Archive for the ‘Cuba Sanctions’ Category

Oct

25

Small British Company Takes On Lloyds for Not Cashing Cuban Check

Posted by Clif Burns at 8:26 pm on October 25, 2010
Category: Cuba Sanctions • EU • Foreign Countermeasures

Cuban Postage StampIt started simply enough. A small, U.K.-based agricultural consultant, Fertecon, took a check for £7,156 to its banker, Lloyds, and asked them to cash it. Lloyds refused. The reason? The check came from Cuba.

Once bitten, twice shy, it would seem. Last year, Lloyds agreed to pay $217 million in penalties and to adopt certain compliance procedures arising from allegations by the U.S. Treasury Department’s allegations that Lloyd deleted information about Libya, Sudan and Iran in wire transfer instructions in order to clear dollar transactions through its correspondent banks in the U.S. Specifically, Lloyds agreed to third party audits “to determine whether any payments subject to OFAC regulations were processed through, or on behalf of, any U.S. individual or entity.”

Twice shy here means that Lloyds is backing away from transactions that it would appear aren’t even subject to OFAC’s regulatory jurisdiction and which don’t involve transactions to be processed through a U.S. bank or on behalf of any U.S. entity. It was a check payable to a U.K. company in pounds sterling. So maybe its thrice shy or twenty times shy.

The problem here, of course, is E.U. Council Regulation No. 2271/96 which makes it illegal for Lloyds to cooperate with the U.S. sanctions on Cuba. This point was not lost on Fertecon, or its lawyers, who have traipsed off to U.K. and E.U. authorities to complain. Lloyds case with the E.U. is not terribly enhanced by the fact that U.S. law wouldn’t appear to prohibit Lloyds from negotiating a Cuban check in pounds sterling for a U.K. customer. Lloyds must have made a careful calculation, given the lack of any significant enforcement of Regulation 2271/96, that it would be happy to be bitten by a toothless, mangy dog in its own backyard if it would curry favor with a neighbor’s angry pit bull that thinks it owns the entire neighborhood.

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Jul

26

Caravan Carrying Unlicensed Goods to Cuba Clears U.S. Customs

Posted by Clif Burns at 8:49 pm on July 26, 2010
Category: Cuba Sanctions • Customs

laptopA convoy of buses organized by Pastors for Peace with goods destined for Cuba cleared U.S. Customs at the U.S.-Mexico border despite its cargo and its ultimate destination. The convoy, which originated in Canada and which was carrying 100 tons of medicines, medical supplies, computers, school supplies, sports equipment and construction supplies, was detained at the U.S. border with Mexico for seven hours. Even though the goods in the convoy had not been licensed for export to Cuba, the convoy and its cargo was ultimately allowed to proceed across the border.

Why the goods were not seized by Customs at the border is far from clear, but Pastors for Peace have a history of carrying humanitarian aid to Cuba without a license as an act of civil disobedience. In 1993, when Customs seized a bus on its way to Cuba as part of a Pastors for Peace convoy, the group conducted a hunger strike and the goods were eventually allowed to cross the border on their way to Cuba. Apparently, a decision has been made to allow the convoy to pass simply to avoid bad PR. On its website, the group goes so far as to say:

[Each] time the US Treasury Department backs down in the face of our challenge and allows one of our caravans to cross the border with unlicensed aid for Cuba. …

My opposition to comprehensive unilateral sanctions, such as those imposed on Cuba, has been well-documented on this blog. Even so, enforcement of the sanctions must be uniform and even-handed. OFAC can’t go after some violators and then decide to ignore others who might go on hunger strikes. Of course, the answer here isn’t to jail the religious group or seize their goods but rather to re-evaluate the whole enforcement posture of the agency with respect to humanitarian exports of this kind.

Customs did decide to make a gesture here and, as a token of ill-will, seized five laptops from the group, allegedly to see if they could be used by Cuba “for military purposes.” These were Pentium 4 laptops. I suppose these could be used by the Cuban military to play Minesweeper.

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Jul

18

OFAC Nails UN Bank For Dealing With Cuban Diplomats to the UN

Posted by Clif Burns at 11:13 am on July 18, 2010
Category: Cuba Sanctions • OFAC

UN HQThe latest monthly release of civil penalty information by the Office of Foreign Assets Control (“OFAC”) describes a penalty “settlement’ with the United Nations Federal Credit Union, which agreed to pay $500,000 to settle charges that the UNFCU “dealt in property in which Cuba or a Cuban national had an interest’ — as they quaintly say it in OFAC-speak. In ordinary English this means that UNFCU engaged in banking transactions with Cubans, likely with Cuban diplomats to the United Nations.

Of course, we have to say the transactions were likely with Cuban diplomats because, given OFAC’s longstanding aversion to providing anything but the most minimal details about its penalty settlements, the notice leaves out such crucial details as whether the Cubans involved were diplomats, non-diplomatic Cuban officials, ordinary Cubans, or herds of Cuban cattle. Nor were the types of transactions involved mentioned or their amounts.

In this case, the absence of details makes OFAC look foolish by suggesting the possibility that OFAC is penalizing the UNFCU for providing banking services to Cuban diplomats posted to the U.N. Apparently, such diplomats need to travel with suitcases of Cuban pesos and pay for their meals in the U.N. cafeteria with their national currency.

If that’s what OFAC is doing, it would be in direct contravention of the U.N. Headquarters Agreement, particularly given that the UNFCU is located in the U.N. Headquarters area. Article V, Section 15(4) of that agreement provides that even with respect to diplomats from countries not recognized by the United States, such as Cuba, the U.S. must accord them the same privileges and immunities as other diplomats while within the headquarters district. If a diplomat from France can bank at the UNFCU located in the U.N. Headquarters district, so can Cuban diplomats, no matter how much OFAC hates Castro and his diplomatic lackeys.

The UNFCU website has this statement (click on “Account Restrictions”) about its ability to deal with Cuban diplomats:

Please be aware that UNFCU, under authorization from the US Treasury Department, is only permitted to operate accounts for actively employed UN staff stationed in Cuba, Iran, Burma, and for Cuban citizens who are stationed in the United States.

Based on this, perhaps what was going on — and again OFAC forces us to speculate — was that the UNFCU was providing banking services to Cubans at U.N. locations outside the United States. The UNFCU website’s branch listing shows that the UNFCU has branches in Geneva, Vienna, Rome and Nairobi. Of course, the UNFCU’s extra-territorial application of U.S. sanctions could create a new problem for itself because these sanctions could well violate local laws that prohibit discrimination based on national origin.

Additionally, and more significantly, the UN could always solve the problem by only providing office space to financial institutions that do not, like UNFCU, discriminate against UN members based on national origin.

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Jul

10

Cuba Travel Bill Loosens Export Restrictions, Advances to House Floor

Posted by Clif Burns at 1:04 pm on July 10, 2010
Category: Cuba Sanctions

Visit CubaOn June 30, the Travel Restriction Reform and Export Enhancement Act was voted out of the House Agriculture Committee by a vote of 25 to 20. The Bill would completely lift the longstanding ban on travel by most Americans to Cuba. The next step for the Bill would be a vote by the entire House, although there is no way to predict when, and whether, that might occur

In addition, and not mentioned by most press coverage of the proposed bill, the proposed legislation contains two measures relating to exports of agricultural products, medicine and medical devices to Cuba under the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”). The first would reverse a regulation by the Office of Foreign Assets Control (“OFAC”) that interpreted language in TSRA requiring “payment of cash in advance” to mean payment prior to the departure of the ship carrying the goods from its U.S. port. Under the new bill, payment could be made upon presentation of the negotiable bill of lading or other document of title or prior to the physical delivery of the goods in Cuba.

The proposed bill also changes the payment mechanism for TSRA goods shipped to Cuba. Currently, an intermediary bank outside Cuba must receive payments from a Cuban bank and then transmit that payment to the U.S. bank involved in the transaction. Under the new law, the payment funds can be transferred directly from the Cuban bank to the U.S. bank.

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Jul

7

Mr. Gaillard Not So Gaillard Now

Posted by Clif Burns at 10:19 pm on July 7, 2010
Category: BIS • Criminal Penalties • Cuba Sanctions • Iran Sanctions
Oyster Bay Pump Works
ABOVE: Oyster Bay Pump Works

Patrick Gaillard, president of Oyster Bay Pump Works, a producer of automated liquid dispensing laboratory equipment, recently signed a consent agreement with the Bureau of Industry and Security (“BIS”) under which he agreed to a three-year denial order and a $300,000 fine, $275,000 of which was suspended for one year provided that he commits no further export violations. According to the charging documents, Gaillard shipped laboratory equipment made by his company to Cuba and Iran by transshipping the equipment through Germany and the U.A.E.

Back in 2007. Gaillard pleaded guilty to criminal charges arising out of one of these exports and was sentenced to 30 days in prison, a $25,000 criminal fine, three years of probation, and a $300 special assessment. And, apparently, as Mr. Gaillard walked out of prison after serving his time, there were his friends from BIS, who participated no doubt in the criminal investigation, waiting at the prison gate for a second bite at Mr. Gaillard’s apple. BIS is free to waive about the Supreme Court’s decision in Hudson v. United States, 522 U.S. 93 (1997), which held that subsequent administrative fines almost never violate the Double Jeopardy Clause, but that doesn’t make the double whammy fair or decent, particularly where BIS is knee deep in the criminal trial.

The charging documents also accuse Gaillard of “acting with knowledge,” but the facts supporting these charges don’t seem altogether consistent with that.

Gaillard had knowledge that violations of the regulations were occurring or were about and intended to occur because Gaillard knew of the U.S. embargo of Iran and that the items could not be exported to Iran without U.S. Government authorization. In or around November 2005, a sales representative from an Iranian company approached Gaillard for the sale and export of the items described above to Iran. When Gaillard declined, citing the U.S. embargo of exports to Iran, the sales representative arranged with Gaillard to have the items exported to the Iranian company’s trading arm in the U.A.E., from where the items would be transshipped to Iran.

This suggests that Gaillard may have held the common, but incorrect, belief that the Iran sanctions would not block an export to a country other than Iran. Once the item is in the foreign country, so the belief goes, it is the law of that foreign country which governs whether or not the item can be exported to Iran. If that is what Gaillard believed, it is hard to assert that Gaillard acted with knowledge that his actions were illegal even if his belief were incorrect.

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