Archive for the ‘Foreign Countermeasures’ Category


Jun

8

EU Commission Menacingly Threatens Toothless Blocking Regulation


Posted by at 7:34 pm on June 8, 2018
Category: Foreign CountermeasuresIran SanctionsOFAC

Louis XIVOn June 6, the European Union Commission adopted a delegated regulation amending the Annex to Council Regulation (EC) No. 2271/96 of 22 November 1996.  Council Regulation (EC) No. 2271/96 is the notorious EU blocking regulation which forbids individuals and companies in EU member states from complying with the U.S. embargo on Cuba.   The Annex to that Regulation specifies the laws and regulations that are blocked.  The delegated regulation will add U.S. sanctions on Iran to the Annex, and it will go into force on August 6 unless, between now and then, the EU Council or Parliament objects.

As you might imagine, I think that this is a misguided, if not preposterous, response to the U.S. withdrawal from the Iran nuclear deal.  The blocking regulation, as currently applied to Cuba, has had no effect on the U.S. embargo on Cuba and has instead put businesses in the untenable position of having to decide whether to break U.S. law or EU law.  And, of course, we all know what decision businesses in this position have invariably made in the past and will continue to do so even in the face of the expanded scope of the blocking regulation.

And the reason for that is clear:  OFAC has imposed significant penalties for violating the Cuba sanctions even where the Company was required by the EU blocking regulation to violate those sanctions.  OFAC has ignored the existence of the statute and not even considered it a mitigating factor.  In fact, it could be argued that in at least one case it has considered it an aggravating factor if the European company was attempting to comply with the blocking regulation.  Companies measure the risk of the wrath of OFAC against the toothless enforcement of the EU blocking regulation and decide to bow down to their OFAC overlords, not their European ones.

The U.S. sanctions on Iran can apply to European companies in three situations.  First, the sanctions apply if the European company is a foreign subsidiary of a U.S. company.   Second, they apply if the European company causes the export of goods or services from the United States to Iran.  Third, there are “secondary” sanctions that will apply to certain activities unconnected to the US, like engaging in significant transactions with the Iranian shipping, ship-building and energy sectors.  The laws and regulations added to the blocking regulation would prohibit compliance with the U.S. sanctions in all three instances.

On the other hand, the Annex does not reach all instances of U.S. sanctions on Iran.  Many Iranian entities, such as Bank Saderat, Mahan Air and the Islamic Revolutionary Guard Corps are designated under the Global Terrorism Sanctions Regulations which are not mentioned in the amended Annex. Tidewater Middle East, which operates the port at Bandar Abbas, is designated under the Weapons of Mass Destruction Proliferators Sanctions Regulations, also not added to the amended Annex.

As with all blocking statutes, enforcing this will be a headache.  Article 5 provides that “no person referred to in Article 11 shall comply, … actively or by deliberate omission, with any requirement or prohibition … based on … the laws specified in the Annex.” So let’s say that an EU company decides not to invest in an Iranian oil field project. Was that because of the sanctions or because the company thought it was a bad investment for reasons unrelated to the sanctions, say fear of corruption or geopolitical risks? Suppose an EU company complies with a request from a US customer to provide a certificate that the goods being sold originate from an EU Member State. Is providing that certificate complying with the US law prohibiting U.S. companies from acquiring goods of Iranian origin or just accommodating a US customer’s desire for EU-origin goods?

Of course, the group of companies that the amendment really puts in a pickle are EU subsidiaries of U.S. companies. Article 11 states that the regulation applies to any “legal person incorporated within the Community.” Section 560.215 of the Iranian Transactions and Sanctions Regulations, now added to the Annex, makes it illegal for such EU subsidiary to engage in a transaction with Iran if it would be illegal for a U.S. person to engage in that same transaction.  These two provisions mean that sooner or later these companies will be in the unenviable position of deciding which law to break. And we know which law they will chose to break already, don’t we?

So what exactly does the EU think it’s accomplishing here? The blocking regulation has been in effect with respect to Cuba for 22 years with no appreciable effect on the Cuba embargo. Do the wise men and sages of the European Commission expect that Trump, when he hears of their bold amendment of the Annex, will burst into tears and beg to rejoin the Iran nuclear deal? Do they think this Amendment will cause OFAC to tear the Iranian Transactions and Sanctions Regulations into tiny pieces and scatter them over the Potomac River? Because none of these things is going to happen. You know what will happen? Sanctions lawyers will have a lot more work. That’s it.

Morale of the story (from Louis XIV): “C’est toujours l’impatience de gagner qui fait perdre.”

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Feb

9

2 Bad Ideas ≠ 1 Good Idea: EU Considers Blocking Rules If US Exits Iran Deal


Posted by at 4:15 pm on February 9, 2018
Category: Foreign CountermeasuresIran SanctionsOFAC

Denis Chaibi via http://www.mei.edu/profile/denis-chaibi[Fair Use]
ABOVE: Denis Chaibi

In response to the current administration’s hourly threats to pull out of the nuclear deal with Iran, it appears that the EU might not only remain in the deal but also adopt blocking regulations prohibiting E.U. firms from complying with any resurrected U.S. sanctions on Iran.  This idea was floated by Denis Chaibi, head of the Iranian task force of the EU’s external action service, at a Euromoney conference in Paris.

Chaibi cited the Cuban embargo blocking regulations as an example of what they were thinking about. The problem, of course, is that the folks at OFAC do not care about silly E.U. laws. If a European subsidiary of a U.S. company tells OFAC that it was required by European law to ignore U.S. sanctions, the response from OFAC has always been terse and brutal: do we look like we care? The U.S. rules the world, our laws apply everywhere and to everyone, and instead of obeying European laws that conflict with U.S. laws you have two choices: break the law in Europe or get the heck out of Europe.

Don’t believe me? Ask American Express. Ask Carlson Wagonlit. Or American Honda Finance Corporation.

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Dec

1

OFAC Fines Foreign Company for Following Applicable Foreign Law


Posted by at 8:41 am on December 1, 2017
Category: Cuba SanctionsForeign CountermeasuresGeneralOFAC

American Express Office in Rome, image by User Mattes [CC-BY-3.0] (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File:American_Express_office_in_Rome.jpgThe Office of Foreign Assets Control (“OFAC”) recently announced that it has extracted $204,277 from American Express as a result of 1,818 credit card transactions in the amount of $583,649.43 for purchases made in Cuba. At issue were Mastercard and Visa corporate credit cards issued by BCC Corporate SA to corporations for use by the employees of those corporations, which cards were then used by those employees to make the Cuban purchases that were at issue.. BCC is a wholly-owned Belgian subsidiary of Alpha Card Group, another Belgian company  and a 50/50 joint venture of BNP Paribas Fortis and American Express.

The immediate question here, which OFAC can’t be bothered to answer, is how OFAC has the authority to fine a Belgian company for its dealings with Cuba. The Cuban Assets Control Regulations prohibit Cuba transactions by persons “subject to the jurisdiction of the United States.” Section 515.329 of the CACR define persons subject to the jurisdiction of the United States to include companies “owned or controlled” by a corporation organized under the laws of the United States

The CACR does not define “owned or controlled.”  That’s probably because everyone — except apparently OFAC — understands what that means, namely that the U.S. company owns 100 percent of the company or some lesser amount coupled with de jure or de facto control. In the case of a 50/50 joint venture neither party owns or controls the venture.  (Owned in this context cannot mean any interest, no matter the size, since that would render the addition of “or controlled” unnecessary).

To make matters worse, OFAC is — yet again – punishing a company for complying with applicable foreign law.   Anyone who reads this blog knows that I have pointed out time and time again that it is illegal for companies doing business in the European Union. Council Regulation (EC) No 2271/96 of 22 November 1996 prohibits companies incorporated in the E.U., such as BCC Corporate SA, from complying with the U.S. embargo on Cuba. OFAC does not, of course, mention BCC’s obligation to comply with local law or even cite it as a mitigating factor here. This is particularly egregious where the company at issue is not even subject to U.S. jurisdiction.

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Jan

31

OFAC Fines Canadian Bank for Complying with Canadian Law


Posted by at 6:29 pm on January 31, 2017
Category: Cuba SanctionsEconomic SanctionsForeign CountermeasuresOFAC

Caught in the Act by Exile on Ontario Street [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/JG66R4 [cropped and processed]The Office of Foreign Assets Control (“OFAC”) recently whacked “Toronto-Dominion Bank … a financial institution headquartered in Toronto, Canada,” with a $516,105 fine for various sanctions violations including — get this — maintaining bank accounts for 62 Cubans in Canada.  Yes, OFAC is now going after Canadian banks for holding accounts for Cubans in Canada, apparently under the common delusion that Canada is the 51st state.

Of course, part of the problem here may be the endemic sloppiness in OFAC reports of its penalty actions. It’s not at all clear exactly what corporate entity is involved, as Toronto-Dominion Bank is not the name of any corporate entity that I could locate. It appears to be a reference to TD Bank Group, a Canadian corporation headquartered in Toronto, and not a reference to its U.S. banking subsidiary TD Bank, N.A., if for no other reason than that the U.S. banking operation does not have branches in Canada.

The jurisdictional hook alleged by OFAC to cause Cuban accounts in a Canadian bank to be illegal under U.S. law is, apparently, this:

Between August 7, 2007 and January 24, 2011, TD Bank processed 99 transactions totaling $459,341.62 to or through the United States on behalf of these customers in apparent violation of the CACR

OFAC can’t be bothered to explain what provision or how this violates the CACR, probably because it is just an “apparent” violation.  However, in all instances, violations must either be “by a person subject to the jurisdiction of the United States,” which TD Bank Group in Canada is not, or must involve “property subject to the jurisdiction of the United States.” The definition of “property subject to the United States” is set forth in 515.313 which only talks about securities and doesn’t mention currency. Apparently then OFAC’s theory here is part of its overreaching belief that dollars anywhere located and by whomever owned are, nonetheless, property subject to the jurisdiction of the United States. If you touch a U.S. Dollar, you can be sent to a U.S. jail.

Leaving aside the agency’s unconscionably expansive view of its own extraterritorial jurisdiction, OFAC, yet again, pretends that this tenuous extraterritorial connection over Canada trumps (so to speak) Canada’s own laws. The Canadian Foreign Extraterritorial Measures Act forbids TD Group from complying with the U.S. boycott of Cuba. It is one thing (though not much better) to tell a U.S. company, such as Carlson Wagonlit, choosing to do business in a country with an embargo blocking statute that it must violate that foreign statute; it is quite another thing to say that to a foreign company that is incorporated in that jurisdiction.

Moreover, sections 3 and 5 of the Canadian Human Rights Act also likely would make it illegal for TD Group to deny services based on national origin to the Cuban account holders. During the time period involved in the violations at hand, section 515.505 provided that Cuban nationals who had taken up permanent residence in Canada were still blocked unless they obtained a specific license from OFAC. So, in effect, OFAC is fining TD Bank for refusing to violate the human rights of Cubans, including Cubans who were permanent residents of Canada.

An odd footnote to the OFAC announcement of the TD Bank Group fine notes the change in 515.505 which would unblock Cuban’s who became permanent residents of Canada without need for a specific license. Presumably this offers the cold comfort that, in the future, Canadian companies will only have to violate the human rights of a smaller group of people to avoid an OFAC fine.

Photo Credit: Caught in the Act by Exile on Ontario Street [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/JG66R4 [cropped and processed]. Copyright 2009 Exile on Ontario Street

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Jul

23

OFAC Fines American Express $5 Million for Doing Business in Europe


Posted by at 9:27 pm on July 23, 2013
Category: Cuba SanctionsForeign CountermeasuresOFAC

American Express Office in Rome, image by User Mattes [CC-BY-3.0] (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File:American_Express_office_in_Rome.jpgAccording to an announcement released yesterday by the Office of Foreign Assets Control (“OFAC”), the agency fined American Express $5,226,120 because Amex’s overseas offices booked travel to and from Cuba. OFAC justified the size of the fine with a litany of aggravating factors such as (1) reckless disregard for the Cuba sanctions regulations, (2) knowledge by the company that the Cuba transactions “would or might take place,” and (3) OFAC’s provision of a notice in 1995 to Amex that the bookings were a violation of the Cuba sanctions.

What is most interesting is OFAC’s reference to, and treatment of, legislation passed by the European Union to prohibit companies doing business in Europe from complying with the U.S. sanctions on Cuba, legislation which OFAC oddly and uniquely calls “antidote” legislation. (Everyone else in the world calls it “blocking” legislation.) OFAC notes that “many” of the offending bookings occurred in countries with “antidote” legislation, presumably a reference to Council Regulation (EC) No 2271/96 of 22 November 1996 which prohibits companies in the E.U. from complying with the Cuba sanctions.

Now, in that light, consider aggravating factor 6 cited by OFAC:

[A]t the time of the apparent violations, TRS’ [American Express’s] compliance program was inadequate, given the nature of TRS’ [sic] operations, to detect and prevent Cuba travel bookings, particularly from countries that had adopted antidote measures …

Well, duh, if you’ll forgive my lapse into the vernacular. Of course, it was going to be difficult to comply with the Cuba sanctions where doing so would be illegal. There really is no way to interpret this other than as a statement by OFAC that having offices in Europe is inconsistent with complying with OFAC sanctions and that the only way to have an adequate compliance program is simply to stop doing business in Europe.

But the humdinger of regulatory cluelessness has to be factor number 12.

OFAC also considered as a relevant factor the legal obligations placed on TRS by U.S. law and antidote measures adopted by many of the jurisdictions in which TRS’ foreign branch offices and subsidiaries operate, but, given the facts and circumstances of this case, did not assign any mitigating or aggravating weight to this factor under the Guidelines

Say what? Leaving aside the utter inanity of suggesting for even a moment that E.U. blocking legislation might be an “aggravating” factor in this world or any conceivable alternate universe, it is inconceivable that OFAC can blithely say that blocking legislation was completely irrelevant in its consideration of the case, unless of course you assume that the United States rules the world and the laws of other countries are immaterial and ineffective urgings of foreign vassal states. Or the factor might be irrelevant if OFAC’s real position is that the United States must stop doing business in Europe, Canada and other countries with blocking legislation.

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Copyright © 2013 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)