Archive for the ‘DoJ’ Category


May

30

Having Baggage Is Not A Crime


Posted by at 5:10 pm on May 30, 2014
Category: Criminal PenaltiesDoJEconomic SanctionsIran SanctionsSanctions

Please Report Any Unattended Luggage by Kenneth Lu https://www.flickr.com/photos/toasty/2619866851/in/photolist-DLUFQ-5z9X21-K3Ta2-4Zvv98-JHpPQ-AEW4c CC BY 2.0 [https://creativecommons.org/licenses/by/2.0/] (cropped)

A federal jury in Ft. Lauderdale, Florida recently acquitted Patrick Campbell on charges that alleged he attempted and conspired to violate U.S. economic sanctions against Iran.  As we reported at the time of his arrest last year, Campbell, who is from Sierra Leone, was detained at JFK Airport as soon as he cleared customs and was found to have uranium inside shoes packed in his luggage.  Prior to his U.S. arrival (and immediate arrest), according to the government, Campbell had been communicating with an undercover ICE agent in Ft. Lauderdale in order to arrange the sale of uranium from Sierra Leone to Iran.

We surmised at the time of his initial charging that Campbell had arguably done nothing in the United States that constituted an attempt or conspiracy to commit a U.S. sanctions violation simply by entering the United States.  Because the Iran Transactions and Sanctions Regulations cover only exports from the United States (which this was not) or exports by a U.S. person (which Campbell was only by virtue of being physically present in the United States), he could only be convicted for what he actually did while in the United States.  The Justice Department tested those boundaries, and a jury wasn’t convinced.  A great deal of credit should be given to Campbell’s attorney, Richard Serafini.

We spoke with Mr. Serafini about the case and the arguments he made to the jury in Campbell’s defense.  Mr. Serafini said that he emphasized to the jury that the Justice Department had not shown beyond a reasonable doubt that Campbell had done anything with the specific intent to violate U.S. sanctions.  In addition, he said that he told the jury that Campbell should not be considered to have committed any criminal acts as a U.S. person simply because he was lured to enter the United States by law enforcement.  Mr. Serafini said that he finally impressed upon the jury that, regardless of any criminal act that may have been committed, Campbell had been entrapped by the ICE agent to do so.

While no one can know what may have led the jury to acquit, it is certainly noteworthy that one or more of those arguments possibly resonated with jurors.  The jury instructions shed a little more light in that the court explained an attempt must be “more than simply preparing” and have a ”substantial step … that would normally result in committing the offence.”  What did Campbell do in the United States to meet that requirement?  Having uranium in your luggage could be seen by a jury as “simply preparing.”  As for conspiracy, the jury rightfully asked the court during deliberation whether the undercover agent could be part of the conspiracy.  The court responded simply, “No, a government agent cannot be a co-conspirator.”  In sum, it looks like the facts didn’t fit the crime and a well-marshaled defense portrayed that.

In so far as Campbell’s case has a bearing on subsequent sanctions prosecutions, we may have been clairvoyant in our warning last September:

As the stretch of sanctions includes more foreign individuals and their subsequent imprisonment, the United States may find itself retreating from expanding prosecution after a successful defense or even international criticism that U.S. sanctions as so applied are too attenuated for a reasonable interpretation of the sanctions’ purpose or the laws themselves.

Campbell’s acquittal sends the Justice Department back to the drawing board to reconsider future prosecutions based on undercover operations targeting foreign persons and inviting them to the United States for their unbeknownst arrest.  As we reported in the case of a Russian caught up a similar operation last year, the resulting arrest stirred U.S.-Russian diplomatic waters and resulted in his return to Russia after pleading guilty.  Be careful what you do on the Internet, and that goes for the government too.

Permalink Comments Off

Bookmark and Share



May

28

DoJ Miffs Description of Iran Sanctions


Posted by at 6:09 pm on May 28, 2014
Category: Criminal PenaltiesDoJIran Sanctions

By Another Believer (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ADepartment_of_Justice%2C_Washington%2C_D.C._2012.JPGIn a recent DoJ press release correcting a previous press release that incorrectly stated that the DoJ had indicted someone on export charges that they hadn’t actually indicted him on (oops!), the DoJ took the opportunity to try to explain the scope of the U.S. sanctions on Iran. Unfortunately the DoJ got it wrong. Of course, when an exporter makes a mistake about the scope of the Iran sanctions, it’s a big deal; but when the DoJ makes a mistake, oh well, we all make mistakes.

At issue are charges against Pennsylvania-based Hetran, Inc. which allegedly shipped a horizontal lathe to Iran via a company in Dubai. This gives the DoJ the opportunity to say this:

American companies are forbidden to ship dual use items – such as the peeler – to Iran without first obtaining a license from the U.S. Department of Commerce

Oh dear, where to start with this? Really, it’s just wrong in so many ways. Let’s start with section 746.7 of the Export Administration Regulations which sets forth the controls by the Department of Commerce’s Bureau of Industry and Security on exports to Iran. That would have been a good place for the DoJ to start as well before attempting to explain U.S. sanctions on Iran.

Subsection (e) says this

No person may export or reexport any item that is subject to the EAR if such transaction is prohibited by the Iranian Transactions Regulations (31 CFR part 560) and not authorized by OFAC.

Subsection (a) says this:

[I]f OFAC authorizes an export or reexport, such authorization is considered authorization for purposes of the EAR as well.

So, where does that leave us?

Error 1: Licenses aren’t just required for exporting dual use items to Iran. OFAC rules forbid all exports to Iran except for certain limited items such as food, medicine, medical devices, informational products and personal telecommunications devices. Plenty of things that aren’t dual use (i.e. listed on the Commerce Control List) require licenses.

Error 2: the requirement for exports to Iran is a license from OFAC, not from BIS. A license from BIS is required only if no license from OFAC has been obtained and the matter is “not subject to OFAC regulatory authority.”  EAR 746.7(a)(2).

Here’s an idea: maybe people in the DoJ should be required to attend BIS’s annual Update Conference before they are allowed to say things about export law.

 

Permalink Comments (4)

Bookmark and Share



May

8

“Too Big” May Be the Perfect Size for U.S. Sanctions Enforcement


Posted by at 5:09 pm on May 8, 2014
Category: Criminal PenaltiesDoJEconomic SanctionsOFACSanctions

By Laurent Vincenti (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ALaurent_Vincenti_BNP_Paribas.jpg

The Washington Post this week reported on U.S. Attorney General Eric Holder’s Monday video message reiterating that no company can be “too big” to be “immune from prosecution.”  The Post went on to report, as others have, that the Justice Department, in keeping with its own edict, is “getting closer to wrapping up an investigation” of French bank BNP Paribas, “which allegedly allowed millions of dollars from [Cuba, Iran, Sudan and other countries] to illegally move through the U.S. financial system.”

As the Post partially excerpts, BNP’s 2013 annual financial report stated that BNP “identified a significant volume of transactions that could be considered impermissible under U.S. laws and regulations including, in particular, those of the Office of Foreign Assets Control (OFAC).”  The report went on to state the following:

The Bank has presented the findings of this review to the U.S. authorities and commenced subsequent discussion with them.  Although the amount of financial consequences, fines or penalties cannot be determined at this stage, the Bank has, in accordance with [International Financial Reporting Standards] requirements, recorded a provision of USD 1.1 billion (EUR 0.8 billion) in its financial statements for the fourth quarter of 2013.

Because BNP claims there “have been no discussions” with U.S. authorities as to the amount of any penalty, “[t]he actual amount [of a penalty] could thus be different, possibly very different, from the amount of the provision.”  (I am sure BNP hopes “different” means “less.”)

A set-aside of $1.1 billion is, of course, remarkable for costs associated with a sanctions penalty, but BNP’s situation should sound very familiar as OFAC, in partnership with the Justice Department, has not shied away from going after “too big” banks for sanctions violations.  Banks that have settled OFAC enforcement actions with significant penalties chronologically over the last few years is a who’s who in the global banking community: Royal Bank of Scotland (over $33 million), HSBC ($375 million), Standard Chartered ($132 million), ING ($619 million), JP Morgan Chase (over $88 million), Barclays ($176 million), Lloyds TSB ($217 million) and Credit Suisse ($536 million).

What must not be lost in any action against BNP or other banks is what this means for everyone else.  With credit to OFAC, the global banking system has become an effective deputy for U.S. sanctions enforcement.  Banks hawkishly review activity transiting through it with sophisticated software and a discretion erring on the side of caution if anything, in the words of BNP, “could be considered impermissible.”  The trickle-down effect is that any company thinking about a U.S. dollar transaction, which will almost certainly transit a U.S. correspondent account, has to ensure itself that its transactions are free and clear of U.S. sanctions violations unless it is willing to risk having funds blocked in the United States.

Although it is right to observe that OFAC has preferred of late to hunt big game, OFAC has astutely turned the game into successful hounds.

Permalink Comments Off

Bookmark and Share



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.

Permalink Comments (1)

Bookmark and Share



Dec

18

Name That Country!


Posted by at 6:31 pm on December 18, 2013
Category: BISDoJSanctionsSyria

Dell HQ http://www.dell.com/downloads/global/corporate/imagebank/hq/hq_rr1.jpg [Fair Use]The Securities and Exchange Commission just released on Monday, according to this article, correspondence that it had with Dell regarding an on-going  investigation by Dell, the DOJ, and the Bureau of Industry and Security (“BIS”) regarding sales of Dell computers to Syria.  These sales were made by a Dell distributor based in the U.A.E. In that correspondence, Dell indicated that it was conducting an internal investigation with outside counsel into sales by one of its Dubai-based distributors, was regularly communicating with the U.S. Attorney regarding that investigation, and had responded to a BIS subpoena requesting information about the sales in question. The company said that the investigation was not yet complete so that the company could not yet respond to the SEC’s questions as to whether Dell had any liability under U.S. export and sanctions law arising from the distributor’s sales to Syria.

The company, however, did try to suggest that it might not be liable because of a clause it cited in its distribution agreement:

Distributor acknowledges that Products licensed or sold hereunder or in respect of which services (including Dell Branded Services) are provided, which may include software, technical data and technology, are subject to the export control laws and regulations of the USA, the European Union, the Territory in which Distributor operates and the territory from which they were supplied, and that Distributor will abide by such laws and regulations. Distributor confirms that it will not export, re-export or trans-ship the Products, directly or indirectly, … to … any countries that are subject to the USA’s or those other relevant territories’ export restrictions or any national thereof … .

To paraphrase someone else, I guess you go to war with the language you have — that is to say, this language is hardly ideal. It relies on the distributor to know what countries are subject to U.S. export restrictions. Do you really think that a distributor in the U.A.E. is aware of the details of U.S. sanctions programs or even which countries are on the current U.S. bad country list? Probably not.

I certainly do not mean to imply that Dell has criminal or civil liability because of this drafting issue. Rather, my point only is that companies should be explicit in these clauses about which countries are subject to sanctions and to affirmatively advise distributors in writing when those countries change. Don’t count on your distributor to know who the U.S. has sanctioned anymore than you would count on him to know the name of last year’s winner of American Idol.

Permalink Comments (2)

Bookmark and Share