Jan

22

The Auto Sound and the OFAC Fury Part II


Posted by at 9:54 pm on January 22, 2015
Category: Iran SanctionsOFAC

Soundstream Audio Car http://www.soundstream.com/images/intl-team/pic/england/england/images/new/UK%20(1).jpg [Fair Use - Soundstream is Epsilon sub]This blog previously reported the $4,073,000 fine imposed by the Office of Foreign Assets Control (“OFAC”) on Epsilon Electronics for selling automobile stereo equipment to a company in the UAE that resold the items to Iran. OFAC documents indicated that the reseller’s website made clear that it only sold its products to Iran, that Epsilon had attempted to conceal its dealings with Iran by eliminating a web page showing its products and labelled Iran, and that Epsilon under a prior business name had shipped a monitor to Iran for which it had received a cautionary letter from OFAC.

Epsilon has now filed a complaint in the United States District Court for the District of Columbia challenging the fine, alleging, among other things, that the fine violates the Eighth Amendment to the United States Constitution which prohibits cruel and unusual punishment. Epsilon is invoking specifically the language in the Eighth Amendment which prohibits “Excessive Fines” from being imposed. It’s an odd claim given the Supreme Court’s statement in Browning-Ferris Industries v. Kelco Disposal, 492 U.S. 257 (1989), one of the Supreme Court’s few cases on the Excessive Fines clause, that the amendment “places limits on the steps a government may take against an individual.” No court, to my knowledge, has applied the clause to a civil penalty against a corporation. And, even if a court decided to apply the clause to a corporate fine, the principal of proportionality embodied by the clause would not likely be offended by a $4 million fine for the shipment of $3.5 million in goods to Iran.

The complaint further claims that OFAC properly failed to consider mitigating circumstances, namely that Epsilon had no idea that its distributor was shipping to Iran and engaged in no acts of concealment. The complaint includes as exhibits the OFAC documents stating Epsilon knew, or had reason to know, that all of its distributor’s business was conducted solely with Iran and that Epsilon had removed a web page on its site associating its products with Iran.  So it is more than a little odd, given that a reviewing court is going to give a great deal of deference to the findings of the agency under review, that the complaint makes these claims without even attempting to address these unfavorable findings by OFAC clearly set forth in the complaint’s own exhibits.

I said in my original post that, as a matter of policy, I thought OFAC had better things to worry about than pimped out cars cruising the streets of Tehran. But, sadly, I don’t think this complaint has the firepower to convince a court to force OFAC to spend more time on centrifuges and less on subwoofers.

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Jan

20

No Cigar for You!


Posted by at 10:13 pm on January 20, 2015
Category: BISCuba SanctionsOFAC

Cuba Capitole by y.becart(Own work) [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/yoh_59/13697566663The recent revisions to the U.S. sanctions on Cuba has generated a great deal of press coverage and, not surprisingly, more enthusiasm than accuracy. Here are a few bloopers I’ve seen recently.

The NBC outlet in Miami announced that the new regulations, released on January 15, would permit “South Florida cigar shops [to] soon be able to carry cigars from Cuba.” The only delay would be the time it will take those shops to “stock up” on the cigars. Nope. The amended section 515.560(c)(3) can bring back these products “for personal use only.”

It comes as less of a shock that the online news outlet Havana Times would say this:

The only thing you have to do to go to Cuba is book your travel. No government forms, no permissions, no licences. Just go.

Nope, again. U.S. travelers have to qualify for one of the twelve general licenses set out in 515.560. The only change is that you don’t need to wait for a specific license from OFAC. But you can’t get on a plane to go sip mojitos on the beach since, at least at the moment, there is no general license for drinking or sunbathing.

It comes as more of a shock, that the Huffington Post would suggest that Americans should get on a plane to “soak up some sun at Tropicoco Beach.” To give HuffPost some benefit of the doubt, let’s suppose they meant taking time off from an activity eligible for a general license to spend a little beach time. Whether you can or not, depends on what is meant by a “full-time schedule” since these general licenses normally require a “full-time schedule” devoted to the eligible activity. In the past, OFAC has said that missionaries that took a few hours off to visit a beach violated this requirement.

The situation may be a little more favorable for journalists than missionaries because the amended regulations say that the journalist’s activities schedule of activities” cannot include “recreation in excess of that consistent with a full-time schedule.” The same language does not appear in the general license for missionaries or in the other general licenses.

And I’ve saved the best for last. A columnist for the Charlotte Observer, for reasons that are not entirely clear, wants to export Bruce Jenner to Cuba. Of course former U.S. Olympic athletes whose appearance offends a columnist in Charlotte is not among the category of items authorized for export to Cuba under the new BIS regulations. Besides, if we’re going to start shipping off celebrities to Cuba, my vote goes for sending Justin Bieber.

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Jan

15

New OFAC Cuba Regs Adopt the “Sicko” Exception


Posted by at 11:50 pm on January 15, 2015
Category: Cuba SanctionsOFAC

Promo Still for SickoBack in 2007, we published a post on OFAC’s inquiry into the Michael Moore film Sicko, a film that, it was safe to assume, was not on the current administrations list of 10 best films of the year. Having learned that filmmaker Moore filmed part of the documentary film Sicko in Cuba without a license claiming he had the right to do so under the general license for journalistic activities, OFAC demanded that Moore provide proof that he was “regularly employed as a journalist by a news-reporting organization.” We found this an odd request given that OFAC had not been similarly miffed when Charlize Theron filmed a documentary on hip-hop in Cuba claiming eligibility under the general license for journalism. Of course, Theron’s film was critical of Castro and Moore’s was not.

Well, the new Cuba regulations, which were released today and which implement the changes previously announced by the White House, have a provision to put to rest whether a documentary filmmaker must be employed by CNN or the like (or at least say nasty things about Castro) in order to qualify for a general license to travel to Cuba. Under the amended section 515.564 relating to professional research, OFAC notes:

The making of a documentary film in Cuba would qualify for the general license in this section if it is a vehicle for presentation of the research conducted pursuant to this section.

This effectively takes the issue of Cuba documentaries out of the journalism general license and put them into the professional research general license, thus eliminating any need for the documentary filmmaker to prove regular employment by a news-reporting organization. Of course, under this analysis, the documentary filmmaker would have to establish that the film, and the research it embodies, relates to the filmmaker’s “area of expertise.” That probably means that Justin Bieber can’t go to Cuba to film a documentary on, say, alternate dispute resolution mechanisms, filmmakers like Michael Moore can go to Cuba to film segments related to their documentary projects.

(I’ll have more to say about the new regulations over the weekend.)

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Jan

13

Iconic New York Camera Store Agrees to Hefty Export Fine


Posted by at 6:35 pm on January 13, 2015
Category: BIS

B&H Superstore on 9th Avenue via B&H Instagram account http://instagram.com/p/xe7viqg8ct/ [Fair Use]Some of you may know that, when I have spare time, I like to spend it behind the lens of a camera, so I was a bit dispirited to see a recent enforcement action by the Bureau of Industry and Security (“BIS”) against the iconic New York City photography retailer B&H Photo. I have been a loyal Internet customer of B&H pretty much since the beginning of the Internet, and no trip to NYC by me is complete without stopping by their store to drool over expensive photographic gear that I usually cannot justify buying. Sadly, and according to these charging documents, B&H agreed to pay $275,000 to settle charges that it exported $23,000 of rifle scopes and sighting equipment, classified as ECCN 0A987, between 2009 and 2012.

Given the value of the rifle scopes and sights in question, the $275,000 fine seems rather hefty. BIS no longer routinely reveals whether cases started with a voluntary disclosure, largely, I think, to deflect criticism that the agency treats exporters who make voluntary disclosures more harshly than is warranted, so we do not know whether or not the presence or absence of a voluntary disclosure affected the size of this fine. One possibility, of course, is that the exports came to BIS’s attention through a customs seizure; it was likely that B&H accurately described the exported items as rifle scopes or optical sighting devices and, sooner or later, some customs officer at the Port of New York would have taken action since even a CBP rookie would know that these items require export licenses to most destinations. Even so, it seems likely that it was an innocent violation; a camera retail store in New York City was unlikely to have been aware that these items required licenses.

In all events, B&H has certainly found religion on this issue. A trip to their website revealed that if I tried to buy a rifle scope and entered an address in Afghanistan, the site politely informed me that government restrictions would not permit them to ship that item to that destination. In all events, it was an expensive lesson, and I, for one, hope that it will not force them to raise their prices!

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Jan

7

Behind Every Cloud Is Another Cloud


Posted by at 10:51 pm on January 7, 2015
Category: BISCloud ComputingEncryption

Lonely Cloud by Kate Haskell https://www.flickr.com/photos/fuzzcat/32487111/ CC BY 2.0 [https://creativecommons.org/licenses/by/2.0/] (cropped)Breaking News: the Commerce Department has finally figured out how the Internet works. Or, perhaps more accurately, the Commerce Department has figured out that clouds aren’t just fluffy things that float in the sky from time to time.

Readers of this blog will know that I have been arguing for quite some time that the export agencies, including the Commerce and State Departments, need to revisit their absurd position that exports of encrypted technical data are the same thing as export of the technical data in plain text. If a company puts encrypted controlled technical data or technology on a foreign cloud server, then, under current rules and policies, the company will have exported that technical data or technology and will have violated the law if a license was required to export that information to that country.

According to this report (subscription required), BIS Assistant Secretary for Export Administration Kevin Wolf has revealed that this is being rethought

Among the terms to be defined is what constitutes an “export,” and one element of that definition will be that controlled information encrypted “in a certain way” will not constitute an export for purposes of cloud computing, while the unencrypted version would be, Wolf said.

That was the good news. Now for the bad news: according to Wolf, the various stakeholder agencies have not yet been able to agree on just what type of encryption will be sufficient to prevent an “export” of the transferred data.

The irony here is that the Department of Defense itself did not engage in any hand-wringing over encryption standards when it plopped its own, and presumably highly sensitive, communications on Chinese satellite transponders, rebuffing critics by noting simply that everything was encrypted. But — to end on a positive note — Assistant Secretary Wolf, who has been one of the driving forces behind export control reform, clearly understands this issue and I am sure he will do what he can to end this pointless interagency squabbling over the comparative merits and demerits of Blowfish, Triple DES and AES-256.

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