Archive for the ‘General’ Category


Jul

21

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 https://flic.kr/p/zDCVmvIn 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 https://flic.kr/p/zDCVmv. Copyright 2015 Clif Burns

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Jul

7

OFAC Cancels Nork Dictator’s Trip to Disneyland; Norks Declare War on US


Posted by at 8:33 pm on July 7, 2016
Category: General

Kim Jong Un Smoking via KCNA [Fair Use]Yesterday, the Office of Foreign Assets Control (“OFAC”) added the over-fed Nork dictator, Kim Jong Un, to the List of Specially Designated Nationals and Blocked Persons. Adding heads of state to the SDN List is not only unusual but also largely symbolic and pointless. The effect of putting the Norktator on that list means that no U.S. persons can engage in any transactions with him and that any property or interest in property by him that comes into the control of a U.S. person must be blocked. So, yeah, all of Kim Jong Un’s bank accounts in the U.S. (all zero of them) are blocked. And if Kim Jong Un had plans to visit Disneyland (and get a new coif at Star Cuts on the way), those plans now have to be put in hold.

The largely ineffectual nature of the U.S. move, of course, did nothing to moderate the hysterical overreaction of the Nork Government, which immediately characterized the designation as “a declaration of war” and a “hideous crime.” Uh huh. Right. Arbitrary imprisonment, slave labor, torture, extrajudicial executions are harmless local Nork customs; interfering with Kim Jong Un’s trip to Disneyland and access to Netflix is a “hideous crime.”

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Jul

6

Lime Juice – $0.25; Two Ounces Rum – $1.00; Paying with a Credit Card: Priceless


Posted by at 9:13 pm on July 6, 2016
Category: General

Havana Club on the Road to Havana by Richard Smallbone [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/nxC2Pr [cropped and processed] An announcement by a Florida company that it will issue a MasterCard that American travelers can use in Cuba has, not surprisingly, caused the usual suspects on the Hill as well as all the pro-embargo bloggers to have a major conniption fit. The claim is that if the card is used in connection with confiscated property it will violate section 103 of the Helms-Burton Act. Buy a mojito made with Havana Club and pay with a credit card, and, they claim, the credit card company has violated the Act.

So, according to these folks, credit card companies must put procedures in place to prevent that from happening, knowing full well that there are no possible procedures that could ensure that. Not surprisingly, the Office of Foreign Assets Control (“OFAC”), which is in charge of enforcing the Helms-Burton act and the Cuban embargo, thinks this argument is bunk, writing to El Nuevo Herald: OFAC “does not consider the use of credit cards by authorized travelers in Cuba to be transactions subject to the prohibition in Section 103.”

Section 4(13)(B)(iii) of the Helms-Burton act exempts from the definition of “traffic” all “transactions … incident to lawful travel to Cuba.” Whether this limits the application of section 103 is not entirely clear, since section 103 does not prohibit trafficking in confiscated property, rather it prohibits “financing transactions involving any confiscated property.”

Embargo cheerleader-in-chief Rep. Lincoln Diaz-Balart told the Miami Herald that “the use of credit cards by authorized travelers is allowed, but would violate Section 103 of the 1996 Helms-Burton law if the transactions involve properties seized by the Cuban government from U.S. owners.” But he is leaving out a key part of section 103 which only prohibits doing this “knowingly … for the purpose of financing transactions involving any confiscated property.” Of course, there is no way that MasterCard, or any other credit card company, is going to know what is being purchased when it authorizes the transaction, much less whether it is confiscated property or not.

Photo Credit: Havana Club on the Road to Havana by Richard Smallbone [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/nxC2Pr [cropped and processed]. Copyright 2013 Richard Smallbone

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Jun

14

Busman’s Holiday


Posted by at 9:29 pm on June 14, 2016
Category: General

Before the FallI don’t know what’s going on but it seems I can’t escape my job even during seemingly harmless activities.   I watched the excellent AMC/BBC miniseries The Night Manager and it turns out to be about an illegal arms deal, and one of the major characters is from, get this, the Directorate of Defense Trade Controls.   DDTC on TV?  Really?  Who knew?

So now I’m reading Before the Fall, a mystery/thriller by Noah Hawley, best known, perhaps, for his role as the screenwriter for the television miniseries Fargo.  The novel, which has been well-reviewed and which is hard to put down, has, as a plot point . . .

CAUTION:  VERY MINOR SPOILERS AFTER THIS

. . . has, as a plot point, an investigation of sanctions violations by the Office of Foreign Assets Control.  But, sadly, popular novels are poorly edited these days, and there is an unfortunate whopper of an error.   The whopper is not the hilarious and continual references to “the OFAC” as in “Agent Hex and his superiors at the OFAC.”  (I suspect that Hawley is thinking that you say O-F-A-C and not OFAC.  Sigh).

No the whopper is that, in 2015, OFAC still thinks that Libya is sanctioned.   An indictment at issue involves a character engaging in financial transactions with Libya, even though those sanctions were lifted in 2011 with the only remnants remaining being the blocking of certain people who were once part of the Muammar Gaddafi regime.  Still, although I haven’t finished the book, it’s an enjoyable read.  Perhaps I’ll learn as I read further on that it’s actually an alternative history novel like Philip K. Dick’s The Man in the High Castle.

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Jun

1

Russian Export Case Larded with Bogus Spying Charges: Part 3


Posted by at 8:02 am on June 1, 2016
Category: BISCriminal PenaltiesGeneral

Alexander Fishenko
ABOVE: Alexander Fishenko


This blog has been covering the export prosecution of Alexander Fishenko for quite some time. Previous posts on this case can be found here and here. Most of my interest has been in the trumped-up Foreign Agents Registration Act charge brought by the government to allow Fishenko to be characterized, inaccurately, as a Russian “spy.”

Fishenko, who pleaded guilty to all counts in the indictment, is scheduled to be sentenced on June 3. The sentencing memorandum prepared by his lawyers provides more insight into the “spy” nonsense and the government’s motivations in bringing these charges. (I am not linking to the memorandum, even though it is publicly available through PACER, because it contains detailed information on some unrelated private matters relating to Fishenko’s medical history.)

As was detailed in the preceding posts, it was undisputed that Fishenko was buying things at the request of the Russian government. But that alone does not make him a foreign agent required to register under FARA. Section 3(d) exempts “private and nonpolitical activities in furtherance of the bona fide trade or commerce of such foreign principal.” There was no allegation or evidence that Fishenko acted for the Russian government in any other capacity, meaning that he was not a “foreign agent” under FARA and, therefore, was under no obligation to register as one.

Apparently, Fishenko was anxious to plead guilty after the indictment, but the government was not willing to take his plea. The hold-up was that Fishenko, although he was willing to plead guilty to all the other charges, did not want to plead guilty to the bogus FARA charge for precisely the reason the government included it: namely, that those charges had been widely, indeed universally, interpreted as charges that he was a Russian spy, something the government well knew and was intentionally using to poison the well.  Fishenko thought that such a plea would permanently damage the reputation of his family members.

Leaving aside for the moment that Fishenko’s activities were exempt under section 3(d) of FARA, it is also undeniable that there is a significant difference between being an “unregistered foreign agent” and being a Russian spy. You can be an unregistered foreign agent in violation of FARA even if you run around wearing a banner saying you work for the Russian government, behavior essentially incompatible with being a spy. Nor was Fishenko charged with espionage under the relevant provisions in 18 U.S.C. §§ 793 – 798, something that certainly would have happened if Fishenko was really a Russian spy.

The only conclusion behind the government’s intransigence on the fake FARA charges is that it wants to keep this weapon in its arsenal for future, and equally illegitimate, use. It’s much easier to convict export defendants once they have been branded in the press as spies. Sadly, such behavior — intentionally bringing unfounded charges for their negative publicity value — turns the word “Justice” in the Department of Justice to Orwellian double-speak.

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