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Archive for July, 2010

Jul

20

BIS Adopts Final Rule on Crime Control Devices

Posted by Clif Burns at 10:04 pm on July 20, 2010

Category: BIS

Electric Chair Last week the Bureau of Industry and Security (“BIS”) adopted, with a few minor revisions, a rule that it had proposed in August 2009 imposing new controls on execution equipment, torture devices, law enforcement restraint devices and law enforcement striking weapons. This blog reported on the proposed rules here.

One of the most significant changes between the proposed rule and the final rule is its treatment of shock sleeves, stun cuffs, and shock belts. The proposed rule would have added shock sleeves to ECCN 0A983, which covers torture implements, stun cuffs to ECCN 0A985, which covers discharge devices, and did not address shock belts at all. In the final rule, all three devices are classified as ECCN 0A982, which covers law enforcement restraint devices. BIS apparently decided that shock sleeves have some legitimate law enforcement use and therefore should be classified under ECCN 0A982, which under EAR Â§ 742.7, has a licensing policy under which license applications are “generally … considered favorably on a case-by-case basis unless there is civil disorder in the country.” Torture implements under ECCN 0A983, on the other hand, are subject to a general policy of denial under EAR Â§ 742.11.

The final rule also added a clarifying note to ECCN 0A982 which covers law enforcement restraint devices. The note points out that the ECCN doesn’t cover child automobile safety seats or seat belts. Although an unobjectionable clarification, somebody was really thinking outside the box when thinking that child seats might be seen as law enforcement restraint devices. Frankly, at least if 4-year-olds are to be believed, those seats would be more adequately classified as specially designed implements of torture.

One commenter on the proposed rule stated that ECCN 0A981, which covers equipment designed for the execution of human beings, should also cover parts for such equipment. BIS wisely decided to reject this suggestion stating,

Identifying parts that may be appropriate for an export license requirement without imposing an export license requirement on general parts that, although usable in equipment
designed for the execution of human beings, have many other uses as well would require both research by BIS and public comment.

That seems just a long way of saying that BIS isn’t interested in getting involved in licensing the export of ropes.

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Jul

18

OFAC Nails UN Bank For Dealing With Cuban Diplomats to the UN

Posted by Clif Burns at 11:13 am on July 18, 2010

UN HQ The latest monthly release of civil penalty information by the Office of Foreign Assets Control (“OFAC”) describes a penalty “settlement’ with the United Nations Federal Credit Union, which agreed to pay $500,000 to settle charges that the UNFCU “dealt in property in which Cuba or a Cuban national had an interest’ — as they quaintly say it in OFAC-speak. In ordinary English this means that UNFCU engaged in banking transactions with Cubans, likely with Cuban diplomats to the United Nations.

Of course, we have to say the transactions were likely with Cuban diplomats because, given OFAC’s longstanding aversion to providing anything but the most minimal details about its penalty settlements, the notice leaves out such crucial details as whether the Cubans involved were diplomats, non-diplomatic Cuban officials, ordinary Cubans, or herds of Cuban cattle. Nor were the types of transactions involved mentioned or their amounts.

In this case, the absence of details makes OFAC look foolish by suggesting the possibility that OFAC is penalizing the UNFCU for providing banking services to Cuban diplomats posted to the U.N. Apparently, such diplomats need to travel with suitcases of Cuban pesos and pay for their meals in the U.N. cafeteria with their national currency.

If that’s what OFAC is doing, it would be in direct contravention of the U.N. Headquarters Agreement, particularly given that the UNFCU is located in the U.N. Headquarters area. Article V, Section 15(4) of that agreement provides that even with respect to diplomats from countries not recognized by the United States, such as Cuba, the U.S. must accord them the same privileges and immunities as other diplomats while within the headquarters district. If a diplomat from France can bank at the UNFCU located in the U.N. Headquarters district, so can Cuban diplomats, no matter how much OFAC hates Castro and his diplomatic lackeys.

The UNFCU website has this statement (click on “Account Restrictions”) about its ability to deal with Cuban diplomats:

Please be aware that UNFCU, under authorization from the US Treasury Department, is only permitted to operate accounts for actively employed UN staff stationed in Cuba, Iran, Burma, and for Cuban citizens who are stationed in the United States.

Based on this, perhaps what was going on — and again OFAC forces us to speculate — was that the UNFCU was providing banking services to Cubans at U.N. locations outside the United States. The UNFCU website’s branch listing shows that the UNFCU has branches in Geneva, Vienna, Rome and Nairobi. Of course, the UNFCU’s extra-territorial application of U.S. sanctions could create a new problem for itself because these sanctions could well violate local laws that prohibit discrimination based on national origin.

Additionally, and more significantly, the UN could always solve the problem by only providing office space to financial institutions that do not, like UNFCU, discriminate against UN members based on national origin.

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Jul

15

Nigel Malpass Redux

Posted by Clif Burns at 9:38 pm on July 15, 2010

Category: Iran Sanctions • U.N. Sanctions

ABOVE: Nigel Howard Malpass

This blog reported back in June on the shenanigans of Nigel Howard Malpass, who assisted the Islamic Republic of Iran Shipping Lines (“IRISL”) in evading U.S. sanctions on IRISL vessels by re-naming, re-registering and re-flagging those vessels. As we noted, Malpass accomplished this by setting up, and serving as a director of, shell companies in the Isle of Man and elsewhere that then became the “new” owners of the IRISL vessels.

Malpass, when his participation in the IRISL scheme was discovered by the New York Times, tried to run away from it as fast as he could, telling the Times (falsely) that he had ended all association with IRISL. But it’s not only the New York Times that took an interest in Mr. Malpass. The BBC’s investigative program “File on 4” took an interest in Mr. Malpass after the Israelis boarded an IRISL vessel registered to one of Mr. Malpass’s Isle of Man companies and discovered the vessel was carrying hundreds of tons of weapons disguised as civilian cargo. And now Mr. Malpass has (surprise, surprise!) a brand new story to tell the Beeb’s File on 4 when they asked him why he was setting up, and serving on, shell companies in the Isle of Man that owned gun-running IRISL vessels.

Malpass has now stopped trying to push the canard that he is no longer associated with IRISL. Now he is claiming instead that everything he did, and is doing, for IRISL is completely legal. And he’s enlisted the government of the Isle of Man to back him up on this dubious story:

Captain Malpass would not be interviewed by the BBC but said the companies had been formed at the request of a German bank which holds a mortgage on all of the ships.

In a statement he said the transactions were governed by English law and the way companies were set up was “the absolute norm in the business of ship ownership”.

He added that the Manx authorities approved his business dealings which were arranged some years before the sanctions came into force.

Captain Malpass did not address whether these arrangements are also helping the Iranians evade the sanctions.

Even if you believe the German bank story or you believe Malpass’s claim that IRISL decided to set up shell companies as new owners of its vessels and to re-register and re-name them long before the thought of sanctions on IRISL had crossed anyone’s mind, the rest of his story is no defense. Paragraph 19 of UN Security Council Resolution 1929 requires member states to freeze the assets of persons, like Mr. Malpass, acting on behalf of IRISL, whether or not those actions might have previously been legal.

The Isle of Man is also busy trying to whitewash Mr. Malpass’s ongoing activities on behalf of IRISL:

Concerns were raised last month in the Manx Parliament but the island’s chief minister Tony Brown maintained that an investigation had revealed no wrongdoing and he denied that island had aided any breach of the sanctions.

“We have to be realistic we can’t do any more, we shouldn’t be expected to do any more.”

He added: “Why should we shut down legitimate businesses…. we shouldn’t be expected to take action the rest of the world won’t.”

Actually, that’s exactly what the “rest of the world” required in the UNSCR 1929 and that is exactly what the “rest of the world” is expected to do. Malpass might have been within his legal rights to set up the shell companies for IRISL prior to the passage of UNSCR 1929. That doesn’t mean he can continue to serve as a director on the boards of shell companies that act on behalf of IRISL after the passage of UNSCR 1929, at least as long as the Isle of Man, which is not a member of the UN, purports nonetheless to follow UN Security Council Resolutions.

[Thanks to my colleague Anita Esslinger for catching the Beeb report.]

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Jul

14

Buy This Book or the ICC Will Kill a Kitten

Posted by Clif Burns at 9:02 pm on July 14, 2010

Category: INCOTERMS

It has begun. A press release from the U.S. Council For International Business (“USCIB”), the U.S. “arm” of the International Chamber of Commerce (“ICC”), announced today day-long seminars, to be held everywhere from Pittsburgh to Omaha, on the “much anticipated” revisions to Incoterms that will become effective on January 1, 2011. Much anticipated, I think, mostly by the USCIB and the ICC for the most excellent revenue opportunity the revised Incoterms will provide to both organizations in seminar fees and sales of the new edition of Incoterms.

The press release claims that the changes are “sweeping” but provides little substantive detail about these changes. Who, after all, will buy the cow if the milk is given away? I’ve heard that the new edition will eliminate some of the distinctions between marine-only terms (like FOB and ~~FCA~~ FAS) and the other terms, but not much else. Readers are welcome to share in the comments section what they’ve heard.

Forgive me for being skeptical but I recall the sweeping changes between Incoterms 1990 and Incoterms 2000 which mostly consisted of changing the export clearance obligation under FAS from the buyer to the seller and the import clearance obligation under DEQ from the seller to the buyer. And for that the ICC wanted to get people to buy brand new copies of Incoterms. Now comes USCIB hoping to convince people to pay to shut themselves up in dank hotel conference rooms with weak coffee and stale sandwiches for a day-long seminar on the “sweeping” and “much anticipated” changes.

For those who want to learn about these changes from the comfort of their own ergonomic office chairs with the tasty beverages and snacks of their choice, this blog promises to post on the important new changes once the new edition of Incoterms is released. In all fairness, however, for those who don’t have much familiarity with Incoterms of any vintage, these seminars will present a good opportunity to learn about the usage and meaning of these increasingly important shipping terms.

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Jul

13

DTAG Proposes a New Spare Parts Exemption

Posted by Clif Burns at 8:52 pm on July 13, 2010

Category: Arms Export

Spare Parts The website for the Directorate of Defense Trade Controls (“DDTC”) recently posted the reports of three Working Groups for the Defense Trade Advisory Group (“DTAG”). DTAG is an industry-advisory group set up by DDTC to consult with the agency on regulatory issues important to the export sector of the defense industry.

The report of Working Group #2 details a proposed new exemption for export of spare parts to foreign government end users of defense articles previously approved for export. Under the current exemption for spare parts, found in section 123.16(b)(2) of the International Traffic in Arms Regulations, the exemption for spare parts is limited to individual shipments of less than $500 and a maximum of 24 such shipments per year, with a provision that orders cannot be split to avoid exceeding these limits. These shipments can be made to government and non-government end users provided that the parts are for a defense article previously approved for export.

Working Group #2’s proposed exemption, which would be inserted into the ITAR as section 123.28, would only apply to foreign-government end users and not to private end users. Although the proposed exemption would eliminate the value and shipment caps in the existing exemption, it includes a number of other significant restrictions

The exemption is available only to the original exporter and the original government end-user.
The parts will not provide an upgrade to the capabilities of the defense article as originally exported.
The parts must be of a type and quantity consistent with normal logistical support.
The exporter must use only the United States Postal Service, freight forwarders registered with DDTC and customs brokers licensed by the U.S. Customs Service.

I’m not sure what is meant by freight forwarders registered with DDTC. The current broker registration requirements under Part 129 of the ITAR exempt freight forwarders from registration requirements under that part. Perhaps the Working Group is hinting at some independent registration requirement for freight forwarders handling ITAR exports. Although that is not currently required, given the dismal ITAR compliance record of freight forwarders, there is much to commend some system of regulating freight forwarders that handled ITAR-controlled exports.

The larger question here is where all this would fit in the current export reform initiative. Will the new system adopt a uniform exception that looks like the RPL license exception of the Bureau of Industry and Security (“BIS”). That exception is limited to one-to-one exports. Or will the reforms lift the value limits imposed by DDTC on shipments to all users? Although DTAG’s work here is laudable, it might be rendered moot by the proposed export reforms.

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