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Archive for June, 2011

Jun

21

OFAC Nork Sanctions Rules Leave Key Questions Unanswered

Posted by Clif Burns at 5:24 pm on June 21, 2011

Category: North Korea Sanctions

ABOVE: Kaesong Industrial Park

The White House has been ratcheting up U.S. sanctions against North Korea, culminating in Executive Order 13570 on April 18, 2011, which banned all imports from North Korea. Today the Office of Foreign Assets Control (“OFAC”) finally got around to promulgating implementing regulations for that order.

The regulations, in order to provide “immediate guidance,” did little more than cite the Executive Order and say that all transactions prohibited by the Executive Order were now prohibited by the regulations. OFAC’s comments in the public notice promised to issue more expansive regulations later on “which may include additional interpretive and definitional guidance” (emphasis supplied).

The Executive Order and by extension the new regulations contain the troublingly vague prohibition on “the importation into the United States, directly or indirectly, of any goods, services, or technology from North Korea” (emphasis supplied). Obviously the “directly or indirectly” language is going to cause the most heartburn to U.S. companies. That suggests that products from South Korea or China that contain components or parts from North Korea would be subject to the import ban. These new Nork sanctions contain no rules of origin or anything else to clarify the scope of the language covering “indirect” imports.

An employee of the Congressional Research Service, speaking a few days ago before a forum hosted by the Korea Economic Institute, said that the “indirect’ language was designed to target such parts and components.

Dick Nanto, a specialist in industry, trade and foreign affairs with the Congressional Research Service (CRS), noted that the April executive order prohibits the direct and indirect entry of North Korean goods.

â€œThe Treasury Departmentâ€™s Office of Foreign Assets and Control said goods, services and technologies from North Korea may not be imported into the United States directly or indirectly without license,â€ he said at a forum hosted by Korea Economic Institute.

He said the wording â€œindirectâ€ was inserted in consideration of Congressâ€™ objection to the inclusion of Kaesong products in the South Korea-U.S. free trade agreement, or KORUS FTA.

â€œThat includes any country – China, South Korea – any country that uses a product of North Korea in the process or as part of the process,â€ Nanto said.

The Kaesong industrial complex is on the border of North and South Korea. It was created in 2002 as a result of South Korea’s engagement policy with the North. Over 100 South Korean firms now employ more than 40,000 North Koreans in Kaesong.

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Jun

16

Another BIS Rule That Does Not Mean What It Says It Means

Posted by Clif Burns at 9:51 pm on June 16, 2011

Export Reform Today the Bureau of Industry and Security (“BIS”) published a final rule, effective immediately,* implementing the new license exception Strategic Trade Authorization (STA). Under this new license exception, licenses will not be required for exports to 36 countries, including Canada, France, German, Japan and the United Kingdom, of items classified under all but about 30 ECCNs. Exporters relying on license exception STA will be required, among other things, to get certain written assurances from the party receiving the export.

Of course, the new rule follows a long tradition of badly drafted rules in the EAR. The crucial part of the rule reads as follows:

Exports, reexports, and in country transfers in which the only applicable reason(s) for control is (are) national security (NS); chemical or biological weapons (CB);nuclear nonproliferation (NP); regional stability (RS); crime control (CC), and/ or significant items (SI) are authorized for destinations in or nationals of Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, or the United Kingdom.

But wait a minute. With the exception of items subject to control of the Nuclear Regulatory Commission and a handful of Crime Control items, virtually all of the other ECCNs have anti-terrorism (AT) as a reason for control. By not mentioning AT in the list of control reasons eligible for the new exception, the rule, literally and exactly read, means that STA cannot be used for almost every ECCN on the Commerce Control List.

To make things worse, BIS admits that this would be the result if the rule is interpreted to mean what it says but then says that the rule doesn’t mean what it says. Seriously.

Although most ECCNs include antiterrorism as a reason for control, that reason for control currently imposes a license requirement for only five destinations, none of which is eligible for STA. Although the absence of a reference to antiterrorism controls in License Exception STA might cause some readers to conclude erroneously that items controlled for antiterrorism reasons may not be shipped under license exception STA, adding such a reference might cause some readers to conclude erroneously that exports, reexports, and in country transfers to which antiterrorism controls do apply may be consummated under License Exception STA. The latter error has greater potential for harm than the former. Therefore, BIS does not believe that a change to the regulatory text on this point is desirable.

Except this latter “error” — that a reference to AT in the rule would make people think that they could use the AT exception to send things to, say, Cuba — is easily avoided because none of the AT countries are included as permissible destinations for the license exception. So, don’t read the rule literally but read it as if AT was listed as one of the controls eligible for the STA exception even though that’s not what the rule says.

This is why export lawyers will never be lacking for work.

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Jun

15

Turkey Identified as Transshipment Point for Iran

Posted by Clif Burns at 8:23 pm on June 15, 2011

Category: Iran Sanctions

map Although the UAE is still probably the most significant country involved in the transshipment of U.S. origin goods to Iran, the Iranian procurement network is extending to other countries as well. A recent article on SETimes.com noted on expansion of Iranian activity in Turkey and identified two recent cases of concern:

Despite the Turkish government’s commitment to crackdown on these procurement networks, two high profile cases have proven just how difficult these illicit networks are to stop.

Step-SA, a firm established by Iranian nationals operating in Istanbul, was indicted by a grand jury for allegedly procuring dual-use items for Iran’s ballistic missile programme this year.

The indictment followed news that two Turkish companies, Elektronik Kontrol Aletleri and ETI Elektronik, were connected to the Abdul Qadeer Khan’s extensive proliferation network. Khan is known to have supplied critical nuclear technologies to North Korea, Libya and Iran from the mid-1980s until the early 2000s.

And another article in the Tapei Times reports the existence of State Department concerns over shipments by a Taiwanese company of item to Iran by transshipping them through Turkey and Malaysia. The equipment was believed to be destined to Iran for use in its nuclear and ballistic missile program. The United States used the American Institute in Taiwan to request that Taiwan deny license for the exports of these items to Turkey and Malaysia.

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Jun

14

BIS Charges Company $2 Million For Late Payment

Posted by Clif Burns at 8:15 pm on June 14, 2011

Category: BIS

Don't Mess With BIS Talk about late fees. The Bureau of Industry and Security (“BIS”) responded to a payment under a Settlement Agreement that was nine days late by reimposing $2 million dollars of the penalty that had been originally suspended and by accelerating the remaining $5.2 million due under the Settlement Agreement.

The exporter Balli Aviation had agreed to a $15 million penalty in February 2010 in connection with its role in the export of three Boeing 747s to Iran. Under the agreement, the penalty was to be paid in five installments of $2.6 million with payments due on March 1, 2010; September 1, 2010; March 1, 2011; September 1, 2011; and March 1, 2012. The remaining $2 million was suspended for a period of five years upon condition that Balli commit no further export violations during that period and upon “full and timely payment” of the civil penalty.

Balli had made the first two payments on time and in full, but the third payment was made nine whole days late. According to a letter from Balli’s counsel, the late payment was occasioned by cash flow difficulties resulting from late payment to Balli of certain accounts receivable that it was expecting. BIS dismissed these arguments by noting that shortly before the March 1 due date, Balli received a $3 million payment which it applied to an obligation it owed to another creditor. BIS did not argue any prejudice to the agency caused by the late payment other than, apparently, that its feelings were hurt.

BIS ordered that the suspended penalty and the remaining two payments be paid within fifteen days of its order. Nothing in the Settlement Agreement supports the extremely short time period for payment dictated by BIS. Nor does anything part Part 764 of the Export Administration Regulations provide any basis for this time period. If Balli doesn’t come up with the money in the time period, a suspended five-year denial order may, under the agreement, come into effect.

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Jun

9

State Department Admits New Iran Sanctions’ Bark Is Worse Than Bite

Posted by Clif Burns at 6:40 pm on June 9, 2011

Category: Iran Sanctions

ABOVE: Mark C. Toner

The State and Treasury Departments announced today new Iranian sanctions against Iranâ€™s Islamic Revolutionary Guard Corps, the Basij Resistance Force, and Iranâ€™s national police and its chief. These sanctions, which would block all assets in the United States held by these groups, arise from human rights’ abuses by Iran committed by these groups.

State Department Deputy Spokesperson Mark C. Toner was discussing these sanctions in today’s Daily Press Briefing when an astute reporter asked the obvious question: do these entities have any assets that will be blocked by these sanctions. I mean, really, does anyone actually think that the Islamic Revolutionary Guard, the Iranian police or their chief have any assets in the United States?

The interchange between Toner and the reporter is both amusing and instructive as Toner tries, not so deftly, to dodge the question:

QUESTION: I have two questions about the sanctions announcements that were made this morning jointly with Treasury. One, can you tell us to what extent, if at all, any of the three designated entities or the one designated individual have assets that fall under U.S. jurisdiction?

MR. TONER: I do not know that. I believe, as you said, that this action will block or freeze property and interest in property for designated persons or designated entities, and U.S. persons are prohibited from engaging in transactions involving the persons and entities.

QUESTION: (Sneeze.)

MR. TONER: God bless you. But I can’t give you a breakdown of what assets may be affected by that.

QUESTION: Can you check for us to see if the Departments of State or Treasury believe that these entities and the individual have any assets or any significant assets that would be captured or frozen by this? And if not, what is the significance of that â€“

MR. TONER: Well –

QUESTION: Wait. Let me finish.

MR. TONER: Okay.

QUESTION: What is the significance of it? In the past, you have sometimes argued that â€“ or U.S. officials have sometimes argued that there is a multiplier effect because other financial institutions will steer clear of such entities or individuals for fear of falling afoul.

MR. TONER: That’s a good answer.

QUESTION: I know it is, and I understand this, but Iâ€™d really much rather have it out of a U.S. official than me, so if you can check.

MR. TONER: Well, certainly, Arshad. But I mean this â€“ I â€“ as I said, I canâ€™t give you a clear breakdown and I would refer you to â€“

QUESTION: I didnâ€™t ask for a breakdown. I asked for whether you have – they have any assets or any significant assets. Iâ€™m not asking for a breakdown. Iâ€™m asking, do they have any assets or significant assets?

MR. TONER: Okay. And I will endeavor to get that for you.

QUESTION: Thanks.

MR. TONER: But again, what’s important here is the bite, if you will, of these sanctions is only one element. It also sends a clear message that we won’t abide by Iran’s continued human rights abuses.