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Archive for May, 2012

May

31

Did Zuckerberg Friend Burma?

Posted by Clif Burns at 8:38 pm on May 31, 2012

ABOVE: Mark Zuckerberg
© World Economic Forum*

An alert reader sent me a story suggesting that the Burmese ruby wedding ring that Facebook mogul Mark Zuckerberg gave his wife might have been imported illegally into the United States. The article is largely speculative, given that there is no direct evidence that the ring was illegally imported, but it does provide the opportunity to discuss the Burmese import sanctions, which likely will remain even after the recently announced lifting of the ban on financial investments in, and export of financial services to, Burma.

By Executive Order 13310, dated July 28, 2003, imports of all items, including rubies, of Burmese origin into the United States were prohibited. Shortly thereafter, in November 2003, the Office of Foreign Assets Control (“OFAC”) issued an interpretive guidance that items of Burmese origin could be imported into the United States if they were substantially transformed outside Burma such that under U.S. Customs rules they were no longer considered to be of Burmese origin. In December 2004, Customs issued a ruling that rubies mined in Burma but processed into finished gemstones in other countries were not of Burmese origin and could be imported into the United States. This opened the door to the return of Burmese rubies to the U.S. market.

Congress responded with the Tom Lantos Block Burmese Jade (Junta’s Anti-Democratic Efforts) Act Of 2008, PL 110-286 (50 U.S.C. Â§ 1701 note). The Lantos Act, effective September 27, 2008, prohibited the import of rubies mined in Burma even if they have been processed outside Burma.

So, assuming that the ruby was finished outside Burma, the Zuckerberg ruby would need to have been imported into the United States prior to the aforementioned date in 2008. If not (and we have no way of knowing), Zuckerberg might wind up getting unfriended by OFAC.

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May

30

PRC Citizen Arrested For Manometer Exports

Posted by Clif Burns at 7:12 pm on May 30, 2012

MKS Manometer Qiang Hu, a Chinese national who was sales manager at MKS Instruments Shanghai Ltd. was arrested while he visited the Shanghai company’s U.S. parent, MKS Instruments, Inc. in Andover, Massachusetts. He was arrested on charges that he illegally exported manometers, classified as ECCN 2B230, without the required licenses from the Bureau of Industry and Security (“BIS”).

What is interesting about this case is that the items were exported to the PRC pursuant to licenses, but the licenses were allegedly for persons who were not the ultimate end-users of the exported items. According to the affidavit supporting the criminal complaint, Hu used licenses for existing customers of MKS where those licenses had remaining quantities available for exports. Additionally, Hu is alleged to have applied for new licenses for front companies and then used those to export manometers that were then diverted to a number of other end-users in the PRC. One of the alleged front companies was Shanghai Racy System Integration Co., Ltd., surely one of the best front company names ever. The affidavit alleges that “thousands” of items were exported improperly by Hu, with items worth $4.5 million going to Shanghai Racy alone.

The affidavit does not allege, with one rather odd exception, that Hu would have been unable to obtain licenses for the ultimate end users. Instead, the affidavit cites emails from Hu to his customers and co-conspirators in the PRC which suggested that he used existing licenses to service end-users in the PRC who only needed small quantities of the items on the grounds that the export process was too cumbersome and expensive for the small quantities involved.

As I noted above, there is one instance in which the affidavit tries to suggest that the end-user was problematic. This involved an export to “Parr Lab Technical Solutions” in Hong Kong which the affidavit noted was on BIS’s Unverified List. That is presumably a reference to Parrlab Technical Solutions, Ltd., which is on that list. However, licenses are not necessarily denied to parties on the unverified list. When an end-user is on that list, the exporter is simply required to engage in heightened due diligence to assure that the exported item will not be diverted to a prohibited end-use or end-user.

The DOJ press release on this case indicates that the parent company, MKS Instruments, Inc., is not a target of any investigation in this matter.

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May

29

NetApp Under Investigation For Spying Equipment Used in Syria

Posted by Clif Burns at 5:44 pm on May 29, 2012

Category: BIS • Syria

NetApp Headquarters A recent story from Bloomberg indicates that California-based NetApp, which manufactures and sells network storage solutions, is under investigation by the Bureau of Industry and Security (“BIS”) in connection with one of NetApp’s storage devices winding up in Syria. The NetApp equipment was made part of a massive system built by Syria’s Bashar al-Assad to intercept and review all email sent in Syria.

According to the story, the Italian company Area SpA, which built the surveillance system, bought the NetApp equipment from one of NetApp’s distributors in Italy. Area then exported the equipment to Syria and incorporated it into the surveillance system.

That in and of itself would not have posed problems for NetApp or led to an investigation. However, the Bloomberg story reports, “workers for Area and NetApp communicated directly, e-mailing each other after the sale about configuring the equipment.” That could indicate that NetApp knew of the sale before it occurred. More likely, if true, these emails might be construed as provision of services to the Syrian government which would have been problematic if they occurred after the Executive Order issued on August 17, 2011, banning export of services to Syria.

A NetApp spokesperson indicated that the company was finishing its internal review of the matter and declined to provide a comment to Bloomberg on the investigation.

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May

25

Panamanian Company Fined For Violating U.S. Embargo on Cuba

Posted by Clif Burns at 2:46 pm on May 25, 2012

Category: BIS • Cuba Sanctions

Mobile Phone

The Bureau of Industry and Security (“BIS”) issued a press release today announcing a consent decree between the agency and Ericsson de Panama S.A. in Panama City, Panama. Under the consent decree, Ericssonâ€™s Panamanian subsidiary agreed to pay $1.753 million to settle charges that it violated the U.S. embargo on Cuba. BISâ€™s press release alleges that Ericsson de Panama imported mobile telephones from Cuba into Panama for repair. The company is then alleged to have re-packaged the telephones to conceal their Cuban origin. The phones were sent to the United States for repair and then returned by the company to Cuba once the repaired phones had been received back from the United States. The press release noted that the company avoided criminal prosecution, notwithstanding the â€œegregiousâ€ nature of the violations, because the matter had been voluntarily disclosed and the company had cooperated with the agencyâ€™s investigation.

The agency could assert jurisdiction over a Panamanian company here because the Panamanian company imported and exported the Cuban phones from and to the United States. This is different from situations, such as we discussed in our last post where none of the activity at issue occurred in or had any nexus with the United States.

Of even more significant interest, the press release indicates that the agency required, and the company consented to, a â€œcompany-wide export audit conducted by an independent third party of all transactions connected with Cuban customers.â€ Unlike other cases where BIS has permitted part of the fine to be allocated to compliance costs, it appears that in this case the cost of the audit will be a cost to the company above and beyond the hefty monetary fine exacted by BIS.

Finally, it should be noted that the items involved here are personal communications devices that since 2009 have been eligible for export and re-export to Cuba. However, the exports in questions occurred between 2004 and 2007, before the new rules were in effect. The new rules also apply only to donated mobile phones, and it seems doubtful that all the phones involved in this case had been donated to people in Cuba.

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May

23

Are There Any Limits Remaining on OFAC Jurisdiction over Foreigners?

Posted by Clif Burns at 10:26 pm on May 23, 2012

Category: Iran Sanctions • OFAC

Gurnsey Island, The 51st State? In today’s civil penalty releases, the Office of Foreign Assets Control (“OFAC”)Â announced a settlement with a U.K company, Genesis Asset Managers, LLP (“GAM”), arising from a purchase that one of its subsidiaries, Genesis Investment Management, LLP (“GIM”), also based in the United Kingdom, made on behalf of a Guernsey-based investment fund that GAM was managing. The investment in question was in a Cayman Islands fund that invested in exclusively in Iranian securities. GIM made the investment pursuant to a contract it had with GAM to provide investment advice to GAM with respect to GAM’s management of the Gurnsey fund. The $3 million dollar investment by GIM in the Cayman Islands fund led to a $112,500 penalty imposed by OFAC on GAM. And, in case you are interested, GAM voluntarily disclosed the matter to OFAC.

You may be scratching your head, and rightly so, about what OFAC was doing futzing around in the business of U.K. investment managers and their advice to, and investment in, funds in island-based tax havens. Part of the reason appears to be that OFAC believed GAM to be a U.S. company, even though its website, linked above, shows the company to be based in the United Kingdom. There must be some connection to the United States — hence the voluntary disclosure and the fine — but OFAC is not letting on what it is.

But even if GAM is based in the United States, this is still a fairly tenuous basis to penalize GAM based on these facts. There is nothing in the OFAC announcement that indicates that GAM facilitated, or was otherwise involved in, U.K.-based GIM’s purchase for a Gurnsey fund of shares in a Cayman fund. The release says that officers of GAM “were aware of the conduct giving rise to the apparent violation.” But mere knowledge that a foreign affiliate engaged in a transaction for foreign companies involving Iran is not enough absent some finding that the GAM officers participated in or somehow facilitated the transaction.

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