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Archive for September, 2007

Sep

26

Washington Times Stumped by OFAC Regulations

Posted by Clif Burns at 9:15 pm on September 26, 2007

Category: OFAC

Rev. The Washington Times attempted to practice export control journalism a few days ago and did not quite cover itself with glory. In an article titled “Legitimate charities snared in terror net,” reporter Cajsa Collin attempts to argue that OFAC improperly seized monies from European charities that were transiting through U.S. banks:

On three separate occasions, the two charitable groups had funds seized under U.S. anti-terrorism laws even though neither is accused of any terrorist connections. While most of the money was returned, some is still being held without explanation.

Yikes. That sounds terrible. Bad OFAC! Shame on you, OFAC! Except when you look at the cases, as reported by Collin, the seizures had zip, zero, nada to do with terrorism and the reasons the funds were blocked are, well, blindingly obvious.

The poster child for the Times‘s fright piece is Norwegian Church Aid. According to the story, Norwegian Church Aid “denied any connection to terrorism and a careful examination of the OFAC lists, which are publicly available on the Treasury Department’s Web site, showed that [Norwegian Church Aid] was [never] listed.” Even so, Collins claims, transfers from the group were seized without cause. Collins two allegedly problematic cases of funds transferred by the group being blocked.

Here’s the first:

The first transaction was going to sponsor an American professor for an AIDS conference in Cuba. The money was confiscated in early 2003 but not returned until late 2005,” said Eigil Schander-Larsen, the financial director of Norwegian Church Aid.

Gee, I wonder why that transaction might have been blocked? Hint: it’s not because the Norwegian Church Aid group was thought to be a terrorist group. No, it’s because it looks like the wire must have referenced Cuba and neglected to reference a specific or general OFAC license.

And here’s the second:

“The second transaction [intended for a YMCA branch in Burma] was confiscated in 2004 and, even though we have sent in the paperwork OFAC requires both by fax and PDF file, we still haven’t heard anything. I sent the last reminder in January 2007,” he said.

Apparently, neither Norwegian Church Aid or the Washington Times reporter has ever heard of the Burma sanctions. Section 537.202 of the Burmese Sanctions Regulations forbids the exportation of financial services to Burma. Financial services are broadly defined so that any transfer of funds from a U.S. Bank to Burma — even a YMCA in Burma — is forbidden and must be blocked.

So, the reason that funds in both cases were blocked had absolutely nothing to do with anti-terrorism laws, as claimed by Collins, but by country-specific OFAC sanctions. The fact that Norwegian Church Aid wasn’t on the SDN list didn’t make blocking the transfers improper.

Hint to Washington Times: next time you do a story on OFAC, call an OFAC lawyer before you go to press and say something silly. There are, after all, more than a few OFAC lawyers here in Washington.

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Sep

25

Burma Shaved Again

Posted by Clif Burns at 9:30 pm on September 25, 2007

Category: Sanctions

Old In his address to the United Nations today, President Bush announced the administration’s intentions to impose new sanctions on Burma and its military regime:

The United States will tighten economic sanctions on the leaders of the regime and their financial backers. We will impose an expanded visa ban on those responsible for the most egregious violations of human rights, as well as their family members.

Aside from telling additional and as yet unnamed Burmese officials and their families that a trip to Disneyland won’t be in the picture for them any time soon, the President’s statement was not altogether clear about the precise sanctions that would be imposed.

Tom Casey, a State Department spokesperson, seemed to be caught up short in today’s daily press briefing by the State Department when reporters pressed for more details on the proposed new sanctions:

To the extent that we have specific names to add or new measures to announce, we’ll let you know.

Translation: “I have no earthly idea.” Elsewhere, Casey seemed to suggest that the list of individuals that would be subject to blocking orders might be expanded.

So what are the possibilities here for tightening the current economic sanctions on Burma. To be sure, as noted, the list of government officials subject to travel bans and subject to blocking orders could be expanded and that seems to be likely to be at least the minimum that will occur. But since the current sanctions aren’t comprehensive, there are other possibilities.

One possibility would be expanding export sanctions. The current sanctions only forbid exports of financial services to Burma. Accordingly, that export ban could be expanded to cover all goods and service subject only to the limits of the Berman amendment, 50 U.S.C. Â§ 1702(b)(3), and the Trade Sanctions Reform Act of 2000 (TSRA). The Berman Amendment prohibits export controls on “informational materials” and TSRA forbids a unilateral sanction against a foreign country covering agricultural products, medicine or medical devices without express Congressional approval.

Another possibility includes prohibition in dealing in Burmese-origin goods and services. That would prohibit dealing in such goods and services even though they had not been imported into, or exported from, the United States. A similar provision is included in the Iranian Transaction Regulations.

If I look into my somewhat cloudy crystal ball, my guess is that the White House will simply expand the lists of Burmese officials subject to blocking and visa bans. But if the White House gets serious about the matter, we could well see an expansion of export bans and a prohibition in dealings in Burmese-origin goods and services.

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Sep

20

Is the DOJ Tilting at Windmills?

Posted by Clif Burns at 9:09 pm on September 20, 2007

Category: OFAC • SEDs

This morning we laid our hands on the criminal complaint, unsealed earlier this week, charging a Dutch aviation parts firm and its owner Rob Kraaipoel with export violations. The underlying violations charged by the criminal complaint are fairly simple. The complaint alleges that Aviation Services International B.V. and it’s owner Rob Kraaipoel purchased various aviation items from U.S. companies and then sold them to customers in Iran without the necessary OFAC license. Additionally the complaint alleges that Aviation Services caused other to make fraudulent statements on Shippers’ Export Declarations (SEDs) as to the end users of items purchased by the company from vendors in the United States.

The story told by the criminal complaint starts with purchases in 2005 and 2006 of audio and video equipment by Aviation Services from New Hampshire-based DTC, Inc. When DTC requested that Aviation Services identify the end user for the equipment, Kraaipoel is alleged to have sent an email to DTC indicating that the Polish Border Control was the end user. This information was then used by DTC’s freight forwarder when it filled out the Shipper’s Export Declarations for these exports. According to the complaint, the Polish Border Control denies having purchased anything from Aviation Services. Subsequently when Aviation Services requested spare parts for these items, it sent an email to DTC that the end user was a company in Cyprus.

Based on these facts, the complaint charges Kraaipoel with two counts of false statements in violation of 18 U.S.C. § 1001(a). These charges are asserted even though Kraaipoel made no representations to any U.S. government official and even though there is no allegation that Kraaipoel knew that his representations as to the end-user would even be provided to the U.S. government. Nor is there any allegation that these items were ultimately exported to Iran or other embargoed country. Indeed, it appears that they ended up in Cyprus instead.

Felony charges under 18 U.S.C. § 1001(a) seem questionable under the facts alleged. A Dutch citizen sends an email to a private individual in the United States and then faces criminal charges in the United States because inaccurate information in that email is provided, without the Dutch citizen’s knowledge, to the U.S. government. Consider also that a reseller of aircraft parts has a legitimate commercial interest in not providing the end-user’s name to his vendor in order to prevent the vendor from cutting him out as the middleman in future transactions. Because of that Aviation Services misidentification of the end user isn’t necessarily suspicious. And since there is no evidence that the equipment wound up in an embargoed country, it’s even more difficult to assert that there was any criminal intent on the part of the Dutch company.

There’s much more to discuss about the complaint. Tomorrow we will look at the remaining counts of the complaint relating to items that were purchased from other vendors and that were allegedly transshipped by Aviation Services to Iran.

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Sep

19

BIS Rules Don’t Consider the Safety of U.S. Contractors in Iraq

Posted by Clif Burns at 10:39 pm on September 19, 2007

Category: BIS

Iraq Bomb Bethesda-based USAID contractor Development Alternatives, Inc (DAI) recently agreed to pay the Bureau of Industry and Security a $7,500 fine for attempted exports in July 2004 of concealable vests, body armor and bomb blast blankets to Iraq without a license. During that time period, DAI was performing a $72 million USAID contract in Iraq to “restore the capacity of small and medium agro-enterprises to produce, process, and market agricultural goods and services.”

There’s no question, of course, that DAI needed licenses here and that BIS had the right to penalize DAI for these attempted exports. And, I suppose that the slight mitigation of the fine by BIS possibly reflected its sympathy that DAI had a legitimate need for these items to protect its employees in Iraq.

But this situation highlights a difficulty confronted by Iraq contractors in dealing with BIS. Unlike DDTC which has an expedited channel for exports of items being used in Operation Iraqi Freedom, BIS has no procedure to expedite exports by contractors of body armor and protective material to be used by their employees in Iraq. I suspect that if BIS had an office in Iraq, it would be much easier to export body armor to Iraq for use by U.S. employees.

UPDATE: Like every blog, we have our very own troll who comes to try to leave a nasty comment every time we say anything even vaguely negative about BIS. Although the troll won’t leave his or her real name or email address, the IP Address from which he comes suggests that he may be in one of the regional OEEs, although this is by no means certain. The troll took issue with my statement that if BIS had an office in Iraq it would be much easier to export body armor there.

Much easier?? Easier for the US Government to outfit it’s employees?? This would NOT be an export if the USG did it!!! C’mon Cliff…be more conversant!!

Trolls like to use lots of exclamation points and question marks for some reason. And the troll, as trolls often do, missed my point entirely.

My point was that if BIS employees were being shot at in Iraq they would be more sympathetic to the plight of private sector U.S. employees in Iraq running the same dangers and might adopt some procedure to expedite those private sector exports. That might be a hard point for our troll to fathom since I imagine that if he were in Iraq and had his own body armor, the plight of other U.S. citizens wouldn’t be of much concern to him (or her): “I got mine, suckas!” or something like that.

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Sep

18

Ninth Circuit Bulldozes the Arms Export Control Act

Posted by Clif Burns at 2:20 pm on September 18, 2007

Category: Arms Export

Doobi Yesterday the U.S. Court of Appeals for the Ninth Circuit upheld the dismissal of a lawsuit filed against Caterpillar by relatives who had been injured when Caterpillar D9 bulldozers were used to demolish homes in the Palestinian Territories. The court ruled that, because of the foreign policy issues implicated by the case, the complaint was subject to the political question doctrine and therefore not justiciable, i.e. not within any court’s jurisdiction.

This ruling was premised on the court’s finding that all the bulldozers had been sold to Israel under the Foreign Military Financing (FMF) program. According to the court:

[T]hese sales were financed by the executive branch pursuant to a congressionally enacted program calling for executive discretion as to what lies in the foreign policy and national security interests of the United States. See 22 U.S.C. Â§ 2751 (stating that the purpose of the Arms Export Control Act, which authorizes the FMF program, is to support â€œeffective and mutually beneficial defense relationships in order to maintain and foster the environment of international peace and security essential to social, economic, and political progressâ€).

Now this might make sense if Caterpillar manufactured an armored or military spec version of the D9 bulldozer. But it doesn’t. The Israeli Army customizes the civilian D9 to its own military specifications and then ironically renames these armored behemoths “Doobi” (Hebrew: ×“×•×‘×™â€Ž; lit. teddy bear). In fact, the U.S. Army has purchased armor kits from the IDF to convert D9s for use in Iraq.

The point of this is that Section 23 of the Arms Export Control Act, which authorizes the FMF program, only covers procurement of defense articles and services. If the D9 bulldozer is not a defense article, then the Ninth Circuit’s reliance on the AECA as a justification for finding that the law suit presents non-justiciable questions of foreign policy is misplaced. And if an unmodified D9 is now considered a defense article, it can’t be exported without a license under section 38 of the AECA, a conclusion that the folks at Caterpillar might find somewhat inconvenient. The Ninth Circuit, however, never looked behind the U.S. Government’s suspect decision to sell these items under the FMF program and, therefore, never saw this possible dilemma.

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