Archive for the ‘General’ Category



If It Were Real, It Wouldn’t Be “Deemed”

Posted by at 10:19 pm on September 27, 2016
Category: General

Printed Guns via [Fair Use] The Fifth Circuit last week released an opinion upholding the District Court’s decision not to grant Defense Distributed’s motion for a preliminary injunction.  Defense Distributed had sought a preliminary injunction against enforcement by the Directorate of Defense Trade Controls (“DDTC”) of its order prohibiting the company from posting on the Internet plans for printing guns with 3-D printers.

The majority opinion  did not really reach the merits of the case or whether DDTC had the right to prohibit U.S. citizens from uploading gun plans to the Internet. Rather it turned on a procedural issue: whether Defense Distributed or DDTC would be hurt more by an injunction. The majority opinion weighed that balance in favor of DDTC, arguing that a preliminary injunction would result in untold millions of foreigners printing crappy plastic guns whereas not granting the injunction would just mean that Defense Distributed had to sit on its hands until trial.

The dissenting opinion of Judge Jones, however, dove straight into the merits, arguing that DDTC’s theory of the case was fatally flawed because uploading things to the Internet is not an “export” within the meaning of the Arms Export Control Act. To summarize Judge Jones, “export” means sending stuff across a border for money. As a result, Defense Distributed could not be held to have engaged in an export as a result of “the domestic publication on the Internet, without charge and therefore without any ‘trade,’ of lawful, nonclassified, nonrestricted information.”

Judge Jones does not stop at the notion of mere access as an export, but zeroes in on the “across borders” criterion to take dead aim against “deemed exports.”

Although the majority opinion adopts the State Department’s litigating position that “export” refers only to publication on the Internet, where the information will inevitably be accessible to foreign actors, the warning letter to Defense Distributed cited the exact, far broader regulatory definition: “export” means “disclosing (including oral or visual disclosure) or transferring technical data to a foreign person, whether in the United States of abroad.” There is embedded ambiguity, and disturbing breadth, in the State Department’s discretion to prevent the dissemination (without an “export” license) of lawful, non-classified technical data to foreign persons within the U.S. The regulation on its face, as applied to Defense Distributed, goes far beyond the proper statutory definition of “export.”

Or, more succinctly, if it was a real export they wouldn’t have to call it a “deemed” export.

Judge Jones’s opinion is certainly grounded in common sense, something often lacking in export control. In the early days of my practice, I tried to explain to a former military officer who was CEO of a client that disclosing information to a foreign employee in the United States was an export. He paused for a moment and then, with the veins in his neck bulging and his cheeks flushed, he said “That is the dumbest [bad word] thing I’ve ever heard come out of the mouth of a lawyer” and promptly invited me to leave his office immediately.  I still think his assessment of “deemed exports” was dead on.

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Get in Line

Posted by at 11:44 pm on September 20, 2016
Category: General


OFAC just released reports for the second, third and fourth quarters of 2015 on its licensing activities under the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”). These reports are required by TSRA, although they are required in a significantly more timely fashion — namely, within the next calendar quarter.

So these are all anywhere from a year to six months late. No explanation is offered for their tardiness. No poor dog lounging in a pile of shredded paper is blamed. No note from a gastroenterologist is offered. Nope, OFAC just walks up, drops these on the assignment pile and saunters back to its desk in the rear of the classroom and stares at the teacher with its legendary you-say-a-word-and-I’ll-block-all-your-stuff look

It is not then, I suppose, what we in the blog business call a “stupendous shocker” that these reports reveal that processing time for TSRA applications has gotten slower and slower and slower. In the second quarter the average processing time for licenses was 71 business days; 77 business days for the third; and 88 business days for the fourth. These are all in “business days” because 71, 77 and 88 don’t sound as bad as 14 weeks, 15 and 18 weeks or 2, 2.5 and 3 months.

But actually it looks like these numbers are, shall we say, fudged a bit to make them, as bad as they are, look better than the real numbers. In the second quarter, there were 246 applications filed and only 59 applications acted on. In the third quarter, there were 191 applications filed, of which 79 were acted on. Finally in the fourth quarter, only 156 of the 185 application filed were acted on. That leaves 328 applications, or more than half of the applications filed during the relevant time period, still languishing at the bottom of a drawer somewhere at OFAC.

So claiming an average processing time in the last three quarters of 71, 77 and 88 business days is, well, baloney. It’s like saying that you won the marathon because you had the shortest time even though you ran only half the course. That explains why all of you out there with TSRA applications which disappeared into the regulatory maw several years ago and haven’t been seen since snorted your coffee out your nose when you saw 75 or so days as the average processing time claimed by OFAC.

Photo Credit: Queue by Lars Ploughman [CC-BY-SA-2.0 (], via Flickr [cropped and processed]. Copyright 2009 Lars Ploughman

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Brace Yourself: OFAC Fines Orthodontic Device Company

Posted by at 10:02 pm on September 7, 2016
Category: General

WCT Headquarters via [Fair Use]Today the Office of Foreign Assets Control (“OFAC”) fined Oregon orthodontic device manufacturer World Class Technology Corporation $43,200 for seven shipments of orthodontic devices valued at $59,886 to Iran. The shipments in question were transshipped through Germany, UAE and Lebanon.

OFAC noted that there were three aggravating factors. First, the company did not confess its sins voluntarily to OFAC but instead got caught. Second, company executives knew the orthodontics were going to Iran. Third, the company disrespected OFAC by not having an OFAC compliance program until 2008.

There is, of course, more than a little absurdity in the idea that every company in the U.S. must have an OFAC compliance program or bear the wrath of the agency. WCT is estimated to have between 50-99 employees. Its headquarters are pictured on the left. It has under $20 million in revenue per year currently and, no doubt, much less before it adopted its compliance program in 2008. How many agencies must small businesses bow down to through adopting compliance programs designed to assure that they do not transgress the regulations of that agency? Would any of them ever get any business done if they did?

OFAC cited five mitigating factors, which presumably saved WTC from a company crushing $1.75 million fine which OFAC noted was the statutory maximum. First, the transaction would likely have been licensed. Second, WCT had no sanctions history in the previous five years. Third, WCT agreed to toll the statute of limitations — the penalty imposed today covered violations dating back to 2008. Fourth, WCT ultimately adopted a compliance program. Fifth, WCT “lacked commercial sophistication in conducting international sales.”

The real face-palm moment here is mitigating factor five. OFAC admits that WCT should be given a break because it didn’t have the commercial savvy to understand that it was violating OFAC regulations. Only a few nanoseconds before OFAC was criticizing the company for not having an OFAC compliance program. How does this add up? Do they cancel each other out? More likely, OFAC wants to have it both ways rather than to confront the ugly fact that it has absolutely no outreach to small businesses like WCT, and itself bears some measure of blame for the exports of unsophisticated companies.

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A Decade of Blogging

Posted by at 5:00 pm on August 23, 2016
Category: General

Blue Hour Capitol Building

Ten years ago from this past Sunday, on August 21, 2006, I put up the first post on this blog. I had zero readers. I bet no one ever even read that post until, perhaps, today. In fact, according to my server logs, I had a grand total of 53 people come to read the blog in August 2006, and most of them were probably web-crawling robots.

Since then, I’ve put up 1,370 posts. The site has had 3.9 million visits. Each month, an average of 8,000 unique visitors drop by. And for that, I want to thank each and every one of my readers who have made this possible.

That includes the anonymous BIS agent in New Jersey who for several years posted anonymously from his home computer comments reviling me as an uneducated imposter. His chief complaint was that I referred to “BIS ALJs” rather than his preferred, and more eloquent, alternative: “Coast Guard ALJs Who Are Assigned To Hear BIS Cases But Who Are Paid By The Coast Guard Which In Turn Is Reimbursed By BIS For The ALJs’ Time.” I think he may have, in one of his comments, even called for my law school to revoke my degree and, in another, for me to refund all the legal fees that I had collected in my lifetime. He hasn’t been around for quite some time and I rather miss him.

I also want to thank the commenters who caught and pointed out things that I actually got wrong or that I should have mentioned but didn’t. I’ve learned things from them as I hope readers may have learned things from me.

Without question, thanks are also due to Jim Bartlett, who has regularly republished each and every post in The Daily Bugle, even ones where I tried to sneak in naughty words or risqué double entendres that might offend his family audience.

I’ve tried these last ten years to make export law entertaining, which, I suppose, is rather like trying to stage a punk rock version of La Bohème with a fifth grade cast and a pit orchestra of ukuleles — easier said than done and not something that will appeal to everyone. But once you’ve gone through the effort to rent the house and put a show like that on the stage, there’s no point in cancelling the performance.

Photo Credit: Blue Hour Capital Building by Clif Burns, via Copyright 2016 Clif Burns

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Why Intermediary Banks Are More Scared Of OFAC Than You

Posted by at 11:17 pm on July 21, 2016
Category: GeneralOFAC

Right Twice A Day by Clif Burns [All Rights Reserved], via Flickr my post two days ago on the sad tale of Sabena Airlines and the blocked wire transfer, I focused on the rights (or lack thereof) of a beneficiary of wire that was blocked in mid-transit to recover those funds once unblocked by OFAC.  Now let’s look at the other side of the coin, which is a situation that I’m sure many readers may have encountered.

Consider this hypothetical:  Sally Jones, a U.S. citizen, owns Sally Jones Heavy Machinery, LLC.  She asks the company’s bank, Third National Bank of Quahog, to wire $500,000 to a company in France to purchase equipment needed to fulfill a contract.  Her bank initiates the wire which transits the First Bank of Paranoia in New York City.   That intermediary bank blocks the transfer because it considers Sally Jones in the name of the company a hit for the SDN Listing for Sakinah Hussain a.k.a. Sally Jones. Because Sally Jones Heavy Machinery is unable to purchase the equipment in time, it winds up breaching the contract with its customer who then sues Sally Jones Heavy Machinery for a billion dollars and wins.  Can Sally Jones Heavy Machinery sue the First Bank of Paranoia for a billion dollars?

The logic in the Sabena case as applied to the beneficiary of the wire also applies to the sender of the wire.  The court there relied on UCC section 4A-212 which states that the “receiving bank” — in this case both the sender’s bank and the intermediary bank — has no obligation to either the sender or the beneficiary to accept a payment order without an express agreement and that no liability can arise until that payment order is accepted.   Quahog Bank had an account agreement with Sally Jones Heavy Machinery and therefore may have had an obligation to accept and execute the payment order by sending it on to the First Bank of Paranoia, which it did.  But the First Bank of Paranoia would not have any obligation to, or agreement with, Sally Jones Heavy Machinery and had no obligation to accept the payment order despite any protestations made by Sally Jones Heavy Equipment that it had no relation to Sakinah Hussain.  As far the bank was concerned, that was an issue for OFAC to sort out, not for the bank.

But wait, can the First National Bank of Paranoia get away with this despite its arguably obvious negligence here, particularly if it refused to consider Sally Jones Heavy Equipments evidence that it was not the Sally Jones on the SDN List?  Again, the court in Sabena makes clear that tort actions for negligence would not be possible and that Article 4A was intended “to be the exclusive means of determining the rights, duties and liabilities” of parties to the funds transfer.

Suppose in our example that the First National Bank of Paranoia actually accepted the payment order but then decided to block it.  Would there be liability?  Section 4A-305 says that there is liability for consequential damages for the failure to execute the payment order only if it agreed to pay such damages which, of course, it will not have done.  Instead, the maximum liability it will have to anyone under section 4A-305(a) is to pay interest on the delay.  So when OFAC ultimately decides that Sally Jones Heavy Machinery is not Sakinah Hussain, the First Bank of Paranoia will owe interest to Sally Jones Heavy Machinery.  Given that blocked funds are required in any event to be in an interest bearing account this is, as they say, no skin off of Paranoia’s back.

So it’s now easy to see why the First National Bank of Paranoia was more scared of OFAC than Sally Jones.  OFAC could fine the Bank one million dollars (twice the value of the transfer) if Sally Jones was Sakinah Hussain.   If the bank was wrong, then its damages are equal to the amount of interest accrued on the blocked funds, interest which conveniently will be sitting in the account with the funds.

Photo Credit: Right Twice A Day by Clif Burns [All Rights Reserved], via Flickr Copyright 2015 Clif Burns

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(No republication, syndication or use permitted without my consent.)