According to the latest civil penalty information released by the Office of Foreign Assets Control (”OFAC”), the Center for Cross-Cultural Studies (”CC-CS”), a Massachusetts-based company specializing in arranging university study programs abroad, agreed to pay $15,000 to settle allegations that it violated the U.S. embargo on Cuba. Interestingly, the fine appears to relate to activities conducted by CC-CS in connection with otherwise licensed activity.

As usual, the abbreviated squib provided by OFAC provides few details of what actually happened, but Jerry Guidera, a director of CC-CS, sent details of the situation to the website Havana Journal. According to Guidera, the dispute between CC-CS and OFAC centered on a program conducted by CC-CS and Willamette University in Salem, Oregon from 1997 to 2004 (In 2004 tightened OFAC regulations on educational activities in Cuba resulted in the elimination of most U.S. educational programs in Cuba.) CC-CS designed the program and handled the logistics using its staff in the U.S. and in Cuba.

An article from the journal Higher Education, also reprinted at the Havana Journal website, provides even more detail:

It was when the government blocked an attempted wire transfer, intended to cover program costs, in January 2004 … that Guidera said CC-CS came under governmental scrutiny.

“We’ve been dealing with this for almost five years now,” said Guidera, who added … that, in reaching the settlement, there was no finding of fault. He believes the regulations then in place allowed for subcontractors to act on licensees’ behalf. “We’re convinced that we would have won in court.”

“If we had infinite resources we would have kept fighting this one forever.”

Actually, I don’t think CC-CS is on very strong ground here. The Cuban Assets Control Regulations are generally quite specific in detailing what sorts of transactions incident to licensed transactions are permitted, and there isn’t a broad exception for activities of subcontractors or agents of licensees. Moreover, section 515.565(a)(2)(vii) of those regulations, which was not changed by the 2004 amendments, seems to be quite clear that “the organization of and preparation for” licensed educational activities is permitted only “by a full–time employee of a [licensed] U.S. academic institution.” That would seem to suggest pretty clearly that CC-CS’s provision of logistics to Willamette with respect to its Cuba study program required a separate license.

We’re back from vacation and we’re back with a grab bag of things:

• University of Tennessee Professor J. Reece Roth was convicted on eighteen counts, including violations of the Arms Export Control Act for permitting foreign graduate students to have access to information relating to an Air Force project on the use of plasma technologies for unmanned aerial vehicles. According to the report on the Knoxville News Sentinel’s website, a key piece of evidence proving that Roth had knowledge that his conduct was illegal was a set of notes that divided the work between an American graduate student and the Chinese graduate student in order to keep export-controlled technical data away from the graduate student. When this arrangement impeded progress on the project, the students were allowed to share data. Roth claimed that he didn’t believe the information was export-controlled until the project netted an actual military product, a claim that would appear inconsistent with his initial division of work on the project between the American and the Chinese graduate student.
• The Denver Business Journal supplies more information on the Platte River Associates prosecution for allegedly violating the Cuba embargo. The attorney for Platte River told the Denver Business Journal that the prosecution arises from training that the company gave to an employee of a Spanish company, Repsol, that had previously purchased geological modeling software used for oil exploration. The employee arrived with seismic data that appeared to relate to the western Caribbean and possibly to Cuba. There is apparently no allegation that Platte River dealt with any Cubans or the Cuban Government, nor any allegation that Repsol actually used the software in connection with a Cuban project. Instead, it now appears that the government’s case is based not on the sale of the software but the training of the Repsol employee. It’s still a tenuous connection without proof that Repsol used the software in connection with dealings with the Cuban government.
• Someone has made a broad-ranging Freedom of Information Act request at the Office of Foreign Assets Control (”OFAC”), apparently seeking copies of all applications for licenses to export agricultural and medical products to Iran. This has prompted OFAC to send letters to licensees requiring the licensees to assert in writing any claims that information in these licenses is proprietary or confidential to the licensee. Does anyone have any information on who may be seeking this information and why? Please let me know in the comments section.

The Twin State Peregrines, a little league baseball team from Vermont and New Hampshire, is currently playing ball in Cuba with Cuban teams their own age, the first little league tour of Cuba by an American team since 2000 and the first since more stringent travel regulations went into place in 2002. Obtaining approval from OFAC for the privately-funded trip took the team twenty months and three rejections until the travel license was obtained in March of this year. Ironically it’s easier to export cows from Vermont to Cuba than a bunch of pint-sized little leaguers.

News of the baseball tour to the island, not surprisingly, generated an alarmed reaction from some of the predictable corners of support for the Cuba embargo on the Hill. Congressman Lincoln Diaz-Balart called the OFAC action granting the license to the kids “very troubling.”

”Sporting events may be interpreted as diplomatic gestures even when they are not meant to be,” Diaz-Balart said. “And a sporting event is not an appropriate way to respond to the ongoing torture of political prisoners Yuselin Ferrera, Nelson Aguiar and many others.”

Vermont’s Senator Patrick Leahy took Diaz-Balart’s pitch and knocked it out of the park:

”He should pick on someone his own size,” [Leahy] said.

The latest report on the series has the Peregrines 1-1 in the series, losing 16-5 to the Santos and beating the Mangos 19-8.

ABOVE: Nickel Production in Cuba

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The latest release by the Office of Foreign Assets Control (”OFAC”) of recent civil penalty cases reports that Minxia Non-Ferrous Metals, Inc., remitted $1,198,000 to settle allegations that between 2003 and 2006 it purchased or otherwise dealt in Cuban metals. The matter was not voluntarily disclosed to OFAC.

Even though this is the highest fine imposed this year and is substantially higher than the typical fine for a violation of the Cuba embargo, OFAC is, as usual, parsimonious about the details of what happened. The information provided above is all OFAC had to say about the matter. So what led to such a large fine? We can only speculate, but there are some things on which to base such speculations.

Minxia Non-Ferrous Metals is a subsidiary of China Antimony Chemicals Co., Ltd., which, in turn, is a subsidiary of China Minmetals Non-Ferrous Metals Co., Ltd., which is, in turn, a subsidiary of the giant Chinese metal conglomerate China Minmetals Corporation. This climb up the corporate ladder may reveal what had OFAC in a snit about Minxia’s trades — namely, the $600 million joint venture between China Minmetals Corporation and Cuba to exploit Cuba’s large nickel supplies. China is one of the largest consumers of nickel which is a key component of stainless steel, and nickel is Cuba’s largest export — plenty there to get OFAC in a tizzy. In fact, the Bush administration announced a crackdown on nickel exports in July 2006, claiming that they constitute more than half of Cuba’s foreign income.

Sadly for the Chinese, if this was the cause of the fine, the Chinese interest in the nickel joint venture was recently bought out by Venezuela in what may not have been an arms-length, consensual transaction.

ABOVE: Cuban oil well

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Last week we reported on criminal charges filed against a Colorado software company for violating the Cuba embargo. We had hoped to see the criminal information when it became public because the charges seemed, well, a little bit fishy. Now it appears, according to this article in Boulder’s Daily Camera, that the criminal information won’t be made public until a “change of plea” hearing takes place in October. The company had previously pleaded not guilty to the charges.

That article also gives a fair amount of detail about the facts leading to the indictment including claims by the defense attorneys that the company had no direct dealings with the Cuban government:

Foreman, an attorney with Denver-based Haddon Morgan Mueller Jordan Mackey & Foreman, said Thursday that the allegations stem from Platte River’s work in 2000 with Repsol, a Spanish oil and gas company.

He said the Boulder company sold its software program, which analyzes seismic and other ground data to assist in determining potential places to drill for oil, to Repsol in 2000.

A couple of months later, a Repsol employee came to Boulder for further training on using the software, Foreman said. At that time, a Platte River representative recognized that the seismic data looked as if it related to the Caribbean and Cuba, he said.

“I have no idea whether or not Repsol ultimately did anything with Cuba utilizing that software,” Foreman said.

This is all pretty attenuated as a basis for a criminal indictment. Platte River sold software to a Spanish company that then fed data into the program relating to areas around Cuba. Is Microsoft going to go to jail for selling Excel to a Canadian company that then uses the program to analyze its sales figures, including sales to Cuba? It strikes me that you don’t have criminal activity unless it can be demonstrated that Platte River knew that the software was going to be used to aid drilling in Cuba and was in fact later used to aid drilling in Cuba. Short of that, “no cigar,” as they say.

That being said, the mystery about this case only deepens. The change of plea hearing suggests that the defendants are now going to plead guilty and that some sort of plea agreement has been reached. But why would anyone plead guilty on the facts as they appear so far?

The U.S. Attorney for the District of Columbia issued a press release today on charges filed against Platte River Associates in Boulder, Colorado, for violating the U.S. embargo on trade with Cuba. A copy of the criminal information detailing the charges is not yet available, and the press release raises as many questions as it answers.

According to the press release:

[Platte River] provided specialized technical computer software and computer training, which was then used to create a model for the potential exploration and development of oil and gas within the territorial waters of Cuba, without first having obtained a license from the Secretary of the Treasury.

No further information is provided relating to the substance of the charges, but the description provided here doesn’t really state all the elements of a violation. It seems unlikely, based on the language in the press release, that the training was provided to Cuban nationals or the Cuban government. Likely it was provided to nationals of other countries such as China, which is indeed involved in efforts to exploit Cuba’s offshore oil reserves. Even then, providing that software so that potential exploration can be modeled doesn’t violate the embargo until the software is used for actual exploration and then only if Platte had knowledge that the software would be used for those purposes.

The criminal information, when available, will likely provide enough information to evaluate the charges more fully, but, at the moment, not everything adds up. Once the criminal information is available, we will update this post.

An article in today’s CNN Money contains some interesting tidbits about Weatherford’s operations in sanctioned countries, which we first reported here, and which have been the subject of a governmental investigation.

First, the article notes that Weatherford’s divestment of its operations in Sudan allowed it to donate its many assets in Sudan to Thirst No More, an organization seeking to drill water wells in Sudan.

Among the most valuable items it received was Weatherford’s Nissan truck, which hauled oil-drilling equipment in Sudan, and which will now pull water rigs and pipes in parched Darfur. And most of the furniture and office equipment from Weatherford’s Khartoum villa will be shipped to the Thirst No More base in North Darfur’s capital El Fasher.

All though such a donation is not a traditional basis for mitigation of penalties owing as a result of doing business in sanctioned countries, I certainly hope that it might be so considered here, assuming that there is any basis for penalizing Weatherford’s operations in Sudan through a foreign subsidiary.

Second, the article points to a SEC Form 8-K, filed last September, where Weatherford said it was discontinuing its business through its foreign subsidiaries in “Cuba, Iran, Sudan and Syria.” The reference to Cuba more or less jumps off the page of Weatherford’s 8-K and certainly explains the most serious problem Weatherford may have with respect to the governmental investigation of its operations in sanctioned countries.

The reporter who wrote the CNN article missed the significance of this revelation, apparently under the mistaken impression that there’s a loophole that permits U.S. companies to operate in embargoed countries through their foreign subsidiaries:

The company used a loophole in U.S. sanctions laws - used also until recently by Halliburton … in Iran - which allows U.S. companies to operate in embargoed countries, so long as no U.S. citizens are involved, and it operates under a foreign subsidiary.

This exception applies only to operations in countries sanctioned under the International Economic Emergency Powers Act, like Iran and Sudan, for example, but not to operations in countries sanctioned under the Trading With The Enemy Act, like Cuba and North Korea. Operations by foreign subsidiaries of U.S. companies in those two countries is a violation of the Trading with the Enemy Act and can give rise to civil and criminal penalties. Once Weatherford admitted it was doing business in Cuba, it had, as they say, a situation on its hands.

The New York Times has a story today on one Steve Marshall, a British citizen living in Spain and running a Cuba travel agency. It seems that Mr. Marshall had 80 of his websites shut down by his U.S. registrar eNom after eNom got a call from the folks at the Office of Foreign Assets Control (”OFAC”). That agency had put Mr. Marshall’s websites, including www.cuba-hemingway.com on the SDN list. For the insatiably curious, a copy of www.cuba-hemingway.com is available via The Wayback Machine. It appears that these sites were mostly feeder sites to promote his Cuba-centric travel agency.

The NYT piece has much wringing of hands about the plight of Mr. Marshall, and although I am a vocal opponent of the Cuba sanctions, I’m not terribly inclined to join in the sobfest. Anybody running a business like Mr. Marshall’s would have to be, well, stunningly naive to think that they should register websites for that business with a U.S.-based registrar. It would rather be like trying to open an “adult” DVD store in Tehran and then being surprised when the religious police burn it down.

But one thing in the story caught my eye and is worth further analysis. eNom is refusing to release the domain names back to Mr. Marshall because, not surprisingly, the domain names are considered blocked property under the Cuba sanctions program. Of course, eNom has an agreement with the Internet Corporation for Assigned Names and Numbers (”ICANN”) where eNom agrees to abide by ICANN’s “Policy on Transfer of Registrations between Registrars.” That policy sets forth the only circumstances under which a domain registrar may refuse to transfer a domain name to another registrar, such as a court order or evidence of fraud. The policy does not permit withholding that transfer based on a claim that the domain names are blocked property under OFAC’s regulations.

In such cases Marshall would be entitled to avail himself of ICANN’s “Registrar Transfer Dispute Resolution Policy” to obtain an arbitral order requiring eNom to transfer the domain name and, if eNom still refused to do so, ICANN could terminate eNom’s status as a domain name registry. But here’s the rub: ICANN either can’t or won’t do that because it is a California non-profit corporation and is itself subject to the Cuba sanctions.

This, of course, resurrects the dispute that the rest of the world had in allowing the U.S. so much control over the Internet name-assignment process in the first place. The Department of Commerce, which originally controlled the process, sought to alleviate these concerns by handing the process over to ICANN as a private company. But if the U.S. can use its control over the Internet name assignment process to try to bootstrap the scope of its Cuba sanctions to cover a non-U.S. citizen operating a web business with its offices and servers outside the United States, this could well re-ignite the international debate that this critical part of the Internet should be turned over to an international organization.

A spokesman for the Treasury Department’s Office of Foreign Assets Control (”OFAC”) told Export Law Blog this morning that discussions between OFAC and the North Pole over Santa Claus’s Christmas Eve itinerary had broken down and were not expected to be resumed before Santa’s scheduled departure on December 24 at 10 pm EST.

The dispute arose from a dilemma that the U.S. sanctions against Cuba posed for Santa’s planned delivery of toys to children in Cuba. If Santa delivers toys for U.S. children first, there will be toys destined for Cuba in the sleigh in violation of 31 C.F.R. § 515.207(b). That rule prohibits Santa’s sleigh from entering the United States with “goods in which Cuba or a Cuban national has an interest.” On the other hand, if Santa delivers the toys to Cuban children first, then 31 C.F.R. § 515.207(a) prohibits the sleigh from entering the United States and “unloading freight for a period of 180 days from the date the vessel departed from a port or place in Cuba.”

A press release from the North Pole announced that the OFAC rules left Santa no choice but to bypass the children of the United States this Christmas. A spokesman from OFAC warned that if Santa attempted to overfly the United States, his sleigh would be forced to land and his cargo seized. He continued:

We know that the outcome is harsh, but we cannot allow Fidel Castro’s regime to continue to be propped up by Santa’s annual delivery of valuable Christmas toys to Cuban children.

Congressional leaders had left for the holiday recess and could not be contacted for comment.

President Bush addressed this afternoon at the State Department a gathering of family members of Cuban political prisoners. Not surprisingly, he vowed to keep the Cuban embargo in place:

As long as the regime maintains its monopoly over the political and economic life of the Cuban people, the United States will keep the embargo in place. (Applause.)

After saying that, however, Bush did hint at two ways that the embargo might be loosened slightly:

The United States government is prepared to license non-governmental organizations and faith-based groups to provide computers and Internet access to Cuban people — if Cuba’s rulers will end their restrictions on Internet access for all the people.

Or the United States is prepared to invite Cuban young people whose families suffer oppression into the Partnership for Latin American Youth scholarship programs, to help them have equal access to greater educational opportunities — if the Cuban rulers will allow them to freely participate.

Of course, I wouldn’t hold my breath waiting for these proposals to go into effect if I were you.