Mar
11

OFAC Returns To Its Senses On Cuba Ag Export Payments (Temporarily)

Posted by Clif Burns at 8:56 pm on March 11, 2010
Category: Cuba Sanctions

HavanaYesterday the Office of Federal Assets Control (“OFAC”) published a notice in the Federal Register that reversed, at least temporarily, the absurd interpretation that it had adopted of the statutory requirement in the Trade Sanctions Reform and Export Enhancement Act (“TSRA”) that exports of agricultural and medical goods to Cuba required “payment of cash in advance.” In February 2005, OFAC changed its interpretation of that language to require that payment be made prior to the departure from the U.S. of the ship loaded with the goods destined for Cuba.

By yesterday’s Federal Register notice OFAC restored its previous interpretation of TSRA’s statutory language. That previous interpretation was consistent with prevailing commercial law which holds that delivery of goods is made, and payment is due, when a negotiable bill of lading for the goods is delivered to the buyer or its agent. The notice re-adopted the “cash against documents” rule that states that payment must be made “before the transfer of title to, and control of, the exported items to the Cuban purchaser” which would occur at the delivery of a negotiable bill of lading or other document of title.

This change is effective through September 30, 2010, at which point the old interpretation will become effective again. This is apparently because section 619 of the 2010 Omnibus Appropriation Act (P.L. 110-117), which required the change, was restricted to fiscal year 2010 which, obviously, ends on September 30, 2010. However, there is no reason that OFAC needed Congressional authorization to return to its previous “cash against documents” rule and to make that rule effective beyond 2010.

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Mar
10

GAO Report on Iran Sanctions Blasts OFAC’s Dead Tree Licensing System

Posted by Clif Burns at 8:26 pm on March 10, 2010
Category: Iran Sanctions

Piles of PaperThe Government Accountability Office released a report last Thursday on the Iran Sanctions and there is, you might say, good news, bad news and old news in the report.

First, the good news. The GAO’s audit of the licensing process of the Office of Foreign Assets Control (“OFAC”) found that all of the licenses that OFAC had granted for exports of food, medicine and medical devices to Iran under the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”) were properly granted. The 58 licenses examined by GAO all involved exports of items authorized under TSRA for export to Iran. Additionally, none of the licenses involved exports to anyone on the SDN list.

Next, the bad news.

Treasury cannot provide other agencies or Congress with complete and timely information concerning the licenses it has issued. It cannot do so because it relies on paper-based information systems that cannot be searched to identify licenses for the export of goods to Iran. … In January 2009, an internal Treasury budget request characterized the TSRA information system as a “largely paper-based” system that hinders “the speed, efficacy, reliability, and security of [Treasury’s] licensing, enforcement and compliance activities.” Treasury officials must manually review all TSRA licensing data for Iran to identify licenses that authorize the export of goods. Because the TSRA system is not integrated with Treasury’s primary licensing information system, TSRA licensing officials must manually enter the same data into both systems.

Finally, the old news. GAO discovered that U.S. goods were being successfully exported to Iran through the use of intermediary companies and transshipment of U.S. goods through other countries to Iran.

More than 50 percent of the cases listed involved use of intermediaries in the UAE for transshipment. About 20 percent involved the use of Malaysia and Singapore

Regular readers of this blog will be forgiven if they can’t suppress a yawn while reading these shocking revelations, particularly with regard to the diversion of exports to the U.A.E. Still, GAO’s report should emphasize for exporters that exports to UAE, Malaysia and Singapore deserve extra scrutiny to assure that items aren’t merely transiting those countries on their way to Iran.

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Mar
9

Some Things Change; Some Things Don’t

Posted by Clif Burns at 9:14 pm on March 9, 2010
Category: Cuba Sanctions • Iran Sanctions • Sudan • Syria • Technology Exports

Twitter Keeps Iran AfloatHere’s what has changed at OFAC. Yesterday OFAC announced a general license for Iran and Sudan that would permit export of

certain services and software incident to the exchange of personal communications over the Internet, such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, and blogging.

To be eligible the services must be offered free of charge and any software must be EAR99, not subject to the EAR, or mass market software classified under ECCN 5D992. Also, the exporter must not have any reason to believe that the services or software is destined to be used by the government of Sudan or Iran. A similar license was announced for Cuba but it only covered services since BIS controls exports of software to Cuba. Any bets on how long it will take for BIS to act to permit these software exports to Cuba? BIS action will also be necessary for similar exports to Syria.

And here is what hasn’t changed at OFAC. Today OFAC announced that it spent untold tens of thousands of taxpayer dollars to fine some poor schlub $575 for buying Cuban cigars over the Internet. I have to assume that this single cigar purchase will provide funds to the current Cuban government that will keep it in power for about five minutes longer than otherwise would have been the case thereby justifying all the government expense involved in imposing the fine.

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Mar
4

Now You See It, Now You Don’t

Posted by Clif Burns at 10:11 pm on March 4, 2010
Category: DDTC

Poof!I thought I was seeing things. First, I read a notice on the website of the Directorate of Defense Trade Controls (“DDTC”) saying that DDTC was putting a temporary hold on export licenses where BAE Systems was an applicant or manufacturer while the agency studied BAE’s recent guilty plea to charges that it paid bribes in violation of the Foreign Corrupt Practices Act and violated the Arms Export Controls Act by failing to report these bribes as “commissions” in export license applications.” Then the notice was gone.

According to this article in Defense News Daily, I wasn’t hallucinating:

In an Internet notice posted after BAE pleaded guilty on March 1, the State Department said the hold applied to license applications where BAE Systems PLC “or any of its subsidiaries is an applicant, consignee, end user, manufacturer or source.”

In the notice, the department advised export license applicants to determine whether they could modify their applications to remove BAE products. If they could, the notice instructed license applicants to withdraw their applications and amend them. That notice was withdrawn within a day and replaced by one that did not offer advice to license applicants hoping to export BAE products.

And that notice, in turn, was withdrawn and not replaced.

Notwithstanding the confusing impressions left by these disappearing web notices, a State Department spokesman, according to the article, asserted that DDTC was considering whether to debar BAE from exports. Meanwhile a BAE spokesman said that the company interpreted the removal of the web notices to indicate that no hold was currently in place.

Whatever is going on here, DDTC’s continually shifting public position doesn’t permit much confidence in its decision-making process on this issue.

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Mar
3

Global Recession Hits Criminal Arms Merchants Too

Posted by Clif Burns at 9:38 pm on March 3, 2010
Category: Arms Export • Criminal Penalties
Monzer al-Kassar
ABOVE: Monzer al-Kassar

An article that I just noticed in the February 8 issue of The New Yorker, tells the fascinating story of a D.E.A. sting operation conducted in Spain against Monzer al-Kassar, the notorious arms dealer alleged to have sold weapons both to the Achille Lauro terrorists and to the United States as part of the Iran-Contra affair. Kassar was arrested in Spain, extradited to the United States, and convicted in a Manhattan court to thirty years in prison on charges that he conspired to sell arms to FARC, a paramilitary terrorist group in Colombia.

The whole story is worth reading, but several details in the article are of particular note. First, the article emphasizes that arms dealers can be elusive because they structure their deals to comply with the laws of the countries in which they reside, negotiating sales from one country to another without ever leaving their home base where the brokering transactions are perfectly legal.

Second, and I know this will come as a shock, corrupt countries readily sell end-user certificates to arms dealers and certain arms manufacturers don’t even bother to read the end-user certificates that they demand. In one instance, Kassar bought weapons using an end-user certificate from the People’s Democratic Republic of Yemen even though the DPRY had ceased to exist two years earlier when North and South Yemen reunited. One of the D.E.A. undercover agents almost blew his cover when he told Kassar that the Nicaraguan end-user certificate to be used in the FARC transaction had cost several million dollars.

Kassar scoffed, saying that with that kind of money he “could have bought a whole country.”

Third, Kassar was caught because he abandoned his ordinary caution and allowed himself to be taped agreeing to sell arms that the undercover agents told Kassar would be used by FARC to kill Americans. As the reporter for the article stated:

Everyone I spoke to who has worked with Kassar over the years expressed surprise that someone so cautious could be caught on tape agreeing to sell weapons to the FARC. One possible explanation is that, compared with the last decades of the twentieth century—when conflicts in Africa, Europe, and the Middle East generated steady revenue—these are difficult times for weapons traffickers. When Samir first approached Tareq al-Ghazi in Lebanon, Ghazi told him that Kassar had been struggling to maintain his profit margins.

A diminished demand for black-market weapons may be driving other arms traffickers to assume risks that they would never have taken in the past. A year after the capture of Kassar, the S.O.D. team arrested Viktor Bout, the Tajik arms dealer, in Bangkok—using the same sting. (Bout asserts his innocence, and, to date, the Thai government has refused to extradite him.)

Kassar maintains his innocence and continues to insist that he was playing along with the D.E.A undercover agents in order to turn them in to Spanish authorities.

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Mar
2

Iran Obtains Centrifuge Equipment from Swiss Firm

Posted by Clif Burns at 9:54 pm on March 2, 2010
Category: Iran Sanctions

centrifugesA fascinating AP story, which so far has not been picked up by any AP affiliate newspapers, provides detailed information about how 103 pressure transducers made their way from Inficon, a Swiss firm, to Iran where, presumably, they will be used in Iran’s allegedly peaceful uranium enrichment program. The story, not surprisingly, involves a lot of looking the other way by the firms involved followed by numerous declarations that they were shocked, shocked to learn where the transducers were headed.

The transducers’ journey started with an order placed by a Shanghai-based company with a Taiwanese agent for Swiss firm Inficon. The equipment was supposed to be destined to the Shanghai company itself but after it made an initial payment had been made to the Taiwanese agent and the order had been placed by the agent with Inficon, the Shanghai company said that the equipment should be shipped instead to Tehran. When the Taiwanese agent received the shipment from Inficon, it dutifully forwarded the merchandise to Tehran.

The allegedly-neutral Swiss have, of course, denied any responsibility in the matter. The CEO of Inficon calmly told reporters that all the papers were in order:

“The end-user certificate we got did not say Iran,” he said. “The deal was done via a Chinese company. And we have a certificate with the name of a Chinese end-user on it.”

In the next breath he admitted, and most proliferation experts will confirm, that the size of the order was, er, suspicious:

[He] said that before the goods were sent, Inficon reported the transaction to Switzerland’s State Secretariat for Economic Affairs, because the number of transducers raised its suspicions. “We always have the goods checked when it is a big order,” he said. “If someone wants one single device it’s not delicate. But if someone wants 100 at once, that’s very unusual for this type of product.”

The Swiss Government approved the export because, notwithstanding these suspicions, Inficon didn’t “know” that the goods were headed to Iran and therefore the export was legal under Swiss law. It seems to me that this is not the first time that the Swiss have defended weapons exports that went to the bad guys by claiming that they weren’t absolutely one-hundred and twenty percent certain that the goods were headed to the bad guys.

As a cautionary note to U.S. readers and exporters: we don’t live in Switzerland. Burying your head in the sand is not a viable export compliance strategy.

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Feb
25

Balli Exec Tells Alma Mater His Defense to Iran Export Charges

Posted by Clif Burns at 9:14 pm on February 25, 2010
Category: BIS • Iran Sanctions
Vahid Alaghband
ABOVE: Valid
Alaghband

Valid Alaghband, Chairman of the Balli Group, which just agreed to a $17 million fine to settle charges that it exported U.S.-origin commercial passenger aircraft to Iran, took to the pages of the daily student newspaper of his alma mater Cornell University to present his side of the story. Frankly, his story isn’t very convincing, and I doubt that regular readers of this blog or others familiar with U.S. export laws will be swayed by Alaghband’s story. Some may, in fact, chuckle that Alaghband would publicly mount the defense that he does.

The confusion arises from the use of the term “export” which, to a layman, signifies a sale and purchase (or physical trade) of goods across international borders. That is not how the U.S. regulations necessarily define exports and our settlement with the U.S. authorities does not remotely suggest that Balli Aviation sold its aircraft to Iran. Balli Aviation legally and beneficially owned its fleet of aircraft at all material times.

Epic fail, as the kids on the blogs say nowadays. Anybody with even a smidgen of familiarity with U.S. export laws is aware that you can export stuff to Iran which hasn’t been sold to Iran. To begin with, the aircraft in question were flown in an out of Iran carrying commercial passengers. Balli was charged with re-exporting the aircraft to Iran and the Export Administration Regulations, in section 734.2(b), provide a pretty unambiguous definition of re-export:

“Reexport” means an actual shipment or transmission of items subject to the EAR from one foreign country to another foreign country

Hmm. I don’t see anything in that restricting an export to a cross-border purchase and sale, do you? I didn’t think so.

What happened here was that Balli leased the aircraft to an Armenian airline, Blue Sky, that then operated the aircraft in and out of Iran under a code-sharing arrangement with Mahan Airways. Or as Mr. Alaghband admits:

Balli Aviation … [leased] three of the aircraft to an Armenian operator which serviced the civilian passenger traffic under arrangements with a local operator.

The “local operator, which Alaghband can’t bring himself to name, was the Iranian carrier Mahan.

Alaghband also claims that Norton Rose, a prominent U.K. law firm, told him that this scheme would comply with U.S. export laws. If Norton Rose did indeed provide such profoundly awful advice, and I have no evidence of this other than Alaghband’s claim that they did, this would underline what I might have thought obvious: a firm of British solicitors with not even a single office in the United States might not be the best choice for obtaining advice on complying with U.S. export laws.

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Feb
24

ITT Debarment Lifted Two Months Early

Posted by Clif Burns at 9:53 pm on February 24, 2010
Category: DDTC • Night Vision

Red TapeOn Monday the Directorate of Defense Trade Controls (“DDTC) published a notice in the Federal Register that the three-year statutory debarment of ITT Night Vision, scheduled to end on March 26, 2010, was ended effective February 4, 2010. DDTC noted, in justifying the early termination, noted that

ITT Corporation has taken appropriate steps to address the causes of the violations and to mitigate any law enforcement concerns.

While the denial order was in effect, ITT Night Vision products could be exported by ITT and by resellers but only pursuant to a specific transaction exception from DDTC. Such transaction exceptions were granted only with respect to exports for end-use by the U.S. government or for end use by certain allies. As a result of DDTC’s actions, license applications to export ITT night vision products will no longer need to contain information supporting a transaction exception.

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Feb
23

More Deemed Export Red Tape Courtesy of BCIS

Posted by Clif Burns at 8:29 pm on February 23, 2010
Category: Deemed Exports

Red TapeDHS’s Bureau of Citizenship and Immigration Services (“BCIS”) wants to make your life more difficult if you hire H-1B workers and need a deemed export license to do so. Under a proposed revision in the form used to apply for H-1B visas for skilled technical workers, employers will now need to obtain the deemed export license from the Bureau of Industry and Security (“BIS”) before applying for the H-1B visa. Previously, the license needed to be obtained before the foreign worker could be given information on the controlled technology, but the employer could file for the visa and the deemed export license simultaneously. Now, the export license must be obtained before the visa can even be submitted to BCIS. Here is a copy of the proposed form. Check out page 6.

Oddly, this requirement is only for employees needing BIS deemed export licenses. Those requiring a deemed export license from the Directorate of Defense Trade Controls (“DDTC”) for foreign workers involved with technologies controlled by the United States Munitions List (“USML”) can apply for the visa and the license at the same time.

BCIS, with typical transparency, announced the revision and asked for comments in this public notice in the Federal Register. The public notice doesn’t reveal the nature of the proposed changes or how to find them other than suggesting that employers go try to find the proposed forms at regulations.gov. Good luck with that. We can only thank a loyal reader for tracking down the proposed, but undisclosed, changes in the visa application form.

Comments on this proposed change are due by April 9, 2010. Comments can be submitted by fax to 202–272–8352, or via e-mail to rfs.regs@dhs.gov.

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Feb
17

Don’t Believe Everything You Read in Newsweek

Posted by Clif Burns at 8:31 pm on February 17, 2010
Category: Syria

Bashar al AssadAndrew Tabler, who works for a Washington-based think tank on the Middle East wrote a column in today’s web-edition of Newsweek on the appointment by the Obama administration of a new Ambassador to Syria — the first since 2005 — and what that might mean for U.S. sanctions on Syria. According to Tabler the sanctions have economically crippled Syria, and Syria is now “fanatical about ending U.S. sanctions (which, Damascus has only just admitted for the first time, are truly damaging).”

In trying to explain how U.S. sanctions have economically damaged Syria, Tabler gets into the weeds of export law and the Export Administration Regulations (the “EAR”) and, frankly, doesn’t come out smelling like roses:

[T]he regime had to ground most of its civilian air fleet—as well as President Assad’s personal jets—because the sanctions forbid the sale of spare parts without an export license. (Sanctions classified anything with more than 10 percent American content as an American product, and since U.S. companies dominate the aerospace industry, even third-party retailers from other parts of the world couldn’t sell the parts to Syria.)

This is clearly a reference to the de minimis rule in section 734.4 of the EAR which, for sanctioned countries, only exempts exports to sanctioned countries with less than 10% controlled U.S. content, not exports with less than 10% of all U.S. content. According to the Guidelines for De Minimis Rules set forth in Supplement 2 to Part 734, controlled content consists of content in the item that has an Export Control Classification Number (ECCN) requiring a license to the sanctioned country in question. There are plenty of items that might be parts of exported items that aren’t controlled content to Syria, so Mr. Tabler’s misstatement of the applicable regulations is a significant error in this regard and suggests that more items are subject to the Syria sanctions than is in fact the case.

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