May

23

Vietnam Arms Embargo Lifted (More or Less)


Posted by at 5:07 pm on May 23, 2016
Category: Arms ExportDDTCVietnam

Saigon Morin hotel (Hue, Vietnam 2015) by Paul Arps [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/C2rm6w [cropped and color corrected]During a press conference today in Hanoi, President Obama announced the lifting of the arms embargo against Vietnam. Although he stated that the action had nothing to do with China, U.S. officials have noted before that the idea was to help Vietnam counter threats from the PRC in the South China Sea. There has also been speculation that Vietnam would, in return, provide access to Cam Ranh Bay and its deepwater port.

Of course, attentive readers will remember that back in November 2014 the embargo was lifted to permit exports to Vietnam of non-lethal defense articles and lethal weapons “to enhance maritime security capabilities and domain awareness.” Applications for such exports were considered on a case-by-case basis. As a result of today’s action, this limitation on lethal weapon exports to Vietnam has been removed.

DDTC scrambled to get something up on its website, where this notice now appears:

Industry Notice: Change in Policy on Exports of Munitions to Vietnam (05.23.16)

Pursuant to a decision made by the Secretary of State and effective immediately, the Department of State’s policy prohibiting the sale or transfer of lethal weapons to Vietnam, including restrictions on exports to and imports from Vietnam for arms and related materiel, has been terminated. Consequently, in accordance with the Arms Export Control Act, the Directorate of Defense Trade Controls (DDTC) will review on case-by-case basis applications for licenses to export or temporarily import defense articles and defense services to or from Vietnam under the International Traffic in Arms Regulations (ITAR). DDTC will soon publish a rule in the Federal Register to implement a conforming change to ITAR §126.1.

Since the provisions in section 126.1 refer to a licensing policy, there seems to be no reason why DDTC can’t change the license policy first and clean up the regulations later. After all, the Vietnam subsection of 126.1 starts with “[i]t is the policy of the United States to deny” licenses for exports to Vietnam. So, if an exporter applies for and receives a license, there won’t be any issue of violating the unchanged regulation.

Things, however, are not so simple for the absolute prohibition in section 126.1(b), which provides:

A defense article licensed or otherwise authorized for export, temporary import, reexport, or retransfer under this subchapter may not be shipped on a vessel, aircraft, spacecraft, or other means of conveyance that is owned by, operated by, leased to, or leased from any of the proscribed countries, areas, or other persons referred to in this section.

That prohibition will remain in place, forbidding shipment on Vietnamese vessels of licensed defense articles, until whenever (likely in a few years) DDTC gets around to amending 126.1 to reflect today’s action.

Photo Credit: Saigon Morin hotel (Hue, Vietnam 2015) by Paul Arps [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/C2rm6w [cropped and color corrected]. Copyright Paul Arps 2015.

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May

20

Company Sues Former Exec Over Iran Sanctions Scheme


Posted by at 10:39 am on May 20, 2016
Category: Criminal PenaltiesIran Sanctions

Delfin Production Facilities via http://www.delfinusa.com/photos/ [Fair Use]
ABOVE: Delfin Production Facility


Well, this had to happen sooner or later and I’m surprised it hasn’t happened sooner or more often. Delfin Group USA, a motor oil company, sued Markos Baghdasarian, its former president, for damages it incurred as a result of a scheme concocted by Baghdasarian to ship Delfin products to Iran. (Link – subscription required.) Delfin pleaded guilty to a federal indictment arising from these shipments and was sentenced to three years in federal prison. He was released in 2015.

The complaint seeks damages in the amount of $2.41 million for product seizures, $1.63 million for legal fees, and $200,000 in freight and shipping costs. You have to wonder where Baghdasarian is going to come up with all this cash after three years in Club Fed.

Best irrelevant factoid: the criminal complaint alleged that Baghdasarian put false contact information on one of the barrels of motor oil additives destined for Iran, specifically, a telephone number associated with Victoria’s Secret. This is particularly ironic given that Iran has just recently arrested eight people for posting Instagram photos of women without headscarves.

Photo Credit: Delfin Production Facility via http://www.delfinusa.com/photos/# [Fair Use]

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May

18

Burma Sanctions Continue to Sunset


Posted by at 5:56 pm on May 18, 2016
Category: Burma SanctionsOFAC

Bagan by Staffan Scherz [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/aAeXsZ [cropped and processed]

Yesterday the Office of Foreign Assets Control (“OFAC”) amended the Burmese Sanctions Regulations to broaden the scope of permissible trade with Burma. The Burma regulations, which have been amended piecemeal rather than simply re-issued, remain a complex and confusing mess with prohibitions in one section repealed in a later section. (Why not just remove the first provision, you ask? Don’t be silly, I answer. Do you want lawyers to starve?)

So, for example, section 537.202 prohibits the “exportation … to Burma of any financial services,” which effectively eliminates all trade with Burma because transferring money to Burma is considered an “export of financial services” in OFAC-ese. But if you keep reading the regulations, then you’ll find all the way at the end of the Burma regulations another provision, section 537.529, which says the exact opposite and says that exports of financial services to Burma are authorized. Of course, as is always the case, you still can’t transfer money, er, export financial services, to any blocked party.

Of course, that was all well and good until OFAC discovered that the best port in Burma, and the one through which almost all goods went to and from Burma, was owned by Asia World, a blocked party, effectively foreclosing U.S. trade with Burma. So on December 7, 2015, issued General License No. 20 which allowed all transactions “ordinarily incident to an exportation to or from” Burma as long as it did not involve an exportation of goods to a blocked party.

Although it’s not entirely clear that shipping goods through a blocked port isn’t an export to or from a blocked party, the intent, if not the language, was clear and the port at Yangon was back in business, at least until June 7, 2016, when General License 20 was set to expire. Yesterday’s amendment moved General License No. 20 to a new section 537.532, effectively eliminating the expiration date for dealing with Yangon Port or other blocked individuals while moving goods to and from Burma.

Yesterday’s amendment also dealt with a similar problem confronting U.S. persons residing in Burma, although there was no comparable General License and this issue is now being addressed for the first time by OFAC. Blocked parties have pervasive ownership interests in Burma.  Asia World, for example, owns toll roads, airports, hotels, electric companies and supermarkets. The new section 537.525 allows all transactions by U.S. persons “ordinarily incident to the routine and necessary maintenance within Burma,” other than transactions related to employment of a U.S. person by a blocked party. With this amendment, U.S. persons living in Burma will not have to worry that they’ll have to pay OFAC a $250,000 fine on top of a $1 highway toll, a $2 bread loaf purchase or a $30 electricity bill.

Finally, the amendment is intended to permit transactions with and through almost all banks in Burma. In addition to a number of other entities, the amendment removed three blocked banks from the SDN List and from the general license in section 537.531 since it would no longer be necessary for those banks. It also added two blocked banks to that general license. Of course, this still leaves the issue that we’ve talked about before. Nothing in the SDN listings for these five banks covered by the general license references the general license. So screening software will still show these banks as hits, and funds will be needlessly blocked.

Photo Credit: Bagan by Staffan Scherz [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/aAeXsZ [cropped and processed]. Copyright 2011 Staffan Scherz.

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May

17

Unintended Consequences of Sanctions Intensify Syrian Refugee Crisis


Posted by at 8:25 am on May 17, 2016
Category: OFACSyria

Syrian Refugees by Oğuzhan Ali [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/xj5B1W [color processed]

Last week I wrote about one of the unintended consequences of OFAC’s “scorched earth” enforcement policy against banks and payment processors, namely, the blocking of funds transfers where the memo or the transferee name contains a naughty word like “Cuba” or “Isis” (you know, the name of Count Grantham’s dog on Dontown Abbey). But this excellent article published by Bloomberg News suggests that there are more serious unintended consequences, namely, the potential exacerbation of the Syrian refugee crisis.

According to the article, banks are refusing to permit transfers of funds for humanitarian relief to Syria even where such transfers may be completely legal. The article cites an effort by Christian Aid, a UK charity, to transfer funds to Syria to feed people displaced by the continuing fighting. Its bank declined to transfer the funds. Such refusals, according to sources cited by the article, are a result of banks making a “rational decision” to avoid any risk of penalties, particularly where the profits to be made from a particular funds transfer might be negligible.

“The unintended consequence here is that aid is being denied to people in desperate need of assistance,” said Guy [head of Christian Aid and] a former U.K. ambassador to Yemen and Lebanon. “If this continues, it is possible to see a situation where those people who are often in most need of humanitarian aid are least able to access it.” … But such de-risking threatens to undermine the West’s push to stem the flow of migrants heading toward Europe from the embattled Middle East, according to Christian Aid’s Guy

Of course, this situation is further complicated by OFAC’s refusal to permit humanitarian funds transfers to Syria except those made, pursuant to section 542.513, by United Nations organizations or its contractors, unlike say the broader provisions relating to humanitarian activities in Sudan. Even then, the general license prohibits any blocked entity from touching the funds, setting up the compliance nightmare for the banks involved and their understandable refusal to risk yet another mega-fine from OFAC.

Photo Credit: Syrian Refugees by Oğuzhan Ali [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/xj5B1W [color processed]

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May

11

Rumors of Musa Abu Dawud’s Death Are Greatly Exaggerated


Posted by at 9:50 pm on May 11, 2016
Category: General

AQIM Touareg Brigade By Magharebia [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons http://bit.ly/1T78Y7E [cropped and processed]

Last week the State Department and the Office of Foreign Assets Control (“OFAC”) designated under Executive Order 13224, Musa Abu Dawud, one of the leaders of Al-Qaeda in the Islamic Maghreb, as a Specially Designated Global Terrorist. E.O. 13224 requires actions by both State and OFAC for such a designation.

This designation led to a story by the American Media Institute headlined “Dead terrorist listed as active threat.” Talk about click bait! Indeed, upon reading the headline, the entire editorial staff of Buzz Feed resigned knowing that they could never equal, much less surpass, such a glorious example of click bait, not even today’s soon-to-be-legendary click bait listicle “22 Cartoon Guys Who Sexually Awakened You.”

Problem is, notwithstanding whether the story on cartoon guys has a kernel of truth, the accuracy of “Dead terrorist listed as active threat” was even more dubious. So the AMI story silently disappeared. (The link to the story in the previous paragraph comes from the Google cache, illustrating that old web posts don’t even die or fade away but live forever, rather like, it would seem, Musa Abu Dawud.)

There was a tweet (of all things!) from TracTerrorism.org that Musa Abu Dawud was killed in an Algerian military operation in March that AMI apparently used as a source, but I could not find any other corroboration of Musa Abu Dawud’s alleged death. Apparently, neither could the grown-ups at AMI who finally pulled the story. I tend to think that if both State and OFAC think this guy is alive that he probably is.

Photo Credit: AQIM Touareg Brigade By Magharebia [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons http://bit.ly/1T78Y7E [cropped and processed]

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