ExportLawBlog

Archive for the ‘EU’ Category

Mar

1

E.U. Court Overturns Sanctions on Iranian Bank

Posted by Clif Burns at 5:09 pm on March 1, 2013

Category: EU • Iran Sanctions

Bank Saderat by Aghajanpour http://fa.wikipedia.org/wiki/%D9%BE%D8%B1%D9%88%D9%86%D8%AF%D9%87:BankSaderatMehr.jpg (CC BY-SA 3.0) The General Court of the European Court of Justice on February 5 set aside the sanctions that the European Union had imposed on Bank Saderat of Iran. (Bank Saderat was blocked in the United States by the Office of Foreign Assets Control in 2008 under the provisions of Executive Order 13382, meaning that U.S. persons are forbidden to engage in any transactions with the bank and that any of the bank’s assets that come into the possession or control of a U.S. person must be blocked.)

The E.U. Court relied on a number of largely procedural arguments to overturn the E.U. sanctions on Bank Saderat, but two substantive arguments were also relied on by the court, both of which were dubious at best. First, the Court argued that Bank Saderat was no longer owned by the Iranian government and that the 94% share held by the government at the time of the E.U. sanctions had been reduced to a minority position. In fact, according to publicly available documents, the Iranian government is still the largest single shareholder of the bank. Moreover, the Iranian government’s prior holdings were spun off to other Iranian government entities. As a result, some have forcefully alleged that this was a “fake privatization” and a “scam” designed to escape international sanctions on the bank.

The second substantive ground cited by the E.U. Court was even more preposterous. At issue is whether the bank provided banking services to Iranian entities involved in Iran’s nuclear program. In this regard, Bank Saderat admitted that it processed letters of credit for two companies engaged in nuclear proliferation but argued that these were “ordinary banking services … and that those services did not relate to transactions linked to nuclear proliferation.” It’s hard to understand how this “ordinary banking service” argument would not provide a “get out of jail free” card to any Iranian bank providing services to nuclear proliferators. All banking services can likely be characterized as “ordinary” in some sense, and it is doubtful that any bank is engaged in extraordinary services directly related to proliferation. What would such services be? Does the bank have provide advice on the construction of enrichment centrifuges before it can be sanctioned? And how do you determine what transactions are or are not related to the proliferation activity?

The Court did, however, reject Bank Saderat’s argument, premised on diplomatic cables published by Wikileaks, that the sanctions were the result of undue pressure exerted on European governments by the United States Government. The court noted:

[A]s regards the diplomatic cables, the fact that some Member States were subject to diplomatic pressure, even if proved, does not imply, by itself, that such pressure affected the contested measures which were adopted by the Council or the assessment carried out by the Council when they were adopted.

The E.U. Court’s action here followed closely on earlier action in the last week of January by the Court striking down the E.U. sanctions on Iran’s Bank Mellat

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Nov

9

U.K. Banks Backpedal On Domestic Enforcement of U.S. Cuba Sanctions

Posted by Clif Burns at 7:05 pm on November 9, 2010

Category: Cuba Sanctions • EU • Foreign Countermeasures

Cuban Postage Stamp This blog reported several weeks ago on a complaint brought by a small British company against Lloyds for refusing to cash a check in pounds sterling that the company had received from a Cuban customer. Lloyds had previously agreed to pay $217 million to the U.S. Office of Foreign Assets Control (“OFAC”) in connection with fraudulent activities by the bank in order to process payments from sanctioned countries, including Cuba, through U.S. correspondent banks. However, the check that was declined by Lloyds was not denominated in U.S. dollars, did not involve a U.S. customer, and was being cashed outside the United States, meaning that neither the Lloyd’s settlement agreement with OFAC nor OFAC’s own regulations would prohibit the U.K. bank from processing the payment. More significantly, its refusal to cash the check could be seen as a violation of E.U. Council Regulation No. 2271/96 , which forbids companies in the E.U. from complying with the U.S. sanctions on Cuba.

According to an article on the website of London broadsheet The Daily Telegraph, some U.K. banks may be walking back, at least slightly, from a hard and fast policy of not processing Cuban payments for fear of OFAC reprisal. Interestingly, the article notes that part of the banks’ hesitance arises from “US attempts to extradite British executives it claims have breached sanctions” and “the failure of the British Government to provide protection against extradition.” This is presumably a reference to the pending extradition request against Christopher Tappin for his involvement in an attempted export of batteries from the United States to Iran.

The Telegraph article suggests that British authorities have been in contact with Lloyds and other banks after receiving a number of complaints from customers that could not clear Cuba checks. One case involved a customer whose account was closed by Bank of Scotland when the customer would not provide assurances that it would not receive Cuban payments in its account.

Now, presumably as a result of these official contacts, even Lloyds may be softening its hard line on Cuba transactions. The Telegraph reporter Roland Gribben signals this change in the following fractured sentence that suggests he may not have a very clear grasp of export law himself.

If the Cuban bank does not infringe OFAC regulations or has dealings with Specially Designated Individuals who can be either individuals, entities or banks, then Lloyds may be willing to process a payment from Cuba provided it was in sterling.

Probably what Lloyds was saying before Mr. Gribben garbled their statement was that Lloyds would process checks in pounds provided that parties on OFAC’s List of Specially Designated Nationals and Blocked Persons were not involved in the transaction.

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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 Stamp It 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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Sep

21

German Court Orders Retrial in Iran Export Case

Posted by Clif Burns at 6:49 pm on September 21, 2009

Category: Criminal Penalties • EU • Nonproliferation

iran_bomb The Institute for Science and International Security recently released an interesting report on Germany’s criminal prosecution of Vanaki Mohsen, who was accused of exporting various dual use items to Iran in violation of Germany’s War Weapons Control Act. The prosecution arose from Vanaki’s brokering of the export of certain high-speed cameras that could be used in the development and testing of nuclear weapons. Vanaki brokered this sale from a Russian company to an Iranian front company in the U.A.E.

Although the ISIS report isn’t clear on this, it appears that Vanaki must have been charged under section 19 of the German law. Although the law prohibits exporting or brokering of “war weapons,” it is likely that the high-speed cameras were considered a dual-use item rather than a war weapon. In that case, section 19 would prohibit the brokering of the item to Iran if, and only if, Iran has a nuclear weapons program.

This lead to an unusual step by Vanaki’s defense which introduced the United States’ 2007 National Intelligence Estimate (“NIE”) on Iran which, the defense claimed, concluded that Iran had abandoned its nuclear program in 2003 and had not resumed it by 2007 when the high-speed cameras at issue were sold to Iran. The German trial court agreed and acquitted the defendant.

The prosecution appealed, and the appeals court sent the case back to the trial court for another trial. In reaching its decision, the appeals court pointed out that the trial court put too much reliance on the 2007 NIE. The NIE’s conclusion that it was “moderately confident” that Tehran had not resumed its nuclear weapons program was far from proof that it had, in fact, not resumed that program. The appeals court also relied on a supplemental report from the Bundesnachrichtendienst (“BND”), Germany’s foreign intelligence service, which discussed the development by Iran of a missile launcher as well as similarities in procurement practices by Iran and countries known to have nuclear weapons programs, such as Pakistan and North Korea. Based on this report, the appeals court found that it was now likely that Vanaki would be convicted on a retrial and sent the case back to the trial court.

Two things bear noting here. First, Germany’s export laws in this case, and in other cases that involve dual-use items, impose an intolerably heavy burden of proof in export prosecutions. In effect, the state has to prove that the country in question has a nuclear program, an element of proof that would be difficult and almost necessarily speculative in the case of many countries which are believed to be developing nuclear weapons but have not yet admitted that fact. Second, it appears that the BND assessment must provide some fairly certain intelligence demonstrating the existence and scope of Iran’s nuclear program. This may explain why Germany, unlike some other EU countries, has recently seemed more interested in restricting certain exports to Iran.

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Jun

1

E.U. Adopts Export and Brokering Regulations

Posted by Clif Burns at 6:46 pm on June 1, 2009

Category: EU

EU Flag The E.U. has issued a Council Regulation establishing a community-wide framework for export controls on dual-use items, including controls on brokering. The regulation adopts the international controls required by the Wassenaar Arrangement, the Missile Technology Control Regime (MTCR), the Nuclear Suppliers’ Group (NSG), the Australia Group and the Chemical Weapons Convention (CWC) in a list set forth in Annex I. Export licenses will be required for exports out of the E.U. of items on that list and for certain intra-community exports of items listed on Annex I but also set forth in Annex IV.

National authorities will be in charge of granting such license, which may include not only “individual” transaction-specific licenses but also global licenses and general licenses. Global licenses are given to one exporter and authorize the export of one category of items to multiple end-users and/or countries. General licenses are essentially license exemptions for certain products and certain destinations or end-users. The regulation also includes a “Community General Export Authorization” covering items listed in Annex II and which may exported to Australia, Canada, Japan, New Zealand, Norway, Switzerland, and the U.S.

Of particular interest are the brokering provisions. These provisions control the brokering of dual-use items which is a more expansive control than imposed by the United States which does not have laws or regulations relating to the brokerage of dual-use items. U.S. brokering regulations apply only to defense articles and services. The regulation’s definition of brokerage is also broader than the definition of brokering in the the International Traffic in Arms Regulations adopted by the U.S. Under the EU definition brokering is simply the purchase and sale, or the negotiation for the purchase and sale, of dual use items from one third country to another. It does not exclude, as does the U.S. definition, activities performed by employees or other parties not acting as agents. The EU regulation also covers uncompensated activity whereas the U.S. regulations require that the agent be compensated in order to fall within the definition.

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