Archive for the ‘China’ Category


Mar

19

Export Car to China: Go Directly to Jail


Posted by at 12:41 am on March 19, 2015
Category: ChinaCriminal Penalties

Porsche Panamera via http://files2.porsche.com/filestore.aspx/normal.jpg?pool=multimedia&type=image&id=rd-2014-homepage-teaser-ww-panameraturbos-kw43&lang=none&filetype=normal&version=b51309d8-552d-11e4-99aa-001a64c55f5c&s=4 [Fair Use]

Everybody knows that you can go to jail for exporting a tank to China. But did you know that you can go to jail for exporting a luxury car, classified as EAR99, to China?

Well, it appears that you can. According to an article in the Milwaukee Journal-Sentinel, Mao Peng, a resident of Kenosha, Wisconsin, and his wife were arrested in Los Angeles for exporting luxury vehicles to China and sent back to Wisconsin for trial. Only the terminated criminal proceedings in Los Angeles are in PACER at the moment. The transferred case in Wisconsin has not shown up yet in PACER, so details of the charges are somewhat hard to discern.

But it appears from a number of news sources, like this article in the New York Times, that federal prosecutors have been targeting individuals who purchase luxury vehicles in the United States and then export them to China for resale. Apparently, there is a substantial price differential between the price of luxury vehicles in the U.S. and China creating an attractive arbitrage opportunity for ambitious entrepreneurs. And the auto manufacturers have some how enlisted the DOJ to help them preserve their high margins in China.

At the behest of luxury car manufacturers, the U.S. Government has been seizing cars and bank accounts, but at least one federal judge has called foul. The opinion in that case gives some clue as to the prosecutors’ theories in the luxury car export cases. In that case, the Secret Service seized bank accounts alleged to contain funds derived from an auto broker’s export business. Because luxury auto dealers are prohibited by their manufacturers from selling cars for export, dealers require purchasers to sign, in the purchase documentation, a representation that the cars are for their own use and not for export. The export brokers pay straw purchasers to buy the vehicles for them. The government’s theory is that the brokers are conspiring with the straw purchasers to commit wire fraud in connection with the personal use representations by the straw purchasers. The district court held, relying on the “convergence” requirement, that the misrepresentation was at most a contractual violation rather than a criminal matter because the auto dealers to whom the misrepresentation were made were not injured by the misrepresentation; only the manufacturers were.

Peng’s case, which appears to be the first criminal prosecution for exporting cars to China, may be somewhat different because it appears that his straw purchasers were Native Americans and that sales taxes were therefore not paid on vehicles delivered to reservations on which they lived.   It also appears that the government is alleging that Peng was continuing to use the names of the straw purchasers for more purchases than they had agreed to and that this was some kind of identity theft.   But, according to the Journal-Sentinel article, it also appears that the government’s case is  primarily based on the non-export representations made by the straw purchasers to the auto dealers.

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Mar

9

Slow Boat From China: Keep Cuba in Arms Evermore


Posted by at 5:23 pm on March 9, 2015
Category: Arms ExportChinaCuba Sanctions

Da Dan Xia Weapons Cache by Colombia Prosecutor's Office [Fair Use]Colombia recently detained the Chinese vessel Da Dan Xia after it entered the port of Cartagena to unload part of its cargo. Based on an anonymous tip, Colombian officials searched the boat and found a boatload, so to speak, of weapons: 100 tons of gunpowder, just under three million detonators, 99 projectiles and approximately 3,000 cannon shells. All destined for Cuba. The ship’s documentation listed none of these goodies correctly, instead calling them spare parts and chemicals, and so the captain of the ship was hauled off the boat and arrested.

The Cubans aren’t saying anything and the Chinese are saying stupid things.

China’s foreign ministry said on Wednesday that the ship had been involved in “normal trade co-operation”. Hua Chunying said the ship was carrying ordinary military supplies to Cuba and was not in violation of any international obligations.

Of course, this does not explain why the items were not accurately described. But I can tell you the likely reason for that: Colombia is a signatory to the Inter-American Convention Against the Illicit Manufacturing and Trafficking in Firearms, Ammunition, Explosives and Other Related Material. That means that a transit permit would have been required for the ship to enter a Colombian port loaded up with this cargo. And, guess what? China did not want to bother getting a transit permit, largely, I suppose, because it did not want the United States, or anyone else, to know that it was selling this stuff to Cuba.

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Jun

16

It’s A Small World After All, Even For Economic Sanctions


Posted by and at 8:02 pm on June 16, 2014
Category: ChinaEconomic SanctionsEURussia SanctionsSanctionsSudan

It's A Small World by Darren Wittko https://www.flickr.com/photos/disneyworldsecets/2767829714/ CC BY 2.0 [https://creativecommons.org/licenses/by/2.0/] (cropped)G-7 countries recent meeting in Brussels understandably grabbed global headlines for their unified message that they “stand ready to intensify targeted sanctions and to implement significant additional restrictive measures to impose further costs on Russia should events so require.”

While sanctions imposed by G-7 countries, as well as the EU, drive the engine of global sanctions enforcement, there are almost 200 other countries in the world and many of them want to have their position on sanctions known.  Last week, for example, Serbian President Tomislav Nikolić surprised no one on Earth (or anywhere else for that matter) when he told Serbian media, “It’s impossible to imagine Serbia imposing sanctions on Russia.”  Of course, Nikolić’s pronouncement is hardly going to cause the E.U. to rethink, even for a fraction of a nanosecond, its position on Russian sanctions.  On the other hand, the E.U. sanctions may cause Serbia, given that Russia is one of it’s largest trading partners, to rethink the wisdom of its application to become a member of the E.U.

Besting Serbia’s population by over a billion, China is emerging as a critical Russian ally and the most important country that is not imposing sanctions against it.  As with Serbia, economic self-interest and the volume of China’s trade with Russia may be at the heart of this.  In fact, reports on the recent $400 billion, 30-year deal for Gazprom to supply natural gas to China suggest the deal would be based on a ruble-yuan exchange and bypass Western financial systems altogether.

With developed countries like China and Serbia using economic self-interest to justify trading with Russia despite its shenanigans in Ukraine, some developing countries may be acting against their own economic self-interest in imposing sanctions to deal with regional conflicts.  Reuters reported this week, for example, that members of the Intergovernmental Agency for Development, an East African trade group made up of Djibouti, Eritrea, Ethiopia, Kenya, Somalia, South Sudan, Sudan and Uganda, have threatened sanctions against South Sudan if warring factions do not cooperate to end conflict in that country.  The United States imposed sanctions in early May against military leaders involved in the conflict, but they likely will provide no meaningful impact.  However, when everyday trade with your neighboring countries starts to become restricted, sanctions are far more likely to achieve the goal of ending conflict.  If East African sanctions succeed against South Sudan while E.U and U.S. sanctions have no impact on Ukraine,  then we will certainly have a situation where it’s the mice that roar while the elephants squeak.

Sanctions news runs on the front page when it involves the United States and Europe but also on the back pages as it involves the rest of the world.  You have to read the whole paper to make sure you have the full story.

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Apr

30

U.S. Long Arm Stretches But Likely Won’t Reach Its Chinese Target


Posted by at 6:12 pm on April 30, 2014
Category: ChinaDoJEconomic SanctionsExtraditionIran SanctionsSDN List

FBI Wanted Poster [Public Domain]

The U.S. Department of Justice announced yesterday that it charged Li Fangwei, a Chinese national, with violating U.S. sanctions against Iran as well as with federal fraud violations.  Li, also known by a panoply of aliases including Karl Lee, Sunny Bai and Patric, is accused by the Justice Department of using a number of Chinese companies he controls to sell “metallurgical goods” and other items to Iran that are prohibited from sale to Iran under U.S., UN and other sanctions around the world because of their potential use in nuclear weapons or ballistic missiles. Li himself was added to the SDN List in 2009 and his Chinese companies have been added to the SDN since 2006.  In fact, OFAC added eight Li companies to the SDN List yesterday.

With respect to U.S. sanctions, Li is alleged to have used front companies to engage in funds transfers through U.S. banks in order to conduct his business with Iran.  In a related matter, the Justice Department announced yesterday that the U.S. Government has already seized almost $7 million in funds attributable to Li’s companies that were held in U.S. correspondent accounts of foreign banks used by the Chinese companies.

The seizures are, of course, a success for U.S. sanctions enforcement.  It raises, however, the question of whether a criminal prosecution of Li is fruitful or may be even necessary in an effort to curtail his dealings with Iran.  In announcing the indictment, Assistant Attorney General John Carlin described the criminal prosecution as “part of the ‘all tools’ approach our government is taking against Li Fangwei.”  Indeed, other tools like those used by OFAC, in cooperation with the FBI and the Marshals Service, have so far seized millions attributable to Li front companies on the SDN List.  If OFAC can designate entities to the SDN List and funds in the United States attributable to them can be seized, what more can U.S. sanctions be expected to accomplish under the circumstances.

On that score, Li was part of a post here over five years ago when Robert Morgenthau, as then New York County District Attorney, announced a 118-count indictment against Li and one of his companies, LIMMT, alleging Li and LIMMT falsified business records in violation of New York law in transferring funds through New York banks in connection with transactions with Iran.  Back then, we questioned the legitimacy and efficacy of New York trying, in effect, to enforce U.S. sanctions and wondered whether OFAC wanted any assistance (or ultimately the distraction) from New York in its attempt to enforce U.S. sanctions policy.

History has a funny way of repeating itself.   Although the Justice Department actually has the authority to prosecute a U.S. sanctions violation, the same question of efficacy lingers.  Under a fair assumption that Li is in China now and the Chinese government knows Li’s exact whereabouts, there is almost no reason to think China will extradite him or even possibly curtail his activities with Iran.  Perhaps the Department is hoping that the $5 million bounty the FBI placed on Li’s head might prompt someone in China to nab Li, tie him up, put a bag over his head, put him in a container and ship him to the U.S. in order to claim the reward.

The case of Li Fangwei, therefore, should not be sidetracked to the U.S. justice system.  This is in OFAC’s bailiwick and OFAC should lead the charge, in cooperation with other U.S. agencies, to seize blocked property in the United States and liaise with Canadian, EU, Swiss and other foreign sanctions enforcement authorities to convince them that similar seizures should take place around the world and intelligence should be shared with each other on what new companies Li, and possibly others, are using to do impermissible business with Iran.

In the words of the Justice Department, Li Fangwei is a “fugitive.”  That could not be more of a misnomer.  The case of Li Fangwei simply does not fit the parlance used by U.S. prosecutors.  The Justice Department is right, however, that the United States is afforded a lot of tools in sanctions enforcement.  Sometimes, there are tools best left in the toolbox.

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Jan

21

Wide World of (North Korean) Sports: Piste Off Edition


Posted by at 7:23 pm on January 21, 2014
Category: ChinaEconomic SanctionsEUForeign Export ControlsNorth Korea Sanctions

By Mark Scott Johnson from Sydney, Australia (IMG_7688) [CC-BY-2.0] (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3AMount_Paektu7.jpgDennis Rodman and his coterie of NBA All-Stars recently returned to the United States from North Korea after Rodman’s birthday basketball bash for his “friend for life” Kim Jong Un.  While Rodman’s zealous zaniness has grabbed global media headlines, another sports-related development in North Korea, is more significant to sanctions and export control issues: the grand opening this month of the Masik Pass luxury ski and hotel resort.

Pictures taken of the resort show the 120-room hotel, indoor swimming pool and 11 ski runs.  Other pictures also show, however, Italian snow plows, Canadian snowmobiles and Swedish snow cannons.  Recent news reports began to shed light on the obvious sanctions issue: how did North Korea build a ski resort without someone violating sanctions.  U.N. Security Council Resolution 2094 and others prohibit members from selling “luxury goods” to North Korea and even though “luxury goods” are not defined and are not limited to the specific luxury items delineated in Annex IV of Resolution 2094, it seems hard to deny that snowmobiles, snow cannons and the other accoutrements of a “luxury” resort are not “luxury goods.”

According to SkyNews, the Italian snow plow manufacturer has predictably said, “Snow groomers are sold directly to ski resorts and distributors and it is possible that a used snow groomer is than sold to another final user by ski resorts or distributors themselves. On this kind of business we as a producer do not have any influence, no company can avoid that this happens.”

Western goods flowing into North Korea is not new.  In fact, we reported last year on the curious infiltration of an Apple iMac on Kim Jong Un’s desk and suggested it, like many Western goods in North Korea, came from China.  Plausible deniability about to whom a manufacturer’s customers sell its products becomes, of course, more attenuated when your business is selling “state-of-the-art snow cannons” that retail for 14,000 Euros each.

U.N., U.S., E.U. and Canadian sanctions policies fail if a repressive regime like North Korea’s so-called supreme leadership continues to violate human rights but opens a ski resort to sustain its control.  Like sanctions against Iran, Cuba and other countries, a principal goal is to curtail infrastructure projects that support the sanctioned governments.  While a ski resort is not the largest national infrastructure project, sanctions were designed to prohibit it being built and supported by Western goods and technology.

Even if the sales of the items found at Masik Pass were beyond detection of reasonable know-your-customer requirements, Italian, Canadian and Swedish enforcement authorities would at least have grounds to inquire further, especially company records and communications involving sales to Chinese resellers that may have been possible routes to North Korea.  While any manufacturer or retailer can’t know everything about its customers, knowing more gives a company greater support to conclude that its business does not involve impermissible activities or give law enforcement a reason to examine its business further.

Clif adds: Blame me, not George, for the terrible pun in the post title.

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