promotion “which is not appropriate at this time.” On July 11, 2005, OFAC issued the license which specifically stated that it did not authorize activities which involve “commercial projects in Sudan or any other activities which would benefit Sudan or persons located therein.”

The indictment’s allegation of pre-license activities seems to find its sole support in an email sent by Cabelly to Sudan two days after the license was issued. That email asked Sudan for a payment of $70,000 to compensate him for the past four months of work provided to the Government It seems reasonable to assume that Cabelly may have erroneously believed that a license was necessary only to cover payment for his services. This would explain why Cabelly waited until after the license was granted to discuss the compensation issue.

The activities during the validity of the license appear to involve, among other things, Cabelly’s assistance to various investors and companies interested in investing in oil exploration and production in Sudan. One of these companies, identified in the indictment only as “French Oil Company — Soudan” is thought to be, and likely was, French oil giant Total SA.

Once Cabelly’s activities in Sudan became known, he came under pressure to stop providing services to Sudan. A 2006 Washington Post article details leaflets that were stapled to trees in Cabelly’s Capitol Hill neighborhood taking him to task for his representation. Representative Frank Wolf got out his pitchfork and torch and joined the crowd of protestors, going so far as to write Condi Rice to complain about Cabelly being given the license to represent Sudan. Wolf was apparently unaware that the license came from OFAC, which is part of the Treasury Department, and not from the State Department. (Just because someone makes laws doesn’t mean that he actually has to understand them.)

In February 2007, Cabelly informed OFAC that his contract with Sudan was over and requested that his OFAC license be terminated. Even so, the indictment alleges that Cabelly continued to provide services to the Government of Sudan and to companies doing business in Sudan, including activities to assist Sudan Airways to acquire an aircraft from a “Bahrain aircraft acquisition company.”