Feb

10

Buy Me Some Cubans and Some OFAC-Jacks


Posted by at 11:59 pm on February 10, 2016
Category: BaseballCuba SanctionsOFAC

Yulieski Gourriel by Boomer-44 [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/e1ZrZ7 [cropped and color corrected]
ABOVE: Yulieski Gurriel

It’s cold outside. It’s been snowing. So it’s time, of course, to dream of spring training and the boys of summer. Let’s talk baseball. And OFAC. Batter up!

Wait, haven’t we said this before?  Indeed we have, just about the same time last year, when the MLB and OFAC were in a struggle, principally centered around Yoan Moncado, as to whether MLB would sign unblocked Cuban baseball players only with a specific license even though OFAC said that its general license in section 515.505 of the Cuban Assets Control Regulations was enough and that it wouldn’t issue a specific license for Cuban players. (The MLB blinked and now allows signing based on the general license.)

Early last Monday morning, Yulieski Gurriel and his brother Lourdes Jr., who were playing for Cuba in the Caribbean Series in the Dominican Republic disappeared from their hotel and later announced their intention to take part in the U.S. national pastime. Yulieski is one of the top players in Cuba and Lourdes Jr. is a well-ranked prospect as well. To be eligible for the general license, the brothers must establish residency outside Cuba. It then takes MLB a few more months to convince themselves that residency outside Cuba has been established. So don’t expect to see either of them (Yulieski in the majors and Lourdes Jr. in the minors) on opening day.

Of course, given the liberalization of the Cuban embargo, the question remains as to why the brothers have to cool their heels for 6-12 months before they can play ball. The latest round of liberalization lets people travel from the U.S. to Cuba for baseball and other “athletic competitions.” It would only make sense to even up the traffic in the other direction and let the Gurriels and others play baseball here before being unblocked. Even the perpetual Cuba blockade boosters club in Congress could hardly complain because such a rule would suck baseball talent out of Cuba and, far from propping up the current Cuban regime, might do more to bring it down than 50 years of economic sanctions.

For some bonus fun, here’s what Cuba had to say about the defection:

In the early morning on Monday two players abandoned the hotel where the Cuban baseball team attending the 58th Caribbean Series Baseball in the Dominican Republic was staying. Yulieski Gourriel and Lourdes Gourriel Castillo, in a blatant attitude of surrender, were taken in by the merchants of professional baseball. The event was immediately rejected by the other members of the Cuban team, who issued a statement.

Uh huh. Sure they did.

Permalink Comments (0)

Bookmark and Share


Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)



Feb

9

Zimbabwe’s Blocking Laws Lead to OFAC Fine


Posted by at 11:20 pm on February 9, 2016
Category: OFACZimbabwe Sanctions

Animal at Barclays by Gareth Milner [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/fj2Kkg [cropped]The Office of Foreign Assets Control (“OFAC”) announced yesterday that Barclays Bank agreed to cough up $2,485,890 to settle charges that it dealt with parties blocked under the Zimbabwe sanctions. At issue were three parties that were not themselves on the SDN List but which “were owned, 50 percent or more, directly or indirectly, by” the Industrial Development Corporation of Zimbabwe (“IDCZ”).  Because IDCZ was put on the SDN List in 2008, the three parties at issue were blocked under OFAC’s 50 percent guidance.

The OFAC announcement offers a confusing description of how and why Barclays did not determine that the entities at issue were owned by blocked parties and were therefore themselves blocked. The story, such as it is, starts with OFAC noting that “local restrictions precluded Barclays from implementing measures for complying with economic sanctions, including sanctions screening, in Zimbabwe.” Because Barclays in Zimbabwe was legally forbidden to screen customers, Barclays did the screening in London, using electronic information which the Zimbabwe Barclays maintained but which, for some reason, did not include information beyond the name of the customer. As a result, Barclay’s processed transactions for the three IDCZ-owned customers from 2008, when IDCZ was added to the SDN List, until 2012, when a U.S. financial institution in the chain of the transactions blocked four transfers involving one of the three blocked entities. Even after Barclays NY conducted an investigation and determined that the customer was blocked as a result of the 50 percent rule, Barclays in London failed to upload that information into its screening filter until after four more transactions involving that customer had been processed.

It seems clear that Zimbabwe’s blocking laws played more than a casual role in the inability of Barclays to determine that the customers at issue were blocked due to the ownership interest of IDCZ. This is the first I’ve heard of Zimbabwe apparently making it illegal to screen parties against the U.S. list but, not surprisingly, OFAC is not going to be bothered with local laws (as we’ve seen before). OFAC does say that these local laws make it a non-egregious case but that, of course, did not mean that Barclays would escape getting its knuckles thwacked for $2.5 million by the agency. Apparently OFAC believes that the road to hell is paved with non-egregious actions.

Permalink Comments (0)

Bookmark and Share


Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)



Feb

4

Don’t Just Stand There Doing Nothing, People Will Think You’re a Supervisor!


Posted by at 9:46 pm on February 4, 2016
Category: OFACSudan

Meroe (49) by joepyrek [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://https://flic.kr/p/dD4ue9 [cropped]The Office of Foreign Assets Control (“OFAC”) announced today that it had issued a “notice of violation” (but no fine) to Johnson and Johnson (Middle East), Inc. (“JJME”), a New Jersey Corporation, in connection with five shipments by Johnson and Johnson (Egypt) S.A.E. (“JJE”) to Sudan in violation of the Sudanese Sanctions Regulations. No description was given of the shipped goods other than that they were worth $227,818.

Not surprisingly, the violation involved “facilitation” by JJME of the shipments by JJE to Sudan in violation of section 538.206 of the Sudanese Sanctions Regulations. OFAC did not detail how JJME facilitated the shipments other than by saying that it did so by “coordinating and supervising” those shipments. It’s hard to discern exactly what is meant by “coordinating” a shipment and perhaps some things that might be called “coordination” might also be facilitation.

But the use of the word “supervising” is a bit odd. The Sudanese Sanctions Regulations, in section 538.407, provide the only clarification in all of OFAC’s regulations of the meaning of the slippery term “facilitation.” That section says:

Activity of a purely clerical or reporting nature that does not further trade or financial transactions with Sudan or the Government of Sudan is not considered prohibited facilitation. For example, reporting on the results of a subsidiary’s trade with Sudan is not prohibited, while financing or insuring that trade or warranting the quality of goods sold by a subsidiary to the Government of Sudan constitutes prohibited facilitation.

Supervising the shipments could simply be keeping track of the shipments and perhaps reporting their progress, and that would fall clearly on the side of reporting the trade with Sudan, which is not facilitation according to this definition. Who among us has not been “supervised” by someone sitting on a sofa while we perform some task? And how did that ever “facilitate” that task?

It’s no secret that OFAC has consciously tried to leave the scope of facilitation vague in order to have exporters over-regulate themselves out of fear of transgression and the attendant punishment. By suggesting that supervising is somehow facilitating it contributes to this regulatory ambiguity. If OFAC truly wanted to provide guidance on what it means by facilitation, it would would have described exactly what JJME did with respect to the shipments rather than fall back on vague terms that might not really even describe facilitation as anyone understands it.

Permalink Comments (1)

Bookmark and Share


Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)



Feb

2

The Case of the Missing Airline


Posted by at 10:15 pm on February 2, 2016
Category: Iran SanctionsOFAC

Iran Air A300 by allen watkin [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/4vzYqi [cropped]I have spoken before about the weirdness surrounding the E.O. 13599 List, which has some (but unaccountably not all) of the entities controlled by the Government of Iran that were removed by the Office of Foreign Assets Control from the SDN List as part of Implementation Day. As far as U.S. persons and companies are concerned, entities owned or controlled by the Government of Iran are still blocked whether they are on the SDN List or not, and the E.O. 13599 List was designed to flag some (but not all) of those entities owned or controlled by Iran that were once on the SDN list but are still off-limits.

What seems odd is this “some but not all” nature of the E.O. 13599 List. OFAC in its guidance made clear that U.S. persons could not assume that just because an entity was removed from the SDN List but not put on the E.O. 13599 List that it was okay to do business with that entity. Whether any such omission was the result of incompetence, uncertainty, a desire to lay a trap for U.S. exporters or some super secret reason only known to OFAC, no conclusion, OFAC said, should be drawn from such omission.

That being said, the most puzzling instance of an Iranian government entity falling into the uncertain limbo between the SDN List and the E.O. 13599 List is Iran Air. Although it appears that Iran has made several unsuccessful attempts to privatize Iran Air, the best evidence appears to be that Iran Air is owned and controlled by the government of Iran. The Iran Air website is, not surprisingly, cagey about revealing its ownership.

It seems clear that Iran Air was removed from the SDN List in order to make it eligible as an end-user under the new policy permitting licensing the sale of aircraft and parts to Iran. But why it was not added to the E.O. 13599 List is a complete mystery. Certainly OFAC, with the vast apparatus of the U.S. intelligence and spying apparatus, knows precisely whether Iran Air is owned and controlled by the government of Iran. The rest of us are forced to rely on the markedly less reliable Internet which seems to say, in some places and probably inaccurately, that Iran Air may have been privatized and in other places confirms that it is state-owned.

One has to imagine, but hope that it is not the case, that the omission of Iran Air from the E.O. 13599 is simply a trap for the unwary with OFAC hiding in the bushes, poised to pounce on the first U.S. company that dutifully checks the lists and concludes that it can deal with Iran Air.

Permalink Comments (4)

Bookmark and Share


Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)



Jan

28

SEC Name and Shame Obligation Survives Implementation Day


Posted by at 11:29 pm on January 28, 2016
Category: Iran SanctionsSEC

Shame for Mihaha - graffiti by Gabriel [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/8spfHr [cropped]One of the issues that has received little attention in all the hubbub about Implementation Day is the survival of the name and shame provisions adopted by Congress in section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which amended the Securities and Exchange Act of 1934 to require that all “issuers” who are required to file annual or quarterly reports with the SEC must report certain Iran-related activities by the company itself or its “affiliates.” The activities that must be reported are activities specified in sections 5(a) and 5(b) of the Iran Sanctions Act, sections 104(c)(2) and 105A(b)(2) of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 and any transactions with the Government of Iran or with persons blocked under Executive Orders 13224 or 13382.

These transactions include knowingly

  • Making and investment of $20 million or more that directly and significantly contributes to Iran’s ability to develop its petroleum resources;
  • Providing goods and services valued at $1 million (or an aggregate of $5 million in a 12-month period) that directly and significantly contribute to Iran’s ability to import refined petroleum;
  • Assisting Iran in the development of chemical, biological or nuclear weapons or a destabilizing amount of conventional weapons;
  • Assisting in the transfer of items to Iran that can be used for human rights violations including conventional firearms, stun guns, and hardware, software and technology for monitoring and censorship;
  • Assisting (in the case of foreign financial institutions) the IRGC to acquire weapons of mass destruction or delivery systems for such weapons; or
  • Engaging in any transaction or dealing with the Government of Iran or any company owned by the Government of Iran “without the specific authorization of a Federal department or agency.”

Significantly, section 219 may require disclosure of activity that is not prohibited under U.S. sanctions. If any of the above described transactions is engaged in by a foreign company (that is not a subsidiary of U.S. company) and does not involve any U.S. origin goods, the transaction, although subject to one or more sanctions (such as debarment from U.S. government procurement), is not prohibited as a matter of law.

Some, but not all, of the secondary sanctions listed above were lifted on Implementation Day for foreign firms (other than those that are U.S. subsidiaries). Nevetheless, the reporting requirements set forth in section 219 remain in place for those foreign firms that are also issuers required to file annual or quarterly reports.

The situation is somewhat more complex for foreign companies that are owned or controlled by U.S. companies. Prior to Implementation Day, the activities listed above were absolutely prohibited to those companies. Now, General License H  permits some (but, again, not all) of those activities (provided no U.S. persons facilitate those activities other than through revising policies or making global IT systems available). Importantly, it permits, for foreign subsidiaries of U.S. companies, transactions or dealings with the Government or Iran and its state-owned enterprises.

As with completely foreign firms, these foreign subsidiaries that are owned and controlled by U.S. companies will be required to report all of the above listed activities, except for one, under section 219. The exception is for transactions or dealings with the government of Iran and its state-owned enterprises authorized by General License H. Because the SEC has stated that a general license constitutes the specific authorization referred to in Section 219, those transactions by foreign subs of U.S. parents will no longer be required to be reported under Section 219. Ironically, because General License H applies only to entities owned or controlled U.S. persons, wholly foreign firms that do not meet that criterion will still be required to report these transactions with the Government of Iran and its state-owned enterprises under section 219.

Permalink Comments (0)

Bookmark and Share


Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)


« Previous posts |