Apr

28

Two Heads Are Not Always Better Than One


Posted by at 9:22 am on April 28, 2016
Category: BISCuba SanctionsOFAC

Havana by Bryan Ledgard [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/nwFDPh [cropped and processed]

The Office of Foreign Assets Control (“OFAC”) last week updated its Cuba FAQs with this perplexing little blurb that can only charitably actually be called an “answer” or the “A” in FAQ.

68. May a person subject to U.S. jurisdiction export or reexport to Cuba items that include U.S.-origin content, but are not 100 percent U.S.-origin?

Persons subject to U.S. jurisdiction may engage in all transactions ordinarily incident to the exportation or reexportation of 100 percent U.S.-origin items from a third country to Cuba, consistent with the export licensing policy of the Department of Commerce. Items that are not 100 percent U.S.-origin would require OFAC authorization, which would be subject to certain statutory restrictions.

This is nothing more than a paraphrase of section 515.533(a)(1) of the Cuban Assets Control Regulations. In fact, the FAQ might have been more clearly stated and just as useful if it was written this way:

68. Do you really mean what you say in section 515.533(a)(1)?

Yes.

Of course, the FAQ neatly dodges the ugly truth that if the item is 99 percent U.S.-content, then you will need a license from both BIS and OFAC to reexport that item from a foreign country to Cuba. You want real export reform? Here’s where you start. There is no need in this instance, or ever in any other instance, for two federal agencies to decide whether something can be exported. Of course, you could avoid the double license requirement by shipping the item from the third country to the U.S. before exporting it to Cuba in which case you will only need the BIS license. This workaround further illustrates how absurd the double licensing requirement is here.

There is a second ugly truth that the FAQ dodges. Both the FAQ and section 515.533(a)(1) imagine that the phrase “100 percent U.S.-origin items” actually means something and can be determined to be true or false with respect to any given product. Nowhere in OFAC’s rules, or FAQs, or website, or presumably even on scraps of paper on the floor of OFAC’s basement is there any guidance as to how to determine U.S. content. Anyone who has ever struggled with this issue in its many contexts (including customs country of origin rules) will realize that there are a number of ways to analyze such a question, based on tariff shift rules, substantial transformation rules or the FTC’s “substantially produced in” rule. And often, if not almost always, each of these rules will result in a different country of origin for a product.

Take this example: apples grown and packaged in the United States are packaged in boxes made in the United States with cardboard imported from Canada. A substantial transformation rule might say that the box was U.S. origin; a tariff shift rule might say that it was not; and the substantially produced test would also probably say that it was not. Under the tariff shift rule, BIS licenses the reexport; using the others then both may have to license the re-export.

Here’s a harder case: take the same example above but with the box made in the United States with U.S. cardboard made from U.S. trees and printed with ink made in the United States, although one of the chemicals in the ink is imported from China. Probably under all the tests described above, the packaged apples would be 100 percent origin. Still, there is a Chinese chemical in the ink on the box. Without BIS or OFAC committing to any of the three tests described above, this is not a 100 percent origin U.S. product.

That being said, there are probably no 100 percent origin U.S. products (short of unpackaged agricultural produce without foreign-produced pesticide residue). In that case, you always need both licenses for re-exports and there was really no need at all — unless there was some desire to confuse — for Cuba FAQ 68.

Photo Credit: Havana by Bryan Ledgard [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/nwFDPh [cropped and processed]

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Apr

25

Woman Indicted for Failure to File Electronic Export Information Forms


Posted by at 11:19 am on April 25, 2016
Category: BISChinaCriminal Penalties

Harbin Engineering University via http://english.hrbeu.edu.cn/skin/default/images/officer_r8_c61.jpg [Fair Use]
ABOVE: Harbin Engineering
University


Amin Yu bought things for Harbin Engineering University (“HEU”) in China — all EAR99 items, none of which required an export license. She listed an incorrect value for the items on documents that she gave to UPS, FedEx and various freight forwarders. As a result, none of them filed Export Electronic Information forms for the shipments. The federal government has now indicted Yu, accusing her of being a Chinese spy and indicting her for failure to file the required EEIs. This is the first and only indictment of anyone for failing to file EEIs for EAR99 items. It’s rather like accusing someone who put the wrong postage on a letter with being a terrorist.

The first count of the indictment (in case newspaper crime reporters get bored and don’t read the whole thing) is for failure to register as a foreign agent under the Foreign Agents Registration Act (“FARA”). This is catnip for reporters who quiver with excitement each and every time they can give their editors a story with the word “spy” in it. Even the once venerable Newsweek fell for this ploy, referring to Yu in its headline as a “Chinese Spy.”

These FARA counts are also, as we’ve seen before, a sure sign that the government has a lousy case that it can only win with a generous dollop of press-induced hysteria about the defendant.

The problem with these bogus FARA “spy” counts is that it is not illegal to buy stuff for foreign governments (or foreign government-run universities as was the case here.) A significant exclusion is set forth in section 3(d) of the act for certain “non-political” activities, including “engaging … in private and nonpolitical activities in furtherance of the bona fide trade or commerce of such foreign principal.” In other words, acting as a commercial agent for foreign governments, foreign companies and foreign individuals by buying stuff for them does not make the person engaged in that activity a foreign agent required to register under the act. (The requirement that the trade be bona fide is to prevent the foreign principal from trying to spread influence in the United States by having its agents buy items that it doesn’t need.) And when you read the indictment that is all that Yu did: she bought things for HEU.

As to the EEI-related counts, things are not much better with the government’s case. It appears that in some instances the EEIs weren’t filed because the amounts declared for the exported goods were too low. Whether this was anything other than an attempt to reduce Chinese import duties when the items arrived in China is unclear. In some instances, it is not clear at all why the forwarders and shipping companies did not file EEIs because the declared values where above the EEI exemption limit of $2500. The indictment also focuses on an instance where the shipping documents did not use Yu’s full name and another where the address of HEU was missing.

What appears to have gotten the DOJ all worked up here is that the items involved could be used for unmanned submersible vehicles. But so far the federal government has put no controls on these items, which at the moment are mostly being used for oceanography, deep-sea exploration, underwater oil prospecting, and meteorology. If the government doesn’t want the Chinese developing underwater submersibles with U.S. origin goods, it knows how to do it and, for some reason, hasn’t.

Photo Credit: Harbin Engineering University via http://english.hrbeu.edu.cn/skin/default/images/officer_r8_c61.jpg [Fair Use]

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Apr

14

No Cuban-Americans Allowed


Posted by at 10:10 pm on April 14, 2016
Category: Anti-BoycottBISCuba Sanctions

Fathom Cruise Ship via https://www.fathom.org/wp-content/uploads/2016/03/Adonia-500x325.jpg [Fair Use]

On Tuesday of this week two Cuban-born residents of Florida filed a lawsuit against Carnival cruise lines and its subsidiary Fathom Travel for violating their civil rights by refusing to book passage for them on a cruise ship from Miami to Cuba. The companies based the decision on the plaintiffs’ national origin: both were born in Cuba and Cuba currently prohibits anyone born in Cuba from traveling to Cuba from the United States (or anywhere else) by boat. Persons of Cuban origin may only travel to Cuba by air. (If you wonder about the reason behind this policy, it’s obviously because you are unaware that Castro’s slogan “Socialismo o Muerte!” was originally simply “Viaje Aéreo o Muerte!“)

As the ruckus commenced in Little Havana in Miami, the cruise line defended its actions by arguing that it was only complying with Cuban law. Delving into the intricacies of the Civil Rights Act of 1964, which prohibits discrimination in public accommodations based on national origin, is a bit out of the scope of this blog, but not completely. The Department of Transportation, in a somewhat similar recent situation, held that Kuwait Airways violated 49 U.S.C. § 41310 when it refused to book a ticket for an Israeli wishing to travel between New York and London. The airline’s argument that Kuwait law forbade it from selling tickets to Israeli passport did not overcome the prohibition of § 41310 against “unreasonable discrimination” given that the passenger was traveling not to Kuwait, but to London where it would be legal for him to disembark the plane. The fact that the Kuwait case did not involve travel to a place where disembarkation was forbidden effectively distinguishes this case from the one against Carnival.

More interestingly, and more within the scope of this blog, the Department of Transportation further based its action on the antiboycott provisions in the Export Administration Regulations. Section 760.2(b) of the EAR prohibits U.S. companies from discriminating against anyone based on national origin “with intent to comply with, further, or support an unsanctioned foreign boycott.”

So, are Carnival and Fathom violating these regulations by refusing to book travel for Cubans wishing to take boats to Cuba? Although the antiboycott regulations go into excruciating detail on many of its definitions and prohibitions, nowhere do they bother to define or to elucidate the meaning of “unsanctioned foreign boycotts” even though nothing in these rules is violated unless somehow related to an unsanctioned foreign boycott. That leaves open the question whether Cuba’s law prohibiting Cuban-born persons from traveling to Cuba by boat from any country in the world is an unsanctioned foreign boycott.

The EAR gives as an example of prohibited discrimination an agreement by a U.S. company to comply with a boycotting country’s local law forbidding employment persons of a certain religious faith in projects in that country. This would be a violation, the example states, because the majority of the citizens of the boycotted country are of the prohibited faith. On the other hand, the next example says that an agreement to comply with a local law of that country not to employ women would not violate the antiboycott provisions because it would not be “boycott-based.” This suggests, at least to me, that the Cuban restriction is not a foreign boycott. The restriction is only on Cuban-born persons and the only place with a majority of citizens born in Cuba is, obviously, Cuba. I’m not sure anyone, even Cuba, can boycott itself.

 

Photo Credit: Fathom Cruise Ship via Fathom [Fair Use]

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



Apr

12

Texas Millionaire’s Release in Iran Prisoner Swap Remains a Mystery


Posted by at 6:21 pm on April 12, 2016
Category: Criminal PenaltiesIran SanctionsOFAC

Smart Power Systems and Bahram Mechanic via http://www.smartpowersystems.com/content/main/corporateinformation.html [Fair Use]An excellent and detailed article in the Houston Press, an alternative weekly news magazine and website, ponders the reason that a Texas millionaire, Bahram Mechanic, was on Iran’s prisoner swap list and received, as part of the prisoner swap negotiated with the nuclear deal, a pre-trial pardon of export charges that had been filed against him. This blog had previously written about the indictment against Mechanic which incorrectly accused him, at least for certain (but not all) of the charged exports, of not having a BIS license that he didn’t need. Nine months later, in January 2015, Mechanic walked out of the federal detention center where he was being held without bond pending trial. Like the other Iranian prisoners swapped in the deal, none of whom actually returned to Iran, Mechanic re-ensconced himself in a $2 million condo atop the forty story Four Leaf Towers in Houston and had the crab dinner he complained he had been craving ever since he became the involuntary guest of federal taxpayers.

The author of the article candidly admits that he has no idea why the Iranians were interested in freeing Mechanic. But he does supply a number of curious details about the case. First, Mechanic was denied bail, at least in part, because they found 156 grams of cocaine, 4 kilos of an opium derivative, multiple passports and $100,000 in cash in multiple currencies in a safe in his home. The drug possession charges were later dropped without explanation.

Second, it appears that his defense was going to be a version of the dog that didn’t bark in the night. Apparently, back in 1997, Mechanic had a lawyer at a small trade firm in Houston send a letter asking the Office of Foreign Assets Control if his ownership interest in, and business relationship with, Faratel, a company in Iran, posed any problems. (Ya think?) Not hearing anything (ever) back from OFAC, Mechanic and his lawyers saw this as a green light to continuing shipping things to Faratel in Iran. This is a bit odd since he was indicted at about the same time as the letter to OFAC for transshipping items through Taiwan to Faratel in Iran. Although those criminal charges were dropped, he ultimately paid OFAC a $100,000 fine to settle civil penalty charges OFAC brought arising out of those shipments.

Mechanic’s lawyer suggested to the author of the Houston Press article that the government’s case was meritless, using a familiar term sometimes used to describe bovine excrement. He speculates that the government fabricated the case against Mechanic as “trade bait” for the Iranians. At other times in the article, Mechanic’s lawyer somewhat inconsistently concedes that Mechanic may have done the things he was accused of doing but didn’t know that it was wrong, apparently because the 1997 letter never got an answer (other than, of course, the $100,000 fine).

None of this does anything but deepen the mystery as to why anyone in Tehran would give two cents, much less three American prisoners, to spring Mechanic from jail so he could return to his luxury condo in Houston and catch up on all the crab dinners he missed while in jail.

Photo Credit: Smart Power Systems and Bahram Mechanic via Smart Power Systems [Fair Use];

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Apr

7

Save the Fokkers


Posted by at 11:40 pm on April 7, 2016
Category: Burma SanctionsCriminal PenaltiesEconomic SanctionsGeneralIran SanctionsSudan

Fokker Services Building in Hoofddorp via http://www.fokker.com/sites/default/files/styles/carousel_innovations/public/media/Images/Services/Contact_Fokker_Services_Location_Hoofddorp_637x286.jpg?itok=NYP0cc2k [Fair Use]

The United States Court of Appeals for the District of Columbia Circuit just reversed the decision of a lower federal district court which tossed out the deferred prosecution agreement between the Department of Justice and Fokker Services B.V.  Fokker had admitted, in a voluntary disclosure to the Office of Foreign Assets Control (“OFAC”), that  it had obtained U.S. origin aircraft parts which it then re-exported to Iran, Sudan and Burma without the required licenses. This blog has previously criticized both the highly unusual decision of the DoJ to turn a voluntary disclosure to OFAC into a criminal prosecution and the district court’s decision to toss aside the DPA as too lenient, apparently in the belief that Iran was somehow involved in the 9/11 terrorist attacks.

The Court of Appeals decision, which restores the DPA and reverses the lower court, is based simply on its interpretation of the Speedy Trial Act. Because a DPA starts the Speedy Trial Act’s seventy-day clock running, the Act provides, in 18 U.S.C. § 3161(h)(2), that a DPA can turn off this clock “with the approval of the court.” Otherwise, of course, the defendant could escape prosecution after seventy days, despite provisions of the DPA that prosecution would be avoided only upon good behavior by the defendant during a longer period, typically one to three years.

The Court of Appeals held that this requirement of approval did not give the district court the authority to question the leniency of the DPA, the charges brought by the government or the parties prosecuted under those charges. Rather the court reviewing a DPA is limited to determining if the DPA is

geared to enabling the defendant to demonstrate compliance with the law, and is not instead a pretext intended merely to evade the Speedy Trial Act’s time constraint.

The only other authority of the lower court, according to the Court of Appeals, would be to reject “illegal or unethical provisions” of the DPA, noting that the District Court had not argued that anything in the DPA was either illegal or unethical.

The Court of Appeals opinion is, thus, good news and bad news. The bad news is that a court can’t refuse to approve a DPA on the grounds that it was unfair for the government to turn a voluntary disclosure to an administrative agency into a criminal prosecution. The good news is that if the exporter does agree to a DPA, it can have a high degree of certainty that the district court cannot condition approval of the DPA on the insertion of more onerous provisions.

Photo Credit: Fokker Services Building in Hoofddorp via Fokker http://bit.ly/23bmktC [Fair Use] [cropped]

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


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