Archive for the ‘General’ Category



Worst. Case. Ever. Seriously

Posted by at 2:27 am on July 22, 2015
Category: General

Fernando Zevallos  [Public Domain]
ABOVE: Fernando Zavellos

After reading the D.C. Circuit Court of Appeals opinion in Zevallos v. Obama, I have to side with the Office of Foreign Assets Control (“OFAC”), something remarkable for me, but, honestly, the case for de-listing made by lawyers for a designated narcotics kingpin, Fernando Zevallos, was, simply put, ridiculous and the D.C. Circuit was overly polite in upholding OFAC’s decision not to delist him.

Zevallos’s lawyer, probably as an early sign of his desperation, argued that the Court of Appeals should review OFAC’s denial of delisting de novo and not under the arbitrary and capricious standard set forth under the Administrative Procedure Act. The court called such a request “extraordinary and rare,” pointed out that the argument was supported by only one case involving demonstrable agency bias, and, with barely muffled contempt, moved on to the merits. Sadly, for Mr. Zevallos, his arguments on the merits were even worse.

Here’s the thing. If you are trying to convince OFAC that you are no longer a narcotics kingpin, it’s best to make the argument while not sitting in a jail cell in Peru serving a twenty-five year sentence for narcotics trafficking and money laundering.

But wait, it get’s worse. It’s also not a good idea to get caught controlling Panamanian bank accounts with drug proceeds through your sister while sitting in that jail cell in Peru.

Now for the real kicker: Zevallos’s lawyers argued, apparently with a straight face, that this evidence relating to the Panamanian drug money accounts was irrelevant and OFAC could not rely on it in justifying its refusal to delist him because “it showed only that his family continued to control assets derived from narcotics trafficking” and that OFAC “may not rely on evidence that he owns such assets because he cannot legally or practically relinquish control of them, given that they are blocked.” No, I’m not making that up; it’s in black and white on page 10 of the slip opinion.

The court, naturally, is sceptical that you can’t renounce blocked assets. And it does not appear from the opinion that Zevallos even tried to do so. It seems to me that a document renouncing any claim to the funds and agreeing to escheat them to the Panamanian government, if unblocked by OFAC, would have worked like a charm.

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Are You A Natural Person or an Unnatural One?

Posted by at 9:43 pm on May 27, 2015
Category: General

Harry S. Truman Building, United States Department of State, Washington, D.C. by Ken Lund [CC-BY-SA-2.0 (], via Flickr issued proposed rules yesterday dealing, mostly, with the conundrum of what to do with U.S. citizens who work, either in the U.S. or abroad, for foreign defense contractors. Since most normal people (viz., natural persons) do not pore over the ITAR in their spare time, it often comes as a surprise to them, particularly if they are working for foreign defense contractors who don’t care much about the ITAR, that they can go to jail for undertaking such employment in certain circumstances, unless they register with, and get advance permission from, the State Department’s Directorate of Defense Trade Controls.

The proposed rules ease up on this restriction, at least for U.S. citizens who work for foreign defense contractors in a “NATO or EU country, Australia, Japan, New Zealand, and/or Switzerland.” The end-users for the defense articles involved must be in one of those countries, and no U.S. defense articles can be involved. Oh, and no SME either, meaning the foreign defense article cannot be defined on the United States Munitions List as “Significant Military Equipment,” which includes not just obvious things like bombers and missiles but also less obvious things like certain lasers.

Before you run off and email your job application to BAE, there’s one more thing. Although U.S. persons in such situations do not need prior DDTC approval for such employment, they still need to register with DDTC. There is an exemption for people working for DDTC-registered companies but, obviously, this may not be the case for the scenario of a U.S. person working for a foreign defense company.

Two additional things should be pointed out about the proposed rules: one is useful and the other is, frankly, rather hilarious. Let’s take the useful one first. As most readers will know, there has been a bewildering lack of clarity about which subsidiaries can be included on a registration statement, particularly inasmuch as section 122.2 allowed such inclusion for subsidiaries that were more than 50 percent owned by the registrant or were “otherwise controlled.” It’s always those “otherwises” that keep lawyers employed. The proposed rules add a note to say that “otherwise controlled” can be

rebuttably presumed to exist where there is ownership of 25 percent or more of the outstanding voting securities if no other person controls an equal or larger percentage.

Now for the somewhat hilarious one. In order to allow U.S. citizens to work for foreign defense contractors, but not to create a new exemption for U.S. companies in their dealings with these foreign companies, DDTC has decided that it needed to say that this exemption is restricted to “natural persons.” And, because “natural person” seemed to them apparently to be an incomprehensible and esoteric term, the new rules actually define natural person. It means, in case you were wondering, an “individual human being.” Of course, “human being” probably needs to be defined as well.  I, for one,  know plenty of people who are not really “human beings.”  For example, New York Yankees fans aren’t human beings. They’re animals, pure and simple.

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When Economists Write Regs, Everybody Loses

Posted by at 9:38 pm on May 7, 2015
Category: General

Brian Moyer via [Public Domain]
ABOVE: Dr. Brian Moyer,
BEA Director

Are you an individual residing in the United States? Do you have no ownership interest in any foreign enterprise? Have you filed yet a Form BE-10 with the Bureau of Economic Analysis (“BEA”) informing them that you don’t have any ownership interest in any foreign business? No, you haven’t? Well if you don’t file that form with the BEA by May 29, 2015, you can be fined $10,000. You’re welcome.

So get to it and get that BE-10 Claim for Not Filing filed. You can file it electronically here. Oh, and where else but in DC would you have to file a claim for not filing?

Now, it may not actually be the case that you have to file, but that is not what BEA’s regulations say. They say clearly that you have to file. The relevant section is 15 C.F.R. § 801.8, which establishes the mandatory filing requirement for U.S. persons with respect to their interests, or lack thereof, in foreign business enterprises. It says this:

(a) Response required. A response is required from persons subject to the reporting requirements of the BE-10, Benchmark Survey of U.S. Direct Investment Abroad—2014, contained herein, whether or not they are contacted by BEA. …

(b) Who must report. (1) A BE-10 report is required of any U.S. person that had a foreign affiliate—that is, that had direct or indirect ownership or control of at least 10 percent of the voting stock of an incorporated foreign business enterprise, or an equivalent interest in an unincorporated foreign business enterprise, including a branch—at any time during the U.S. person’s 2014 fiscal year.

(2) If the U.S. person had no foreign affiliates during its 2014 fiscal year, a “BE-10 Claim for Not Filing” must be filed by the due date of the survey.

This couldn’t be much clearer, could it? Everyone must file who is required to report, even if they are not contacted by BEA. And section (b) which defines “who must report” includes in subsection (2) U.S. persons without foreign affiliates and therefore must file a BE-10 Claim for Not Filing.

It is possible, indeed quite likely, that what BEA meant to say, but could not manage to actually say, is that the BE-10 Claim for Not Filing only must be filed by persons contacted by BEA to file and who did not have a 10 percent or greater interest in a foreign enterprise. So even though section (b) purports to define “who must report” that definition only means to cover people described in (b)(1) — who have a 10 percent interest — and not those described in (b)(2) who don’t.

First moral of the story: Economists shouldn’t write regulations and lawyers shouldn’t run the economy

Second moral of the story: If you are a U.S. person (business or individual) and you do have an 10 percent in a foreign enterprise, you have to file a BE-10 by May 29, 2015, something which I suspect many companies don’t know right now

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Happy Halloween!

Posted by at 7:54 am on October 31, 2014
Category: General

ITAR Pumpkin by Kevin Wolf

Another regulatory carve-out by Kevin Wolf. . .

Kevin tells me that he considered carving an EAR pumpkin, but it would have been too complex and, in any event, not spooky enough once it was understood.

(Photograph by Kevin Wolf; used with permission)

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New York Times Futilely Calls for End to Cuba Embargo

Posted by at 9:52 pm on October 16, 2014
Category: General

Cuba Capitole by y.becart(Own work) [CC-BY-SA-2.0 (], via Flickr this week the New York Times editorial board called for the end of the fifty-three-year-old embargo on Cuba. There is, of course, nothing unfamiliar or new about the arguments forwarded by the Times for the end of the embargo. The Board noted that Castro used the embargo as an excuse for his own regime’s shortcomings, that the embargo was ineffective in ending the Castro regime, and that it has caused needless suffering among ordinary Cubans.

Of course the chance that Congress will take any action to end the Cuban embargo is about the same as the chance that Castro will shave his beard and join the cast of Dancing with the Stars, and the opinion of the Times editorial board is unlikely to change these odds. The Times acknowledges that Congressional action would be necessary but suggests that the White House could still take some actions.

But there is much more the White House could do on its own. For instance, it could lift caps on remittances, allow Americans to finance private Cuban businesses and expand opportunities for travel to the island.

Section 204 of the Helms-Burton act purports to put restrictions on the President’s ability to end the embargo on Cuba. But that does not prevent amelioration or change of the scope of the embargo as long as the White House does not abrogate specific legislative restrictions such as the prohibition on investments in telecommunications, the prohibition on investments in confiscated property, or limits on vessels that have visited Cuban ports. Even so, it is far from clear that this or any subsequent White House is or will be willing to take the political hit involved in any major modifications of the embargo.

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