Archive for October, 2017

Oct

6

Squid Pro Quo: CBP May Ban Imports from Chinese Factories with Nork Workers

Posted by at 12:37 pm on October 6, 2017
Category: CBP • North Korea Sanctions

160823-NMTC-GF-0318 by Customs and Border Protection via Flickr https://flic.kr/p/SoTFxD [Public Domain - Work of U.S. Government]Customs and Border Protection, a federal agency not particularly known for its ability to analyze legal questions and follow the law, has apparently issued a statement that it will block imports of goods which were produced with any North Korean labor even though the North Korean workers were employed outside North Korea. The agency position arises from press reports that North Korean workers were employed in seafood processing plants in China that shipped salmon, squid and cod to U.S. stores, including Walmart and ALDI.

Executive Order 13570, promulgated in 2011, prohibited “the importation into the United States, directly or indirectly, of any goods, services, or technology from North Korea.” Section 510.201(c) of OFAC’s North Korea Sanctions Regulations prohibits any and all transactions that would violate Executive Order 13570 and thereby also effectively prohibits the import of goods “from North Korea” into the United States without an OFAC license. Certainly, if the squid in question were being processed in North Korea itself, the unlicensed import of the squid into the United States would violate OFAC’s rules.

But nothing in the rules or Executive Order 13570 prohibit the import of items made by North Koreans outside North Korea.  Although the North Korean Sanctions Regulations do not define “North Korea,” Section 4(d) of the Executive Order does, and that definition therefore controls.  The Executive Order defines “North Korea” as “the territory of the Democratic People’s Republic of Korea and the Government of North Korea.” It does not define North Korea to include any location where a North Korean, who is not a member of the Nork Government, just happens to be working. An item imported from China does not magically become an item from North Korea because a private Nork citizen in China touched it somewhere along the way.

This, of course, is basic Sanctions 101 and applies to all sanctions regimes. An item made in France does not come from Iran because a private Iranian citizen is employed in the French factory that produces the item. Of course, I understand the policy reasons for not wanting to import items made with Nork slave labor in China as the wages earned by these workers simply go back into Kim Jong Un’s XXXL pockets. But a new legal framework needs to be put in place to accomplish that result.

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Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Oct

5

OFAC Fines U.S. Paper Company for “Discussing” Exports to Sudan

Posted by at 9:34 pm on October 5, 2017
Category: OFAC • Sudan

White Birch Paper Mill via https://whitebirchpaper.com/about-us/our-mills/papier-masson/ [Fair Use]Today the Office of Foreign Assets Control (“OFAC”) announced that it was fining White Birch Paper $372,465 to settle charges arising from exports of $354,602.26 of Canadian-origin paper from a White Birch mill in Canada to a customer in Sudan. Ah, yes, the doctrine of facilitation strikes again, although OFAC has some difficulty explaining that clearly:

Various personnel within White Birch USA and its Canadian subsidiary, White Birch Paper Canada Company NSULC (“White Birch Canada”), were actively involved in discussing, arranging, and executing the export transactions to Sudan.

This makes it appear that the violation arises equally from employees of White Birch Canada being involved in the exports, which, of course, was neither illegal nor facilitation.

The violation arises, of course, from the U.S. employees, rather than the Canadian employees being involved in the exports, certainly to the extent that the U.S. employees “arranged and executed” the exports.  However, if “discussing” the exports is facilitation, as this also seems to state, OFAC would be expanding the scope of the facilitation doctrine far beyond any prior conception of the scope of that doctrine. That would mean that if a U.S. employee said to the Canadian subsidiary “We can’t be involved in the exports to Sudan,” then that discussion would violate OFAC’s rules. Even if the employee were to stick his/her fingers in his ears and chant “la la la la la” every time a Canadian employee mentioned Sudan, that might still be a discussion as well since “la la la la la” means, of course, “I can’t be involved in these exports.”

Of course, it is more likely that this is just sloppy draftsmanship by OFAC — something we’ve seen before — than it is an effort to expand the scope of the facilitation doctrine to any discussion of the transaction whatsoever. Still, OFAC could have avoided this issue if it simply noted that the U.S. employees were actively involved in “arranging and executing” the exports, both of which can clearly constitute facilitation.

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Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Oct

3

The Jeweller of Kingpins

Posted by at 11:41 pm on October 3, 2017
Category: OFAC • SDN List

Cartier Store Cannes via https://www.facebook.com/cartier.france/photos/a.1022361011213879.1073741852.462403637209622/1022361121213868/?type=1&theater [Fair Use]French retailer Cartier agreed to pay the Office of Foreign Assets Control $334,800 to settle allegations that it made four sales of jewelry in a United States store to a an individual designated under the Foreign Narcotics Kingpin Sanctions Regulations. In announcing the settlement, OFAC did not reveal the value of the jewelry sold by Cartier to Shuen Wai Holding Limited but did note that the ship-to address for Shuen Wai was the same as the address shown on the SDN List.

This is the first penalty that I am aware of levied against a retail operation in the United States. This, no doubt, will send shock waves through the retail community. Technically speaking, if an SDN walks into McDonald’s and orders a Happy Meal, McDonald’s would be in violation of OFAC’s rules if it sold the Happy Meal to the SDN and it did not keep any money for the Happy Meal that the SDN had handed to the cashier. Does this mean that McDonald’s can’t sell you a Happy Meal or a Big Mac now without checking your ID and running it against the SDN List?

For the moment at least, the answer is you won’t have to make sure you have your driver’s license with you before you purchase a Big Mac. The OFAC announcement pointed out several things that lead to its decision to seek a fine from Cartier. First, it noted, that this was an international transaction. So unless you’re planning on asking them to send the Big Mac to some foreign country for you, there’s one difference. OFAC also noted that the luxury jewelry business was an “industry at high risk for money laundering.” This is a little puzzling since OFAC is not in the business of enforcing money laundering laws and regulations but, be that as it may, Big Mac’s are probably not a good vehicle for money laundering. (Viewers of Breaking Bad will remember, car washes are good for that.)   Another important fact, not mentioned by OFAC, is that this was a third-party transaction.   Unlike a party using its own U.S.-issued credit card, where the bank would presumably have screened the customer, no one would have screened the recipient of the Cartier merchandise in this instance.

In any event, OFAC reaffirmed that compliance programs should be “risk-based” and should take into account the company’s “products and services, frequency and volume of international transactions and shipments, client base, and size and geographic location(s).”  It is a bit difficult to determine what that means in a practical matter for retail stores beyond meaning that restaurants, grocery stores, and dog grooming parlors do not need to screen all their customers against the SDN List.  But it is probably the case that other retail businesses, particularly where the transaction involves international shipments of merchandise paid for by third parties, should consider screening those customers receiving merchandise.

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(No republication, syndication or use permitted without my consent.)

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