ExportLawBlog

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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Copyright © 2012 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

May

25

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

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

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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Copyright © 2012 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

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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Copyright © 2012 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

May

21

Guess Who Is Doing Business in Iran?

Posted by Clif Burns at 6:18 pm on May 21, 2012

Category: Iran Sanctions

Peugeot Last Thursday, May 17, Ileana Ross-Lehtinen, who never saw a sanction she didn’t like, had her committee, the House Foreign Relations Committee, hold a hearing on sanctions in Iran. The Committee heard testimony from, among other witnesses, former Bush administration official, Mark Wallace, who now runs a lobbying group called United Against Nuclear Iran which, although it would prefer simply bombing Iran, will settle for sanctions as the next best thing.

UANI’s latest campaign is to pressure automobile companies to stop doing business in Iran. (If nuclear scientists can’t drive to work, that will apparently cripple Iran’s nuclear ambitions.) Wallace’s testimony before the Committee, however, contained this interesting nugget:

Despite its extensive business in Iran, Peugeot has partnered with American automaker General Motors, a company partly owned by the U.S. Treasury.

In fact, in March, General Motors bought 7 percent of Peugeot. The Treasury Department, which administers U.S. sanctions against Iran, owns about 25 percent of GM. And now it indirectly owns a piece of Peugeot which ships complete knock-down (CKD) kits to Khodro in Iran. Khodro then assembles and sells the Peugeots in Iran. Apparently, the export of CKD kits by Peugeot to Khodro in Iran has been stopped for the moment. Peugeot cites the risky financial situation in Iran and not the GM investment as the reason it temporarily stopped shipping CKD kits to Iran.

As part of its campaign against automakers, UANI is pushing an acronym-errific piece of legislation it calls the DRIVE act. That stands for the Debarment and Restrictions for Iranian-related Vehicle Enterprises Act and would require automakers to certify that they are not doing any business in Iran to be eligible for government contracts or financial assistance. (I suppose calling it the Car Restrictions Against Persians Act was out of the question.)

Before you accuse me of being soft on Iran, I do support smart sanctions which target goods that are useful for nuclear proliferation and groups in Iran involved in nuclear proliferation. However, keeping Peugeots out of Iran won’t accomplish much other than, perhaps, to bankrupt Iranian car repair garages that all do gangbuster business fixing broken-down Peugeots.

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May

18

Do You Know the Way to Mandalay?

Posted by Clif Burns at 3:18 pm on May 18, 2012

Category: Burma Sanctions

Burma Yesterday, in remarks made by Secretary of State Clinton With Foreign Minister of Burma U Wunna Maung Lwin after the two met, Secretary Clinton announced that the United States was suspending its sanctions against Burma.

Sort of.

Here’s what she said, which is the only official announcement so far of the new policy

Today, I am also announcing new steps to permit American investment in the country and export of U.S. financial services. These are the most significant adjustments to our previous policy that have been taken to date. The United States will issue a general license that will enable American businesses to invest across the economy, allow citizens access to international credit markets and dollar-based transactions.

Late in her remarks the Secretary indicated that the United States would maintain the arms embargo against Burma, which would prohibit sales of any item on the United States Munitions List to Burma.

But then came this curious exchange which suggested that the “general license” might not be so “general.”

QUESTION: Secretary Clinton, regarding the easing of economic restrictions, will the â€“ will U.S. companies be able to invest and trade with Myanmar state-owned companies, including in the oil and gas sector? And also, you talk about the corporate responsibilities of U.S. companies. Will these expectations be binding under U.S. law?

â€¦

SECRETARY CLINTON: Well, thank you. First, let me say our presumption is that our companies will be able to deal in every sector of the economy with any business. That is a rebuttable presumption in the event that there is a company whose reputation, whose practices, are not in keeping with our stated policies of corporate responsibility or other matters that rise to our attention. But the presumption is that our oil and gas companies, our mining companies, our financial services companies are all now free to look for investments that can be mutually beneficial to Burma and to them.

Huh? Presumption? What part of “general license” do we not understand here? Perhaps Secretary Clinton means that if the U.S. doesn’t like a particular investment made pursuant to the general license it can revoke this “presumption” and revoke the general license as to that transaction. That, of course, would mean that making a new investment in Burma would be more risky than most companies could tolerate. We will have to wait and see exactly what the general license says when it is issued.

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