Archive for the ‘Criminal Penalties’ Category


Dec

2

Prosecutors’ Flood of Crocodile Tears Drown the Wind


Posted by at 8:43 am on December 2, 2016
Category: Criminal PenaltiesIran SanctionsOFAC

Reza Zarrab via Facebook https://www.facebook.com/reza.zarrab.9 [Fair Use]
ABOVE: Reza Zarrab

This blog recently reported on the Iran sanctions case against Reza Zarrab in which Judge Berman misread and misquoted the International Emergency Economic Powers Act to hold that the United States has criminal jurisdiction over anyone on the planet who touches a dollar bill or, more accurately, knows that someone else anywhere on the planet might touch a dollar bill. Recently, the prosecution requested a Curcio hearing seeking to disqualify Zarrab’s lawyers at Kirkland & Ellis because they also represent banks that were involved, albeit without knowledge, in the wire transfers to Iran at issue.

A Curcio hearing is one where the prosecution, overcome with a flood of crocodile tears and concern for the defendant, seeks to assure that the defendant receives effective representation of counsel from a lawyer free of any conflict. The irony is that prosecution’s goal is to deprive the defendant of counsel of choice and throw him or her into the arms of brand new counsel all, of course, in the name of protecting the defendant. A further irony here is that Zarrab is represented by top-notch lawyers at Kirkland and that everyone — all the banks and Zarrab —  consented to Kirkland’s representation of Zarrab.

But the real kicker here is the breathtakingly terrible argument that the prosecutors use in their request for a Curcio hearing — namely that the banks are “victims” of Zarrab’s offense:

K&E’s simultaneous representation of Zarrab and at least two victims in this matter,
Deutsche Bank and Bank of America, presents a conflict. The Government has charged Zarrab with defrauding these and other financial institutions by duping them into processing financial transactions that they would not otherwise have engaged in, and in doing so, exposing them to the possibility of substantial harm.

This argument falls apart after only a moment’s scrutiny. The banks at issue either knew that the transactions they processed were destined for Iran or they did not. If they knew, they were co-conspirators and not victims. If they did not know, they did not do anything wrong by processing the transactions and were not victims. And the fact that they are not being fined or prosecuted in this case makes clear that they did not know, that they weren’t exposed to the possibility of harm, that they did not suffer any actual harm, and that they weren’t victims in any sense in which normal people use that word.

An additional problem with this “victim” argument is that, as with any statute or rule protecting the foreign policy interests of the United States, the actual victims of violations of such statutes are the citizens of the United States.  In that case, the only lawyer who could possibly represent Zarrab is a lawyer whose only client is Zarrab and who has not ever represented any U.S. citizens.   For as much as the prosecution might welcome having Zarrab represented by a sole practitioner from a small village in Turkmenistan, I doubt that there are many others who think that might be an acceptable outcome.

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Nov

30

Maybe There’s a Good Idea Lurking in Tom Fox’s Stealth Advertorial


Posted by at 4:44 pm on November 30, 2016
Category: BISCivil PenaltiesCompliance Programs and ProceduresCriminal PenaltiesDDTCFCPAOFAC

Internet Email by twitter.com/mattwi1s0n [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/75rLY [cropped and processed]

Over at the excellent FCPA Compliance & Ethics Blog, Tom Fox has a plug for email monitoring software disguised as a blog post.  He’s even doing a “webinar” with the software developers — completely free, of course —  presumably to push the sales of this product.

Notwithstanding what might not be his completely objective take on this software product, Fox raises a good issue that might warrant consideration for incorporation into your export compliance program.  I assume everyone reading my blog and this post is acutely aware that a robust compliance plan is the best insurance against getting taken to the cleaners by the DoJ and the export agencies after it is discovered that an employee in your Hamburg office has been shipping  your U.S. origin night vision to Iran.  But what does your compliance program do proactively to ferret out such problems?  Fox suggests that companies should consider periodic email sweeps for keywords

The concept is straightforward; at regular intervals you can sweep through your company email database for identified key words that can be flagged for further investigation, if required.

So, should you consider sweeping all emails for keywords such as “Iran” or “Syria”? What other keywords might help pinpoint export compliance problems? “Jail”? “Orange Jumpsuit”? “Export License,” as in “let’s avoid fussing with that stupid export license requirement”? Are there keywords that can identify times when employees say something like “Call me, since we shouldn’t put this in writing”?

While I think such an approach is a nice shiny bauble that can be dangled in front of prosecutors and enforcement agencies and therefore is worth considering, I also wonder whether such sweeps will actually be effective in detecting violations. First, in my experience, most of the problems come from sales employees outside the United States who don’t think U.S. laws should interfere with their commissions. Foreign privacy laws, particularly in the E.U., often pose barriers to rifling through foreign employees’ emails. Second, in my experience, employees, particularly those with mischief in their hearts, are much too savvy to talk openly in emails about their transshipment schemes. They almost always use code of some kind to conceal what they are up to. These employees and their code words are normally not clever enough to fool prosecutors, but those code words — like “the country we discussed” or “Middle Earth” — will easily evade keyword email sweeps.

Any thoughts on this? Share your experiences (anonymously if you wish) in the comments section.

Photo Credit: Internet Email by twitter.com/mattwi1s0n [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/75rLY [cropped and processed]. Copyright 2003 twitter.com/mattwi1s0n

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Oct

21

Court Holds US Can Jail Anyone Anywhere for Dollar Based Transactions


Posted by at 7:58 am on October 21, 2016
Category: Criminal PenaltiesIran SanctionsOFAC

Reza Zarrab via Facebook https://www.facebook.com/reza.zarrab.9 [Fair Use]
ABOVE: Reza Zarrab

I often joke about the number of foreigners who arrive in the United States with their families hoping to see Mickey Mouse but who wind up seeing Elliot Ness and a jail cell instead. Controversial Turkish businessman Reza Zarrab showed up in Miami on March 19 of this year to take his wife and daughter to Disneyland and was arrested at the airport.  His application for bail was denied, and he is still languishing in jail, despite having retained fifteen lawyers from top-flight law firms.

Zarrab is accused of violating U.S. sanctions on Iran by processing payments through his financial network for companies in Iran.   His dream team of lawyers sought to dismiss the indictment, arguing that U.S. sanctions could not reach a foreign citizen requesting foreign banks to send money from foreign citizens to persons in Iran. Judge Berman, writing for the United States District Court for the Southern District of New York, just issued an opinion disagreeing with the defendant’s claim and asserting that the United States could prosecute anyone anywhere in the world engaged in any transactions involving U.S. Dollars.

There are two questions here, one much easier than the other.   The first is whether the Iran Transactions and Sanctions Regulations prohibit this conduct.   The court held, and probably rightly so, that since dollar-based transactions were involved, the transactions ran afoul of the prohibition in the regulations against the export of services from the United States to Iran.  Clearly, if a U.S. bank was used to clear the dollar transaction, there is a good argument that financial services were exported from the United States to Iran in violation of the prohibition in section 560.204 on the export of services from the United States to Iran.

The second and harder question is whether Congress, when it passed the International Emergency Economic Powers Act, under which the regulations were promulgated and which establishes criminal penalties for violations of those regulations, intended to reach extraterritorial conduct. And on this issue, Judge Berman reaches the conclusion that Congress intended in IEEPA intended to criminalize any conduct involving U.S. dollars but he does so by misquoting the relevant statutory provision:

50 U.S.C. § 1702(a)(l)(B) grants the President broad powers, including the power to
“investigate, block during the pendency of an investigation, regulate, direct and compel … any property in which any foreign country or a national thereof has any interest … subject to the jurisdiction of the United States.”

Except here is what the statute really says with the omitted portions bolded and the significant provisions underlined:

investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States

The significance of Judge Berman’s misquotation is that he omits a significant qualification regarding “property subject to the jurisdiction of the United States.” The actual language gives the President the power “with respect to, or transactions involving,” property in which a foreign national has an interest but omits the power with respect to “transactions involving” property “subject to the jurisdiction of the United States.” This is significant because Congress’s omission of “transactions involving” underlines the common understanding that Congress granted authority to block such property but did not go so far as to assert that it can criminalize foreign conduct by foreign persons that could be characterized as “transactions involving” such property.

NOTE:  My apologies for the sporadic posting but anyone who knows me knows that I am a die-hard Cubs fan, meaning that I’ve been up late, way too late, watching baseball games.  These games, as you may know, have run so late into the night in large part because pitchers (we’re looking at you Pedro Baez!) are blithely ignoring the never-enforced 12-second rule and are taking the time it takes for Watson to break a 256-bit AES cipher between pitches.  Once baseball finishes up for the season, I’ll be back to a more regular schedule.

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Oct

12

DOJ to Exporters: Confession Is Good for the Soul


Posted by at 9:40 pm on October 12, 2016
Category: BISCriminal PenaltiesDDTCOFACVoluntary Disclosures

Department of Justice by Ryan J. Reilly [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/76Kjf9 [cropped]Apparently the National Security Division at DOJ had a bunch of interns this summer with nothing to do, because this is the only conceivable explanation for the mostly risible “Guidance Regarding Voluntary Disclosures” which the NSD released on October 2. To set the tone for a further discussion of the substance of this Guidance, let’s start with a howler in the Guidance itself. Even if this guidance was written in large part, as it must have been, by eager interns, one would think that a grown-up lawyer would have reviewed this for substance. And, presumably, that grown-up lawyer whose job is to send real people to real jails would understand the laws that he or she is enforcing, right? So how do you explain this statement in the Guidance?

U.S. sanctions regimes and the Department of Commerce’s Export Administration Regulations are currently enforced through IEEPA.

Apparently, no one in the NSD has ever heard of the Trading with the Enemies Act which, as most of this blog’s faithful readers will know, is the statutory basis for the Cuba sanctions and their enforcement.  This is pretty embarrassing mistake about pretty elementary facts.

The thrust of the Guidance is an interagency power grab by which DOJ wants to take away the first responsibility for review of voluntary disclosures from OFAC, DDTC and BIS. The guidance states that voluntary disclosures should be made to the Counterintelligence and Export Section of NSD when the exporter learns that a violation “may have been willful.” Specifically, the Guidance says:

Ordinarily, when an organization voluntarily self-discloses violations of U.S. export controls and sanctions, it presents its VSD to the appropriate regulatory agency under the procedures set forth in the agency’s regulations. … It is not the purpose of this Guidance to alter that practice. However, as discussed further below, when an organization, including its counsel, becomes aware that the violations may have been willful, it should within a reasonably prompt time also submit a VSD to CES.

Actually the purpose is precisely to alter that practice. Remember that the criminal violations involved are violations of the agency regulations themselves. That gives the relevant agencies, and not the DOJ, the principal expertise in determining if a violation has occurred and if it was willful.

The practice until now has been to disclose violations to the relevant agency or agencies with the understanding that the agencies could, if warranted, refer the matter to the DOJ. Once the referral was made,  the prior agency disclosure and continued cooperation with the DOJ investigation would be the basis for credit by the DOJ. No longer. A separate disclosure to DOJ must be made without regard to an agency referral and, if not, the agency disclosure becomes irrelevant to the exercise of prosecutorial discretion if a subsequent referral occurs.

One of the hypotheticals discussed in the Guidance provides ample reason as to why DOJ, which clearly does not understand many of the basics of export control law, should not be usurping the primary role of OFAC, BIS, and DDTC, in export enforcement. In that hypothetical a foreign subsidiary of a U.S. corporation exports U.S. origin items in violation of BIS regulations. Without any suggestion of U.S. participation, the Guidance suggests that the parent would be offered an NPA by DOJ premised on payment of a criminal fine.

However, BIS rules, which have to be the basis of any prosecution in such a case, do not support a theory of vicarious liability by parent corporations. If the parent company did not export the items it could only be held liable, under section 764.2, for causing, aiding or abetting the export. That’s why in the recent Alcon Laboratories case, BIS held the U.S. parent liable for its exports to Iran but not for the exports of its Swiss subsidiary; those exports served only as a basis for a penalty against the Swiss subsidiary.

One last knee-slapper from the Guidance deserves mention. In another hypothetical, the Guidance says this:

Alert customs officers notice a bulky package within a container on a ship at a U.S. port bound to leave on a lengthy voyage overseas. The package contains ITAR-controlled commodities …

Because, you see, all bulky packages are suspicious and probably contain export controlled items. Just remember that when you send a birthday present to your aunt in Slovenia — make sure its just a small package in order to avoid scrutiny by CBP on the way out.

Photo Credit: Department of Justice by Ryan J. Reilly [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/76Kjf9 [cropped]. Copyright 2009 Ryan J. Reilly

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Oct

6

The Strange Case of Marc Turi


Posted by at 8:18 am on October 6, 2016
Category: Criminal PenaltiesDDTCPart 129

Marc Turi via http://a57.foxnews.com/images.foxnews.com/content/fox-business/politics/2015/06/27/exclusive-arming-benghazi/_jcr_content/image.img.jpg/0/0/1452210054914.jpg?ve=1 [Fair Use]
ABOVE: Marc Turi

Two days ago, on October 4, a federal district court in Arizona dismissed a criminal indictment brought in 2014 against Marc Turi that accused him of lying in two brokering applications that Turi had submitted to the Directorate of Defense Trade Controls (“DDTC”) in 2011. The dismissal was based on a motion to dismiss filed the day before by the prosecution noting that a consent agreement had been reached between Turi and DDTC.  Under that consent agreement, released by DDTC yesterday,  Turi agreed that for four years he will not engage in any “activities subject to the ITAR.”

The Turi case is, to say the least, an odd case, not the least because it involves an arms deal with the Libyan rebels which everyone — DDTC, the prosecutors, and Turi — concede never took place.

The story begins with the revolt in Libya that broke out in February 2011. Near the end of that month, the rebels attempted to establish an interim government under the banner of organization known as the Libyan National Transitional Council (“NTC”). On February 26, 2011, the UN imposed an arms embargo on Libya, which DDTC finally got around to implementing some three months later on May 24, 2011, when it amended Part 126 to include Libya. The NTC was ultimately recognized as the government of Libya by the United Nations on September 16, 2011.

According to the indictment, on March 11, 2011 and before the US imposed the arms embargo on Libya in May, Marc Turi filed an application seeking to broker the sale of certain arms from Eastern Europe to the NTC. This application was denied by DDTC on March 22, 2011, by DDTC.

A week later, on March 29, 2011, Turi filed another application with DDTC requesting permission to broker to the government of Qatar a list of arms which the indictment, in paragraph 24(ee), described as “nearly identical” to the arms detailed in the previous application relating to the NTC. That application was granted by DDTC on May 5, 2011. On June 11, 2011, Turi filed an application to broker the same arms listed in the Qatar application to the U.A.E. government instead.

On June 29, 2011, Turi sent a letter, apparently never signed, to Mustafa Abdul Jalil, the Chairman of the NTC, by which the NTC agreed to reimburse the government of UAE for the arms described in the brokering applications filed by Turi with respect to Qatar and UAE. That letter was never signed, the arms never went to the NTC and the U.S. government indicted Turi for lying in the UAE and Qatar brokering applications by failing to reveal that the arms were destined ultimately to the NTC.

Turi’s defense, as revealed in his Motion to Compel Discovery, was that he was, in fact, acting on behalf of the CIA which sought to arm the NTC notwithstanding the UN embargo. Turi and the government then wrangled over these discovery requests, which the government claimed sought classified information, until the DDTC deal was reached and the government requested the dismissal of the indictment.

With these facts in mind, let’s look at the documents released by DDTC relating to the settlement.  These documents are, to say the least, odd. To begin with DDTC does not charge Turi with lying in the brokering applications he made with respect to Qatar and the UAE.

Instead, DDTC in its proposed charging letter first accuses Turi of making an unapproved proposal to the NTC in violation of section 126.1(e) of the International Traffic in Arms Regulations, citing the June 29 letter to Chairman of the NTC. Apparently no one at DDTC actually read section 126.1(e) because there is no way that this letter violated that section. That section only prohibits proposals “made to any country referred to in this section (including the embassies or consulates of such a country), or to any person acting on its behalf.” Given that the NTC was not recognized as the legitimate government of Libya until September 2011, the letter to the NTC in June, when NTC was simply a rebel organization, was not made to Libya or anyone acting on its behalf and so could not violate section 126(e).

The second violation in the DDTC charging letter is that Turi acted as a broker for Libya without authorization. This is problematic on two counts. The first is that if Qatar hires Turi to send arms to Libya the Turi is brokering for Qatar and not for Libya. Perhaps there’s a problem that Qatar’s intentions with respect to Libya weren’t revealed in the application, but DDTC isn’t charging Turi with violating the prohibition on false statements in applications. Besides, that was the charge DOJ made, and they dropped that.

But the second, and larger, problem with the brokering charge is this: DDTC had to know when it approved the Qatar brokering application where the arms were headed. That application was filed exactly one week after the Libya application was denied and covered a list of arms nearly identical to the ones in the Libya application. DDTC isn’t that stupid, nor is everyone else as stupid as DDTC must imagine.

Consider this: say you’re a compliance officer and an employee asks to ship some flowers to Iran. You, of course, say no. Five minutes later he’s back in your office saying he decided to send the exact same flowers to the UAE instead. No problem, you say. Does anyone honestly think that DDTC or BIS or OFAC would look the other way? Or would they have your head on a platter?

DDTC and that State Department almost certainly were fine with letting Qatar arm the rebels in Libya; they just could not admit that in writing.

 

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