Archive for the ‘Economic Sanctions’ Category

OFAC Mugabe Sanctions Hit Home, Our Home Not His

Thursday, February 4th, 2010

Kokopelli Golf ClubA golf course in Marion, Illinois, is set to close as a result of economic sanctions imposed by the Department of Treasury’s Office of Foreign Assets Control against Zimbabwe’s Robert Mugabe and his cronies. How do the Mugabe sanctions have an impact almost 9,000 miles away?

According to this story in an Illinois newspaper, Kokopelli Golf Course was purchased, almost 15 months ago, from a Florida partnership by local investors. One of the partners in the Florida partnership, it appears, was John Bredenkamp, alleged by OFAC to be a Mugabe crony — a charge that Bredenkamp denies. So OFAC blocked the title to the golf course and the sale hasn’t closed, despite the intervention of Senator Durbin, the senior senator from Illinois, and despite arguments that the closing of the golf course as a result of OFAC’s blocking title to the club would have a significant impact on the local economy. Indeed, the closing of this town’s golf club would appear to be the only visible impact of the Mugabe sanctions since, the last time I checked, Mugabe was still sitting fat, happy, rich and in power in Zimbabwe.

The news story does not reveal the size of Bredenkamp’s interest in the partnership that owned the golf club. If his interest was greater than 50 percent, then under current OFAC guidance, as this blog reported here, the partnership and all of its assets, including the golf club, would be a blocked asset. This case shows the problem with such a rule is that it potentially punishes innocent parties. Assuming, as is likely the case, that the other partners entered into the partnership with Bredenkamp prior to Bredenkamp becoming designated by OFAC as subject to the Mugabe sanctions, there is no conceivable reason to punish the other partners. Instead, OFAC should block Bredenkamp’s interest in the partnership and any revenue due to him under the partnership agreement. The policy behind this position is even more obvious when blocking the interest of innocent partners has an impact on the economy of a small U.S. town.

If the Kokopelli Golf Club closes, Marion residents can, ironically, always go to Zimbabwe to tee off. According to Golf Digest:

Despite hyperinflation, cholera and hugely unpopular President Robert Mugabe, golf survives in Zimbabwe. At Bulawayo Golf Club (founded in 1895), members have been paying with gasoline because local bank notes are now worthless.

Fore!

Posted in Economic Sanctions, Zimbabwe Sanctions | 3 Comments »

Let Them Write Letters

Monday, November 2nd, 2009

Twitter Keeps Iran AfloatLast week several readers brought to my attention a Bloomberg story that announced in its headline “U.S. Wants Microsoft to End Message Ban in Iran, Cuba.” This created a bit of a hubbub at the world headquarters of Export Law Blog, since this blog has been advocating for some time that the information exception be read to cover instant messaging, twittering, and the like. Alas, as we learned at a tender age, you can’t believe everything you read in the newspapers. (You can, of course, believe everything you read in blogs.)

The Bloomberg story referenced a letter that OFAC sent last month to the Center for Democracy in the Americas, a group that, like Export Law Blog, has been a persistent critic of the Cuba sanctions. But when you read the letter, it’s quite clear that the letter doesn’t exactly say that the U.S. wants to end the application of sanctions to instant messaging services:

We assure you that the discontinuation of instant messaging services [by Microsoft to users in Cuba, Syria, Iran, Sudan and North Korea] was not directed by OFAC or, to our knowledge, any other Federal agency. Ensuring the flow and access to information available through the Internet and similar public sources is consistent with the policy interests of the United States Government.

OFAC is participating in an interagency effort to review any discontinuation of certain instant messaging services to sanctioned countries, with the goal of insuring that such services will be available to persons in sanctioned countries to the extent permitted by current U.S. law. [emphasis added]

The last clause is the catch here. OFAC has typically interpreted the information exception very narrowly, and there is no indication that OFAC has changed its view of what’s “permitted by current U.S. law.”

Instant messaging services require the download of software, and OFAC takes the position that software isn’t information covered by the information exception. Twitter creates a miniblog page with a unique URI for each user, which would, under OFAC’s narrow view of “information,” be considered provision of a service in violation of the sanctions regulations.

OFAC’s antiquated view of information, apparently formulated sometime between the invention of the printing press and Columbus’s discovery of the Americas, comprises only things written in ink on paper. Throw a few electrons into the mix and all bets are off.

So I wouldn’t take this OFAC letter to the bank if I were you. At least not yet.

Posted in Economic Sanctions, OFAC | 3 Comments »

Spy Games

Thursday, October 8th, 2009

Dawn HannaIn March, Dawn Hanna was convicted by a jury in Detroit for exporting mobile telecom equipment to Saddam Hussein in violation of the U.S. embargo against Iraq in place at the time of the export. Hanna claimed throughout her trial that the purchaser of the equipment told her that the end user was in Turkey. The government’s sentencing memo, however, cited a number of communications and emails from Hanna where she seemed quite aware that the items were destined for Iraq and not Turkey.

The case, however, recently took an interesting turn of sorts. Apparently the person who approached Hanna to purchase the equipment, a Jordanian named Emad al-Yawer, has come forward and claimed that he was working for the CIA when he approached Hanna. According to al-Yawer, in an affidavit filed in April, the CIA wanted to alter the equipment to track Saddam and listen to his conversations. As al-Yawer said somewhat more colorfully in a recent interview with a Detroit television station:

The whole idea was, once they get to Saddam, send a smart bomb and blow him into smithereens

The judge apparently did not find the new evidence sufficient to grant Hanna a new trial. Prosecutors in the case have said that the new evidence remains under seal, although apparently a redacted version of the al-Yawer affidavit is available on a website set up by Dawn Hanna’s parents.

Of course, the interesting question here is whether it matters at all that al-Yawer was working for (or with) the CIA. Even if he was cooperating with the CIA, the efforts by Hanna’s defenders to say that the sale of the equipment to Hussein was the government’s fault doesn’t seem that convincing. Certainly this argument wouldn’t have been convincing if the purchaser was an undercover U.S. government agent. I suppose that if the alleged CIA agents had directed al-Yawer to buy the equipment from Hanna, this argument might have some legs. Similarly, if the CIA had contacted Hanna directly, identified themselves as CIA agents, enlisted her help in exporting the equipment, and then had her prosecuted, Hanna might have an argument. But there is no evidence that any of this happened.

Posted in Criminal Penalties, Economic Sanctions | 4 Comments »

MTN-Bharti Deal Scares Some OFAC-Wary Bankers

Tuesday, June 30th, 2009

MTNA report on Reuters today raised some interesting issues with respect to the MTN-Bharti deal. The merger, which would create the world’s third largest wireless telephone company, is creating some heartburn for U.S. bankers who’d like to get a piece of this action. The reason for the heartburn: South African wireless operator MTN derives 13 percent of its revenue from Iran, Syria and Sudan.

As usual, OFAC isn’t saying anything about the propriety of U.S. banks financing or advising this deal, which is, of course, consistent with OFAC’s standard policy of regulation through ambiguity, a policy that utilizes fear of substantial penalties to keep U.S. firms from engaging in activities that are arguably permissible under the rules

A U.S. Treasury official declined to comment on the MTN-Bharti advisory work by U.S. banks, but said there was some room within OFAC rules for U.S. companies to deal cautiously with situations involving deals with foreign firms that have subsidiaries in the sanctioned areas — as long as they are not facilitating transactions with the sanctioned countries.

“U.S. persons are not necessarily prohibited from dealing with third-country firms that do business in sanctioned countries, although they should approach such dealings carefully,” said the official, who was not authorised to speak publicly about OFAC’s enforcement of sanctions.

Ah yes, the facilitation bogey-man rears his ugly head. That should scare not just bankers but lawyers, CPAs, PR firms and anyone else even tangentially involved with the deal, including the limo drivers that take the bankers and lawyers to work and the chefs that cater their working lunches.

A DC lawyer tries to pooh-pooh the concerns:

[A lawyer] who often deals with OFAC compliance, said the sanctions are not intended to kill off opportunities for U.S. banks to do work on foreign mergers that involve some business in foreign countries.

“If you had a rule that no U.S. investment bank could advise a merger between non-U.S. companies that is one scintilla related to a sanctioned target country, there would be no cross-border advisory business done at all by U.S. banks. It would all move to London,” he said.

I think that’s what might be called hyperbole. Some business might go to London, but all? I don’t think so. And even if it did, I’m not so sure that would sway OFAC.

[The lawyer] says he believes there could be a strong risk of running foul of OFAC restrictions if revenue from sanctioned countries is 25 percent or more — a level that some lawyers use as a rule of thumb to determine a safe level of business in sanctioned countries for the foreign firms.

Twenty-five percent is a nice number as far as numbers go. Certainly it’s much easier to remember than, say, thirty-two percent. But even if that number is used by some as a “rule of thumb,” it is, politely put, a completely made-up number.

This would be a great area for OFAC to clarify, but I’m not holdng my breath.

Posted in Economic Sanctions, OFAC | 2 Comments »

It Wasn’t Me, I Swear

Tuesday, June 2nd, 2009

Windows Live MessengerComputerworld posted a story today on Microsoft and the other Internet heavy hitters Google and Yahoo! shutting down instant messaging services to countries subject to U.S. economic sanctions, i.e., Cuba, North Korea, Syria, Sudan and Iran. (I reported the Microsoft story last week). In the course of the Computerworld article, the reporter interviewed an unnamed lawyer who allegedly “advises companies on OFAC compliance” and who gave some advice that frankly I think is questionable. The lawyer said that

while offering communications services such as IM to sanctioned countries such as Iran or Cuba is not restricted by OFAC, offering software is. That’s because software, even free apps downloadable from the Internet, are considered exportable goods, and thus can be banned by OFAC, according to the lawyer, who requested anonymity.

By that reasoning, Web-based e-mail such as gMail or Windows Live HotMail can’t be banned by OFAC, he said. Nor would pure cloud-based services such as Salesforce.com or those hosted by Amazon.com’s EC2 be affected by the ban.

However, Windows Live Messenger, which relies on a user download, can be, he said.

Er, no. I am really hoping that the reporter misunderstood the lawyer, who I assure you wasn’t me, and that a lawyer who is advising people on OFAC matters didn’t really say that. For starters, and this is on the first page of OFAC for Dummies, the sanctions regulation for Cuba, North Korea, Iran, Sudan and Syria, forbid the exports of both goods and services. So the dichotomy between the two drawn by the lawyer requesting anonymity is flat out wrong.

The issue in looking at the provision of Internet content and services to sanctioned countries, then, isn’t whether goods or services are exported but is whether what is being exported to the sanctioned country is subject to an exception in the regulations. As to software, the question is whether such software is exempt as informational materials, both under OFAC rules as well as the rules of the Bureau of Industry and Security, which also forbid exports to these countries. Although perhaps not consistent with the Berman Amendment which required export agencies to exempt informational materials, computer software (other than uncompiled source code) has not been treated as informational material by OFAC or BIS. Exports of software to sanctioned countries have also served as the basis for criminal prosecutions.

The provision of internet services to sanctioned countries would also be prohibited unless covered by a specific exemption or general license. The sanctions regulations do exempt “telecommunication services,” but that exemption is narrowly construed to cover traditional communication by telephone and not other means of communication. An OFAC guidance regarding the provision of internet connectivity to Iran makes clear that such activity required a specific license. The same logic would apply to the provision of email and IM services.

Posted in Economic Sanctions | 5 Comments »