Archive for the ‘Criminal Penalties’ Category


Apr

18

Indictment of SDN Ignores OFAC’s 50 Percent Rule


Posted by at 2:56 pm on April 18, 2017
Category: Criminal PenaltiesOFACSDN List

Kassim Tajideen Mugshot [Fair Use]
ABOVE: Kassim Tajideen

Prosecutors love to add cute little nicknames to indictments.   In their view, United States v. John Jones aka Vicious Johnny the Kneecapper sounds much, much better than plain old vanilla United States v. John Jones.  So, in the indictment against recently arrested Kassim Tajideen the government makes sure to lead off with a few akas:  “Big Haj” and “Big Boss.”  In this case, however, maybe the United States needs its own aka as well: “United States aka United States of Imaginary Laws”

Tajideen is on the Office of Foreign Assets Control’s List of Specially Designated Nationals and Blocked Persons.   He is being prosecuted for “causing” U.S. persons to violate the rules against transactions with blocked parties.   Charging an SDN for doing business with U.S. persons, rather than charging U.S. persons that do business with the SDN, is unusual but not unprecedented.

The problem here, however, is not that the prosecution is unusual.   The problem is that the prosecution is based on a rookie mistake and an careless misinterpretation of governing law.  The theory of the indictment is that Tajideen, by not disclosing that he controlled various companies, caused U.S. persons to transact business with those companies in violation of U.S. sanctions.   Here’s what the indictment says:

The business empire utilized different corporate entities over the years, all controlled by KASSIM TAJIDEEN, including Epsilon, ICTC, and Sicam Ltd., to procure and distribute goods throughout the world, including the United States. KASSIM TAJIDEEN was the ultimate owner and chief decision-maker of the business empire, with IMAD HASSOUN acting as confidante and lieutenant. KASSIM TAJIDEEN benefited directly and indirectly from the operation of the business empire.

22. At all relevant times during the conspiracy, the defendant KASSIM TAJIDEEN was designated a Specially Designated Global Terrorist by the United States Department of the Treasury, Office of Foreign Assets Control, pursuant to the International Emergency Economic Powers Act, Executive Order 13224, and the Global Terrorism Sanctions Regulations. As discussed above, the SDGT designation resulted in any property in the United States, or in the possession or control of U.S. persons, in which KASSIM TAJIDEEN had an interest, being blocked, and all U.S. persons were generally prohibited from transacting business with, or for the benefit of, KASSIM TAJIDEEN.

Most readers here will immediately see the problem with the prosecutor’s case. In effect, the prosecution is asserting, wrongly, that it is illegal for a U.S. person to deal with an entity in which an SDN has any interest. Alternatively, the prosecutors might be asserting above that it must be at least a controlling interest. But whichever the case, that is just not true.

OFAC has issued clear guidance, easily found by anyone with access to the Internet (which presumably includes the prosecutors here) that describes the circumstances in which any entity in which an SDN has interest is itself also blocked by operation of law.  This guidance makes clear that it takes more than “any interest” or even a “controlling interest” for ownership by an SDN result in the owned entity being itself blocked.

Here is what that guidance says:

Persons whose property and interests in property are blocked pursuant to an Executive order or regulations administered by OFAC (blocked persons) are considered to have an interest in all property and interests in property of an entity in which such blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest. Consequently, any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person.

The guidance makes it perfectly clear that control alone does not result in the SDN’s company being blocked:

U.S. persons are advised to act with caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50 percent or which one or more blocked persons may control by means other than a majority ownership interest. Such entities may be the subject of future designation or enforcement action
by OFAC.

There’s good reason for this rule. Although majority ownership of an entity is something on which information can be easily gathered, it is difficult, if not impossible, for a party to a transaction to determine every owner of that entity or even the person who might ultimately exercise de facto control over that entity. So, under the OFAC guidance, it was not illegal for U.S. persons to transact business with these entities in which Tajideen had some interest, maybe even a controlling one. If those transactions were not illegal, then Tajideen did not cause any illegal transactions and the bottom drops out of the government’s case.

What the government had to allege here, and what it somehow was unable to do, is that Tajideen had a “50 percent or greater” interest in Epsilon, ICTC, and Sicam Ltd.  Even saying, as the indictment does, in one place that Tajideen was the “ultimate owner and chief decision-maker of the business empire” is not the same as saying that he had an interest of 50 percent or more in the three companies at issue.

Indeed the government’s silence here, like the dog’s silence in The Adventure of Silver Blaze, says all you need to know.

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Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Mar

8

Did Undercover Agent Give Legal Lecture to Defendant on Export Law or Not?


Posted by at 10:07 am on March 8, 2017
Category: Arms ExportCriminal PenaltiesDDTC

Kolar Rahman Mug Shot
ABOVE: Kolar Rahman

Several law enforcement officials have said to me that what often makes their jobs so easy is that many criminals are several forks short of a kitchen utensil drawer.   With that in mind, we bring you the story of Kolar Rahman Anees Ur Rahman, who, if the criminal complaint is to be believed, was pretty stupid.  But maybe not.  You decide.

Mr. Rahman is an Indian national living in the UAE who just received five years probation in connection with a scheme to ship sniper rifles to Belarus. After an associate of Rahman’s contacted a gun manufacturer in the United States with a request to buy guns for Belarus, a federal undercover agent got in contact with Rahman in the UAE to continue the purchase negotiations. The undercover (or UCA in fedspeak) lured Rahman to Chicago, which was Rahman’s second mistake, the first of course having been trying to ship rifles from the US to Belarus in the first place.

Now what follows as described in the criminal complaint is astonishing, if true:

The UCA reminded RAHMAN that all of the .308 Caliber sniper rifles are export controlled in the U.S. by ITAR and could not be exported to certain countries without a license. The UCA reminded RAHMAN, due to the policy of denial in place by the U.S. government against Belarus, that it was not possible to obtain the required export licenses needed to legally export the .308 Caliber sniper rifles. The UCA explained that in order to export the firearms, they would need to make misrepresentations on the paperwork as to where the rifles would be shipped. RAHMAN informed the UCA he understood and still wanted to continue with their business transaction. The UCA informed RAHMAN he wanted to make sure RAHMAN understood the risks and that they would both go to jail if they were caught illegally exporting the rifles and ammunition. RAHMAN informed the UCA he understood the risk and that he desired to complete their business transaction as planned.

Seriously? This lengthy lecture on the law didn’t set off alarm bells, warning signals, blaring sirens, flashing lights and abject fear in Rahman? What real criminal ever gives a lengthy lecture to his associates about criminal law before embarking on the planned conduct? “Hey, Rufus, ya know robbing banks is illegal, right? And if we carry guns the penalty is increased to 30 to life? If we do this, we can both go to jail for at least thirty years or more. You know that, right? Speak up. I can’t hear ya. Okay, so you are absolutely, positively certain without any equivocation that you still want to rob this bank and you’re doing so of your own free will even though you might wind up in jail for a very long time? Don’t nod, Rufus, I need to hear you say yes.”

The UCA, if he in fact said all this, was making sure he could establish the necessary criminal intent for an export violation. This is critical where an Indian national living in the UAE might not know the ins and outs of U.S. export laws or about the U.S. arms embargo on Belarus. (I bet even a bunch of Americans don’t know about the Belarus embargo.) But you have to wonder why Rahman when (and if) he got this five-minute spiel on U.S. law didn’t run out the door of the hotel room in Chicago and hop on the next flight back to the UAE.

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Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

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

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

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 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.  If a U.S. bank was used to clear the dollar transaction, it might be argued 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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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)