Archive for the ‘General’ Category



OFAC Repeals, IPSA Facto, Iran General License H.

Posted by at 6:29 pm on August 15, 2017
Category: GeneralIran SanctionsOFAC

IPSA Phoenix Office via Google Maps [Fair Use]
ABOVE: IPSA Phoenix Office

Last Thursday, the Office of Foreign Assets Control (“OFAC”) announced that IPSA International had agreed to pay a fine of  $259,200 to settle charges that it violated the Iranian Transactions and Sanctions Regulations (“ITSR”)  in connection with background investigations conducted on Iranian nationals by IPSA’s foreign subsidiaries.  In order to support the charges against IPSA, OFAC unnecessarily concocted a theory which effectively repeals Iran General License H and substantially increases the risk that U.S. companies will be fined for what had previously thought to be legal activities by foreign subsidiaries involving Iran.

At issue are two contracts entered into by IPSA: one with a foreign government (“Contract #1”) and the other by IPSA’s Canadian subsidiary with a foreign government-owned financial institution (“Contract #2).  Both contracts required background checks on various individuals, some of whom were in Iran.   Those background checks, including the ones in Iran, were conducted not by IPSA but by its Canadian subsidiary and another subsidiary in Dubai.  OFAC concedes that both subsidiaries “managed and performed” the background investigation contracts involving the Iranian nationals.  Significantly, OFAC does not allege or claim that the results of these investigations were ever communicated by either foreign subsidiary to IPSA in the United States.   Nevertheless, OFAC claims the conduct of these investigations in Iran constituted a violation of the ITSR.

In the case of Contract # 2, OFAC alleges that IPSA violated the prohibition against facilitation in section 560.208 of the ITSR when it “reviewed, approved, and initiated the foreign subsidiaries’ payments to providers of the Iranian-origin services.”  That, if true, would make out a fairly clear-cut facilitation violation by IPSA.

Things get problematic, however, in the case of Contract #1. OFAC asserts that in that case  IPSA imported Iranian-origin services into the United States in violation of section 560.201 of the ITSR.  This was not because the results of the background checks were communicated to IPSA in the United States because, as we’ve noted, OFAC has not alleged that occurred.  It was because the background checks in Iran were conducted “for the benefit of” IPSA.

This is a troubling rationale because everything done by foreign-incorporated subsidiary of a U.S is company is “for the benefit” of the parent company in the United States.    Under this benefit theory, General License H, which permits certain activities by foreign subsidiaries, is completely eviscerated.  IPSA’s  signing and entering into the contract performed by the subsidiaries clearly facilitated those activities in violation of section 560.208 of the ITSR, so there was no need to suggest a violation based on a benefit theory.  It is unclear why OFAC would have chosen in the case of Contract #1 to argue importation of services under a benefit theory rather than facilitation unless it intended to create uncertainty about the proper scope of General License H.



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Copyright © 2017 Clif Burns. All Rights Reserved.
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New Administration May Change Landscape of U.S. Trade and Export Policy

Posted by at 1:13 pm on November 9, 2016
Category: General

YM Ningbo seen from the Golden Gate Bridge by Richard Erikkson [CC-BY-SA-2.0 (], via Flickr [cropped and processed]

Although it is impossible to tell whether the new Trump administration will follow through on its campaign promises to irrevocably alter the landscape of U.S. trade with foreign countries, businesses should realize that the new administration’s power to do so is broad and should act accordingly in the coming weeks and months to take steps to limit the impact that these changes could have on their business and foreign trade.  Of course, it remains possible that the views of the new administration’s economic advisers may prevail against the implementation of some of these promises.

1. Trade Agreements

At various times throughout the campaign, candidate Trump promised to withdraw from the WTO, to terminate NAFTA, and to impose retaliatory tariffs on China and Mexico.  Section 301 of the Trade Act of 1974, 19 U.S.C. § 2411 gives the President, acting through the United States Trade Representative, the unilateral power, among other things, to “suspend, withdraw, or prevent the application of, benefits of trade agreement concessions” and to “impose duties or other import restrictions” without further authorization from Congress.

Unapproved trade agreements, including the Trans-Pacific Partnership (“TPP”) and the Trans-Atlantic Trade and Investment Partnership (“T-TIP”), are likely now dead on arrival.   At this point the Obama administration has yet to submit the implementation bill required to start the clock on Congressional action on TPP under fast-track, so the fate of the TPP will be decided by the next Congress and the Trump administration.  If the Trump administration does not submit to Congress a draft implementation bill, as required by fast track, and it seems likely that he will not, TPP will not go into effect.

2. Iran Sanctions

Candidate Trump repeatedly expressed his desire to back out from the Joint Comprehensive Plan of Action (“JCPOA”), otherwise simply known as the Iran nuclear deal.   Since the JCPOA was entered into by the United States by executive action, the Trump administration can withdraw from the deal unilaterally and immediately, and there is a good chance that it will.

If that happens, we can count on the regulatory changes adopted by the Office of Foreign Assets Control (“OFAC”) to implement the JCPOA to be reversed.  These include General License H, which permits foreign subsidiaries of U.S. companies to engage in trade with Iran. They also include the relaxed policy on civil aviation sales to Iran.

The issue here will be both the time frame for such reversal and whether there will be any grandfathering in place.  Historically, OFAC has been slow to act and has included limited grandfathering provisions which either allow certain agreements with the sanctioned country to proceed or provide a wind-down period to terminate those agreements.  Even with these possibilities, U.S. businesses selling civil aircraft to Iran and permitting foreign subsidiaries to trade with Iran should, at a minimum, put those activities on hold and probably begin considering plans to terminate these activities.

3. Cuba Sanctions

Candidate Trump also vowed to roll back the Obama administration’s actions that have relaxed many of the sanctions against Cuba. This would include the removal of Cuba from the list of state sponsors of terrorism.

The removal of Cuba from the list of state sponsors of terrorism was largely symbolic, so putting it back on the list will not have significant impact.

  • Under section 40 of the Arms Export Control Act, 22 U.S.C. § 2780, any country put on the list of state sponsors of terrorism is automatically subject to an arms embargo. Of course, even after Cuba was removed from the list, there was no chance any arms shipments from the U.S. to Havana would be approved in the foreseeable future.
  • Section 6(j) of the defunct Export Administration Act, 50 U.S.C. App § 2405, requires a license for exports to state sponsors if the export could make a “significant contribution to the military potential of such country” or if it could “enhance the ability of such country to support acts of international terrorism.” And, in those instances, Congress must be given notice of such exports thirty days in advance. None of the changes in the Cuba sanctions contemplated any such exports.
  • Section 7205 of the Trade Sanctions Reform and Export Enhancement Act, imposes a license requirement for shipping those goods to a sanctioned country if that country is also on the state sponsor of terrorism list. However, that section specifically identifies Cuba as a state sponsor of terrorism and imposes the license requirement on exports of agricultural products, medicines and medical products to Cuba. So, removing Cuba from the terrorism list did not eliminate the need for exporters to Cuba to continue to file the export notifications required to utilize License Exception AGR for TSRA exports to Cuba.

Even if adding Cuba back to the list would not have much impact on trade relations with Cuba, it seems likely that the other recent revisions, such as the general licenses for travel and favorable licensing policy for certain exports such as telecommunications equipment, civil aviation equipment, and certain items in support of Cuba’s private sector, have a good chance of reversal.  The regulations permitting entry into executory contracts subject to license approval will likely disappear as well.

Certainly those planning to use the general travel licenses, should do so as soon as possible.  The changes in licensing policy mean that businesses should also seek licenses for contemplated exports to Cuba as soon as possible, with the understanding that those licenses might be terminated at the same time the favorable licensing policy is reversed.

4. Russia Sanctions

At the same time that the new Trump administration is likely to impose stricter controls on Cuba, it may well loosen sanctions on Russia, Cuba’s longtime ally and supporter.   Vladimir Putin has strengthened Russian ties with Cuba and even called for lifting of the U.S. embargo on Cuba.  Although Trump is not likely to heed this request from Putin, there is a stronger chance that Trump’s call for better relations with Russia will lead to the lifting or loosening of the sanctions on the Crimean territory as well as removals from, or elimination of, the Sectoral Sanctions Identifications List.  Restrictions on oil-related exports to Russia could be lifted as well.  Putin supporters that were placed on the List of Specially Designated Nationals and Blocked Persons might also get a reprieve from the Trump administration.

Photo Credit: YM Ningbo seen from the Golden Gate Bridge by Richard Erikkson [CC-BY-SA-2.0 (], via Flickr [cropped and processed]. Copyright 2010 Richard Erikkson

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Copyright © 2016 Clif Burns. All Rights Reserved.
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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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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)