Last week, the United States Court of Appeals for the D.C. Circuit issued its slip opinion in Del Monte Fresh Produce Company v. United States. The appeals court reversed a lower court ruling that had dismissed a case filed by Del Monte against the Department of Treasury’s Office of Foreign Assets Control (”OFAC”) alleging that OFAC was taking too long to process a license application Del Monte had filed to export agricultural commodities to Iran.

The Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”), 22 U.S.C. §§ 7201-7211, authorizes exports of agricultural products, medicine and medical devices to sanctioned countries such as Iran. Section 906 of TSRA provided that the licenses for exports to Iran were to be no more restrictive than license exceptions for agricultural products administered by the Deparment of Commerce. Pursuant to that section, OFAC published an interim rule that followed Commerce’s “nine-day” rule and which provided, in effect that licenses to Iran would be granted if no objections had been received from the State Department within nine days of the referral of the application to State and if the application was otherwise in conformity with OFAC’s rules. In March 2007, OFAC issued a policy statement that it would no longer comply with the 9-day rule.

Del Monte’s application to export agricultural products to Iran was filed with OFAC on August 8, 2007, and referred by OFAC to State on August 17. On September 13, State replied that it had no objection. After the OFAC Help Desk advised Del Monte on November 27 that the application was still pending, Del Monte filed suit the following day, November 28, in federal district court. On November 29, Del Monte filed a motion for preliminary injunction, the court scheduled a status conference and OFAC granted Del Monte’s license, which it appears had been signed on November 23, i.e., before Del Monte had filed suit. Because OFAC had issued the license, the District Court dismissed the complaint and the motion for preliminary injunction as moot.

In the opinion released by the Court of Appeals, the court ruled that the district court had jurisdiction over the otherwise moot claim under the exception for claims “capable of repetition but evading review.” As a result, the decision is instructive more on arcane issues of federal jurisdiction than it is on anything else.

But since the case was remanded for further proceedings before the district court, the district court will now be forced to confront several issues of immense interest to exporters. First, how long does OFAC have to act on a TSRA application under the terms of section 906 of TSRA? Must the agency act within 9 days of referral to State if State raises no objections and the license is otherwise grantable? Or could the agency, by its action in March 2007, defer action on applications for a much longer period? If the District Court reinstates the nine day rule, can OFAC effectively avoid it by waiting for long periods before referring the license application to State?

. . . to the tune of $6,600. In the civil penalties information released today by the Treasury Department’s Office of Foreign Assets Control (”OFAC”), the agency reported that Willbros, a Texas-based oil and gas drilling services company, paid $6,600 to settle charges that the company

through a former Senior Vice President, willfully violated the Sudanese Sanctions Regulations (the “Regulations”) when it entered into a contract to bid on an oil development project in Sudan, despite its knowledge that such activities violated the Regulations, by facilitating the export of goods, technology or services to Sudan and evading the prohibitions set forth in the Regulations.

A Willbros SEC filing provides a little more detail on the alleged violation:

Acts carried out by Mr. [James] Tillery and others acting under his direction with respect to a bid for work in Sudan may constitute facilitation efforts prohibited by U.S. law, a violation of U.S. trade sanctions and the unauthorized export of technical information.

In December 2008, Tillery was indicted for violations of the Foreign Corrupt Practices Act in connection with bribes paid to officials of Ecuador and Nigeria to retain business with the state-owned oil companies in those countries. Tillery remains at large. Willbros itself paid $22 million dollars to settle criminal charges in connection with these bribes.

The OFAC description of the violation is that Tillery “entered into a contract to bid” on the Sudanese oil project. There is no claim that Willbros actually bid on, or even worked on, the Sudanese oil project, which makes it somewhat unclear as to how the regulations were violated. If I agree with a friend to take a trip to Cuba, I haven’t violated the Cuba sanctions until I actually take the trip.

But, of course, there’s always the issue of facilitation, and OFAC claims that this contract somehow facilitated a violation whether or not a bid was ever made. If I don’t go to Cuba but my friend later does, then the facilitation argument, in its broadest since, is that I facilitated that violation by proposing the trip. (Hemingway might also, if he were still around, be guilty of facilitation by writing books that indirectly encourage his fans to visit his home and drinking haunts in Havana.)

And although this may all seem a stretch, it is consistent with OFAC’s broad concept of facilitation in which the butterfly that flaps its wings in Western Africa arguably facilitates the hurricane that a month later slams into the Atlantic coast of Florida.

A 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.

An alert reader from the U.K. pointed this out:

BERR (”Department for Business, Enterprise & Regulatory Reform”) which houses the United Kingdom’s Export Control Office has changed its name to BIS (”Department for Business Innovations and Skills”). I can’t imagine that our own BIS (”Bureau of Industry and Security”) is very happy about this foreign incursion on its export control brand. Perhaps this will prompt the U.S. BIS to go back to its original name — BXA, or the Bureau of Export Administration. Or better yet: “CSI:Exports”

Then again tit-for-tat is always fun so we could rename BIS as the Export Control Office and the Department of Commerce could be come the Department of Business, Enterprise, Recovery and Reinvestment (”BERR”). Then 10 Downing Street could paint itself white and Pennsylvania Avenue could be renamed Downing Street. By the time it was all over, Parliament and Congress would shift names, and we could trade the Washington Monument for the Tower of London. Such fun, as long as we don’t have to trade anything for the Millennium Wheel.

A press release from Her Majesty’s Revenue and Customs (U.K.) supplied some further and very interesting details relating to the conviction of three UK residents (including two Iranians granted political asylum) for the attempted export to Iran of oxygen cylinders used in fighter jets. This story was first reported here on April 29 as the three men went to trial. All three men were convicted and sentenced to serve, respectively, five years, 30 months, and 30 months, in jail.

Of particular interest is the source of the oxygen cylinders: the defendants bought them on eBay. The decision by the three defendants to use eBay was quite canny and illustrates how the US export control system is vulnerable when military parts are sold by unsophisticated and inexperienced sellers using the auction site. While many established manufacturers and distributors have had the “know-your-customer” mantra drilled into their heads by now, such niceties are probably unheard of by, and unknown to, eBay sellers, often working out of their garages and basements. The only questions such sellers are likely to have about their buyers is how quickly they can pay. The eBay seller in this question didn’t pause long enough to realize that the purchase by an Iranian in the U.K of military parts might be problematic.

The press release also notes that in cases of prior exports of military goods to Iran by the trio, more sophisticated businesses which weren’t selling their good through eBay had indicated that they needed export licenses to ship the goods to the U.K. In those instances, the three men would pretend that their actual customer was in the United States and asked the businesses to ship the goods to an address in Florida where, of course, the three men would then have the goods transshipped to themselves in the UK. This wasn’t just a red flag, it was a red banner the size of a football field, and the U.S. businesses never should have shipped the items to the Florida address.

In all events, the eBay connection in this case should serve as a wake-up call to the Pentagon as to the many problems in its current program of military surplus sales to the general public. Sales to casual sellers who then plan on disposing of these goods over eBay is equivalent to the Pentagon selling them to a store with window signs saying “Iranians Welcome,” “Free Shipping to Tehran” and “Get Your F-14 Parts Here!”

Firth Rixson Monroe, a specialty metals forger, recently agreed to pay $85,000 to the Bureau of Industry and Security (”BIS”) to settle charges that the company exported, on three occasions, 1,055 pounds of 6-2-4-2 titanium alloy billets worth about $35,000 to the People’s Republic of China. The company voluntarily disclosed these three exports to BIS.

The 6-2-4-2 titanium alloy can be used in aerospace and missile applications requiring an alloy capable of resisting high temperatures and maintaining high tensile strength. The “6-2-4-2″ designation used here with titanium is shorthand for Ti-6Al-2Sn-4Zr-2Mo and signifies the other metals used in the alloy, specifically aluminum (6%), tin (2%), zirconium (4%) and molybdenum (2%). This alloy is classified under ECCN 1C202 because it exhibits an ultimate tensile strength of 900 MPa at 20° and because, apparently, the billets had an outside diameter in excess of 75 millimeters. (Tensile strength specifications for 6-2-4-2 titanium, and other titanium alloys, can be found here.)

The alloy designation for the titanium billets seemed to cause considerable confusion for the enforcement staff. The order interpreted it to mean that 6,242 billets had been exported. The charging letter turned 6-2-4-2 into 6,242 pounds of titanium. Only the settlement agreement got it right. The charging letter also stated that the exports went to Chile. The agency’s confusion over the destination of the exports in the charging letter somehow seems more understandable than the agency’s confusion about the standard practices by the engineering community for designating particular alloys of titanium. The 6-2-4-2 designation was, after all, what allows the conclusion that the alloy was indeed covered by ECCN 1C202.

UPDATE: BIS has removed the settlement documents to which I linked in this post, presumably to correct the errors that I pointed out or that they learned from other sources.

The United Kingdom’s Export Control Organization has launched a newsletter, pithily titled “Compliance Newsletter.” In its premier four-page issue, we learn that the ECO is big on warning letters, boasting that it has issued 50 of them since establishing procedures for warning letters a year ago.

The newsletter also notes that an unnamed company agreed to settle export charges for £575,000 ($880,000). The newsletter’s description of the settlement is a treasure trove of useful information:

In April 2009, a UK company paid a compound penalty of £575,000 for alleged offences in relation to the export of controlled goods to a number of sensitive destinations without licences between 2003 and 2006.
 
Compounding is the means by which HMRC can settle out of court a case which would normally be prosecuted to save both the tax payer and the company time and legal fees.

That’s it. Those 66 words are the entire entry on the settlement, or about £8,700 ($13,000) per word. There is no mention of the identity of the company, the goods exported, the number of exports, the destinations, or the value of the goods. This blog often complains about the paucity of information given by U.S. export agencies in announcements of export settlements, but in comparison to the ECO’s stingy announcement, the U.S agencies are releasing disclosures the length of a 17th century epistolary novel — OFAC, perhaps, excluded.

In fact, the monthly newsletter of the East Anglia Society for the Protection of Water Voles and Stoats is longer and packed with more information than the ECO’s new newsletter.

At 11:30 this morning, an unidentified caller rang me and said that he was responsible for the blog that I discussed yesterday that principally consisted of posts copied in their entirety from this blog. The man on the other end of the line told me that he meant no harm, that he thought this was a permissible use of this blog’s RSS feed, and that he would remove my posts from his site, which he has done.

Intrigued by why a steadfastly anonymous individual would be trying to run an export compliance blog in an obvious attempt to garner export compliance business, I asked him directly who he was, and he declined to identify himself. I asked him why he didn’t want to identify himself. “I’d rather not say,” was the response. He did indicate that the purpose of his blog was “to generate email leads” and that it had been successful in doing that. And he sent me an email from a gmail account using a misspelled pseudonym (”Herbert Bloomffield”), confirming that he had deleted my posts.

All of this faux cloak-and-dagger stuff — Ukrainian pornographers, anonymous phone calls, pseudonymous emails — suggests to me that Mr. “Bloomffield” was being far from straightforward in his proclamation of naive innocence. And the next time this fellow wants to put on his Maxwell Smart cap and make a call from his shoe phone, he might remember that there are these marvelous technologies called Caller ID and reverse lookups on the Internet. Throughout my conversation with Mr. “Bloomffield,” there was the name of his (large) export compliance company on my telephone display. A telephone number was displayed too. A reverse-lookup showed that number belonged to the company shown on the telephone Caller ID display.

Now that I know who the caller was and where he was calling from, it’s perfectly clear that Mr. “Bloomffield” knew what he was doing and knew that what he was doing was questionable, both legally and ethically. He just didn’t want his company — with more than 100 employees and well-known probably to most, if not all, of the readers of this blog — connected with Ukrainian pornography sites, RSS feed scraping, and the use of someone else’s work to generate business for his own company.

Oh, and just so Mr. “Bloomffield” knows that I’m not bluffing about knowing who he really is, I just filled out a contact form on his website asking to be sent information on his company.

UPDATE: The culpable employee has now identified himself in an email to me, indicating that his company was in no way involved in this purloined blog affair. He appears to have been an overzealous sales person looking for leads.

The United States Postal Service published in today’s Federal Register a notice of a proposed modification to its privacy regulations. One of the modifications relates to customs declarations that postal customers supply to the USPS in connection with exports made by those customers using the USPS. According to the notice, the USPS is proposing to give those declarations for “certain mailpieces” to the Office of Foreign Assets Control (”OFAC”), apparently pursuant to a specific request from OFAC.

Needless to say, the notice doesn’t explicitly describe those “certain mailpieces” for which OFAC has requested the Customs Declaration. But a tantalizing clue suggests that only mail to Iran is involved. The notice references three executive orders imposing sanctions: E.O 12957,
E.O.12959, and E.O 13059. Each of these orders promulgates sanctions on Iran. Beyond that, we have little indication of which postal shipments to Iran are subject to this disclosure proposal.

Two minor things are of additional interest regarding the USPS notice. First, the USPS refers to OFAC throughout as “the OFAC,” which, however quaint, suggests that “the” USPS doesn’t have much dealing with OFAC which, for whatever reason, normally doesn’t have the definite article prepended to its acronym in the same way it precedes USPS. Also the contact point for the notice is a USPS employee with a literary name: Jane Eyre. That’s pretty cool, but a contact named Clarissa Harlowe would have been even cooler on a USPS notice.

Last Friday President Obama renewed the national emergency with respect to Syria. This action allows the current sanctions against Syria to continue for another year. The previous declaration of emergency was scheduled to expire on Sunday. Current sanctions, among other things, prohibit all exports to Syria other than food and medicine.

During Friday’s daily press briefing at the Department of State, acting spokesman Robert Wood explained the President’s logic in renewing the sanctions:

[T]he President felt it was necessary to take these measures. These are not new sanctions, and there is still – I think this shows you that we still have some very serious concerns about Syrian behavior and activity in the world. We’ve said to you before our concerns about what Syria is doing in Iraq, its support for terrorist groups.

When questioned about how to square the extension of the emergency and the attendant sanctions with talks between White House envoy Jeffrey Feltman and the Syrian government currently taking place, Wood had this to say:

We have very serious concerns about Syrian behavior. I think you all understand that very clearly, and those haven’t gone away. But what we’re saying is instead of isolating Syria, we’re willing to engage them.

Syria, for its part, declined to read any special significance into the renewal of the sanctions, describing it as “routine.”