ExportLawBlog

Jul

25

U.S. Extradites Russian From Lithuania on Export Charges over Russian Objections

Posted by Clif Burns at 6:01 pm on July 25, 2013

By Iulius at en.wikipedia (Transferred from en.wikipedia) [GFDL (http://www.gnu.org/copyleft/fdl.html), CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/) or GFDL (www.gnu.org/copyleft/fdl.html)], from Wikimedia Commons http://upload.wikimedia.org/wikipedia/commons/4/4e/Vilnius_view.jpg Yesterday the Russian Foreign Ministry pitched a fit over a Lithuanian court decision permitting the United States to extradite a Russian citizen alleged to have broken U.S. export laws. The case involves Dmitry Ustinov, a 46-year-old Russian, who is alleged to have caused the unlicensed export of “hundreds of thousands” of military items from the United States.

Ustinov was nabbed during a trip he made to Vilnius to meet with a buyer interested in purchasing military night vision. Chances are quite good, of course, that the buyer was a U.S. agent. Since the U.S. and Russia do not have an extradition treaty (see, e.g., Edward Snowden), the U.S. would have had to lure Ustinov out of Russia to a friendly state. It doesn’t hurt that Lithuanians generally do not have warm and fuzzy feelings about their former Russian/Soviet overlords.

The Russian Foreign Ministry’s beef was that the U.S. extradition of Ustinov

â€œbrusquely ignores the corresponding legal procedure,” including a 1999 treaty in which Russia and the United States promised to cooperate on criminal cases

That reference to the Mutual Legal Assistance Treaty between Russia and the United States is a bit puzzling. Like other MLATs, the treaty provides that the parties shall assist each other in the investigation of criminal activity that constitute crimes in both states. Assuming that the unlicensed night vision exports were crimes in Russia, the type of cooperation envisaged by the treaty involves the production of documents, the seizure of the proceeds of criminal activitiy, the identification and location of persons and things, and the execution of search and seizure requests. Nothing in the treaty, by any stretch of the imagination, requires one party to obtain the consent or cooperation of the other in the extradition of their citizens from third countries.

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Copyright © 2013 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jul

23

OFAC Fines American Express $5 Million for Doing Business in Europe

Posted by Clif Burns at 9:27 pm on July 23, 2013

Category: Cuba Sanctions • Foreign Countermeasures • OFAC

American Express Office in Rome, image by User Mattes [CC-BY-3.0] (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File:American_Express_office_in_Rome.jpg According to an announcement released yesterday by the Office of Foreign Assets Control (“OFAC”), the agency fined American Express $5,226,120 because Amex’s overseas offices booked travel to and from Cuba. OFAC justified the size of the fine with a litany of aggravating factors such as (1) reckless disregard for the Cuba sanctions regulations, (2) knowledge by the company that the Cuba transactions “would or might take place,” and (3) OFAC’s provision of a notice in 1995 to Amex that the bookings were a violation of the Cuba sanctions.

What is most interesting is OFAC’s reference to, and treatment of, legislation passed by the European Union to prohibit companies doing business in Europe from complying with the U.S. sanctions on Cuba, legislation which OFAC oddly and uniquely calls “antidote” legislation. (Everyone else in the world calls it “blocking” legislation.) OFAC notes that “many” of the offending bookings occurred in countries with “antidote” legislation, presumably a reference to Council Regulation (EC) No 2271/96 of 22 November 1996 which prohibits companies in the E.U. from complying with the Cuba sanctions.

Now, in that light, consider aggravating factor 6 cited by OFAC:

[A]t the time of the apparent violations, TRSâ€™ [American Express’s] compliance program was inadequate, given the nature of TRSâ€™ [sic] operations, to detect and prevent Cuba travel bookings, particularly fromÂ countries that had adopted antidote measures â€¦

Well, duh, if you’ll forgive my lapse into the vernacular. Of course, it was going to be difficult to comply with the Cuba sanctions where doing so would be illegal. There really is no way to interpret this other than as a statement by OFAC that having offices in Europe is inconsistent with complying with OFAC sanctions and that the only way to have an adequate compliance program is simply to stop doing business in Europe.

But the humdinger of regulatory cluelessness has to be factor number 12.

OFAC also considered as a relevant factor the legal obligations placed on TRS by U.S. law and antidote measures adopted by many of the jurisdictions in which TRSâ€™ foreign branch offices and subsidiaries operate, but, given the facts and circumstances of this case, did not assign any mitigating or aggravating weight to this factor under the Guidelines

Say what? Leaving aside the utter inanity of suggesting for even a moment that E.U. blocking legislation might be an “aggravating” factor in this world or any conceivable alternate universe, it is inconceivable that OFAC can blithely say that blocking legislation was completely irrelevant in its consideration of the case, unless of course you assume that the United States rules the world and the laws of other countries are immaterial and ineffective urgings of foreign vassal states. Or the factor might be irrelevant if OFAC’s real position is that the United States must stop doing business in Europe, Canada and other countries with blocking legislation.

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Copyright © 2013 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jul

18

Crime and Punishment and Punishment and Punishment

Posted by Clif Burns at 9:56 pm on July 18, 2013

Category: BIS • Criminal Penalties

MicroPilot Autopilot Four years ago, this blog reported on the case of Harold and Nina Hanson, a Maryland couple accused of exporting autopilot devices to China without a license. The Hansons ultimately pleaded to felony false statement charges in connection with statements they made to BIS investigators. Nina was sentenced to 105 days in jail and one year of supervised release. Harold was sentenced to two years of supervised release. Both were required to attend an export training class conducted by BIS, which some wags will suggest was the severest punishment meted out to the Hansons.

Of course, criminal sentencing is never the end of the matter with federal regulators normally hanging around the doors of the jail to pile on more punishments when the defendants are ultimately released. And the same thing has happened here with BIS announcing two days ago that it was imposing a 15-year export denial order on Nina and Harold Hanson to settle charges that they made false statements to BIS investigators. Am I the only one who sees the irony in ordering the Hansons to go to export training school and then ordering them not to export anything for fifteen years? It seems not too far removed from forcing a convicted killer to go to anger management classes before executing him.

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Copyright © 2013 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jul

17

Nork Arms Seized in Panama Canal

Posted by Clif Burns at 9:49 pm on July 17, 2013

Category: Arms Export • North Korea Sanctions • U.N. Sanctions

Kim Jong Un Official Photo Source: Korean Central News Agency [fair use] You have no doubt read about an inspection of a North Korean vessel by Panama in the Panama Canal that revealed that the ship was transporting missile parts and systems. Apparently among the items seized by Panama were a SNR-75 â€œFan Songâ€ fire control radar for the SA-2 family of surface-to-air missiles. These were built by the Soviets in the mid-1950s and are used to guide missiles to their targets. The Cubans assert that they own these items and are sending them to North Korea for repair.

Given that the items were hidden under bags of sugar and that they ship’s captain tried to commit suicide in the course of the Panamanian search, the question as to whether this shipment violates U.N. sanctions seems to be mostly academic. Security Council Resolution 1718, in sections 8(a) and (b), prohibits the “transfer to” the DPRK, or export from the DPRK, the listed arms and materiel. Of course, if these items are indeed going to the Norks for repair and return, this may not be a transfer of the items to the DPRK and they will not yet have been exported by the DPRK. However, section 8(c) prohibits the transfer of services to or from the DPRK related to the use of the listed arms and materiel, which seems to be the provision most arguably implicated by the shipment at issue.

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Jul

11

More Screening Nightmares

Posted by Clif Burns at 9:10 pm on July 11, 2013

Category: OFAC

The Scream I think more needs to be said about OFAC’s greater than 50 percent rule which was covered in yesterday’s post. As you recall, the rule in question says that if a blocked party owns more than 50 percent of another entity that latter entity and all its assets are blocked as well, even if the latter entity is not listed on the SDN list. Since that rule appears to be recursive, it makes it difficult to screen parties because you need to know the owners of the company, and the owners of the owners, and the owners of the owners of the owners and so forth. The rule is also written in such a way as to impose undue hardships on the other owners of the blocked entity where the party owning more than 50 percent is blocked after the other parties invest in the enterprise.

But consider this scenario which brings out even more vividly the problems with OFAC’s rule. Suppose that Mr. A is an SDN and he owns 60 percent of Company B and 45 percent of Company C. Further suppose that Company B owns 40 percent of Company D, and Company C owns 60 percent of Company D. Now, pop quiz. Who and what is blocked under the OFAC rule?

Clearly Company B and its assets are blocked, whereas Company C and its assets are not. But what about Company D? Â Mr. A owns 24 percent of Company D through his 60 percent ownership in Company B. He also owns 27 percent of Company D through his 45 percent interest in Company C. That’s a cumulative interest of 51 percent of Company D. So even though Mr. A cannot control Company D, since he doesn’t control Company C, the majority owner, Company D would be blocked as would all of its assets.

Surely the screening problems that this rule poses are manifest in a situation like this as is the unfairness of this rule to the other (and majority) owners of Company C if Mr. A is designated after his investment in Company C. The question then is how on earth can this happen? Can the agency be that deaf to the business realities of the parties it regulates? Does it even care?

Well, the answer to this question is hidden in the rulemaking itself. Near the end of the Federal Register notice there is this juicy little nugget:

Public Participation

Because these amendments to 31 CFR parts 594, 595, and 597 involve a foreign affairs function, Executive Order 12866Â and the provisions of the Administrative Procedure Act (5 U.S.C. 553) requiring notice of proposed rulemaking, opportunity for public participation, and delay in effective date are inapplicable.

There you have it. The agency has no interest in public participation or input.

Now contrast this to the positions taken by the Bureau of Industry and Security (“BIS”) and the Directorate of Defense Trade Controls (“DDTC”). Both agencies could also argue that they are engaged in a foreign affairs function and yet both regularly put their rules out for public comment, a process which has led to valuable industry feedback and rules that address the real-world concerns of actual businesses. Â OFAC should follow the example of its sister export agencies.

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