Archive for the ‘Iran Sanctions’ Category


Oct

20

The UNPA Sidestep Doesn’t Allow OFAC to Shuffle Past the Berman Amendment


Posted by at 10:39 am on October 20, 2017
Category: Iran SanctionsOFAC

The House of Leaves - Burning 4 by Learning Lark [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/7iW4zL [cropped]My post two days ago on the  fourth designation of IRGC by OFAC and OFAC’s claim that this new designation would prevent the supply of informational materials to the IRGC notwithstanding the Berman Amendment has resulted in a lively debate over in the Twitter-verse.  Some are arguing that because section 105 of the Countering America’s Adversaries Through Sanctions Act (“CATSACT”) specifically directs the President to sanction IRGC under Executive Order 13224, and because Executive Order 13224 was promulgated in reliance on the United Nations Participation Act (“UNPA”), the Berman Amendment’s restriction on informational embargoes doesn’t apply.

Because a boring legal and export-geeky argument follows, here is the TL;DNR — Now that the Security Council has lifted its sanctions on the IRGC, the UNPA does not justify designation of the IRGC. That designation is properly made under IEEPA, meaning that the Berman Amendment still applies

The UNPA was passed in 1945 and, as it title implies, is the act that permitted U.S. participation in the United Nations. As part of that participation, the UNPA authorizes the President to take steps necessary to implement Security Council Resolutions. Specifically, the UNPA, in 22 U.S.C. § 287c(a), provides as follows:

Notwithstanding the provisions of any other law, whenever the United States is called upon by the Security Council to apply measures which said Council has decided, pursuant to article 41 of said Charter, are to be employed to give effect to its decisions under said Charter, the President may, to the extent necessary to apply such measures, through any agency which he may designate, and under such orders, rules, and regulations as may be prescribed by him, investigate, regulate, or prohibit, in whole or in part, economic relations or rail, sea, air, postal, telegraphic, radio, and other means of communication between any foreign country or any national thereof or any person therein and the United States or any person subject to the jurisdiction thereof, or involving any property subject to the jurisdiction of the United States.

So, although this provision does permit the President to ban any means of communication with a foreign country it does so only “to the extent neccesary to apply such measure” as the Security Council “has decided … are to be employed to give effect to its decisions.”  It is not like the International Emergency Economic Powers Act which permits the President to declare a national emergency and then apply whatever measures the President wants limited only by the Berman Amendment’s informational materials and travel exception and the other specific exceptions set forth in the Act. Instead, it is limited to implementation of specific measures adopted by the Security Council.

So the issue here is whether the designation of IRGC through an order under E.O. 13224 is necessary to implement measures set forth in a Security Council Resolution and whether it is limited to actions that are “necessary” to implement those measures. First, of course, we have to look at UNSCR 2231, which repealed all prior Security Council Resolutions regarding Iran. This means that the designation of the IRGC in UNSCR 1747 has been terminated. In addition, UNSCR requires the E.U. to remove the IRGC from its list of designated entities. So nothing in any Security Council Resolution regarding Iran authorizes designation of the IRGC under the UNPA.

Nor is there anything in the Security Council Resolutions that are the basis of E.O. 13224 that support the designation of IRGC. Those resolutions are UNSCR 1214, 1267, 1333, and 1363. All of these Security Council Resolutions authorize measures taken against the Taliban in Afghanistan and have nothing to do with, and do not justify, a designation of the IRGC. The Executive Order also cited UNSCR 1269, although it does not explicitly claim authority from that resolution. UNSCR 1269 authorizes and encourages multilateral responses to terrorism and does not authorize a unilateral designation of IRGC as a terrorist, particularly after UNSCR 2231 lifted the UN’s designation of the IRGC and requires the E.U. to remove the IRGC from its lists.

Although cited by those now arguing that OFAC is correct that orders issued under E.O. 13224 are not subject to the Berman Amendment’s exceptions, the Ninth Circuit decision in Sacks v. Office of Foreign Assets Control does not permit that conclusion. The Ninth Circuit does say “IEEPA imposes no such burden on the President’s powers when he acts under the UNPA.” But Sacks is clearly not justification for OFAC’s claim here that the Berman Amendment to IEEPA does not apply to its designation of IRGC under E.O. 13224.

Sacks involved Executive Order 12722 which imposed a travel ban to Iraq pursuant to UNSCR 661. Of course, that travel ban was specifically required by UNSCR 661, which required member states to prohibit all transactions in Iraq other than those involving “medical or humanitarian purposes.” Clearly a travel ban could be considered a measure necessary to implement the specific restrictions of UNSCR. The same cannot be said for the designation of the IRGC which is not necessary to implement the UNSCR sanctions against the Taliban or the UNSCR resolution authorizing multilateral responses to terrorism.

Even though the UNPA doesn’t authorize the designation of the IRGC under E.O. 13224, there is little question that such a designation would be authorized under IEEPA.  Of course, that means that the exceptions in IEEPA, including its restrictions on embargoes of informational materials, would apply to any such designation.

Photo Credit: The House of Leaves – Burning 4 by Learning Lark [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/7iW4zL [cropped]. Copyright 2009 Learning Lark

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Copyright © 2017 Clif Burns. All Rights Reserved.
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Oct

18

OFAC Designates the IRGC for the Fourth Time


Posted by at 7:37 pm on October 18, 2017
Category: Iran SanctionsOFAC

Imam Khomeini by Kaymar Adl [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/kamshots/515002010/ [cropped]Last week, Iran’s Islamic Revolutionary Guard Corps (“IRGC”) was sanctioned yet again by the Office of Foreign Assets Control (“OFAC”). I say “yet again” because prior to the latest action the IRGC had already been designated and blocked under Executive Orders 13382, 13553, and 13606. At this point, OFAC has now put the IRGC on the SDN List more more times than the Washington Nationals have been in the National League Division Series (three times) and way more times than they’ve won the NLDS (that would be never).

Which leads to the legitimate question as to what’s going on here? Are OFAC and the White House just trying to stir things up? Or is there some kind of monthly designation quota at OFAC, like the police department daily ticket quotas in Arlington, Fairfax and Falls Church which make driving in Virginia so risky?

Knowing that this issue would arise, OFAC released along with the designation an FAQ to explain why this designation is unlike the other ones.

Today’s action designating the IRGC under E.O. 13224, our counterterrorism authority, carries some additional consequences that will limit certain activities with respect to the IRGC. Persons designated under E.O. 13224, which now includes the IRGC, may not avail themselves of the so called “Berman exemptions” under the International Emergency Economic Powers Act (IEEPA) relating to personal communication, humanitarian donations, information or informational materials, and travel.

That’s right. It is now a federal crime for a U.S. person to give a copy of The Bible to anyone in the IRGC.

Aside from the sheer stupidity of this result, it is not quite clear to me that it is actually the case that this new designation sidesteps the Berman Amendment. That amendment, codified in 50 U.S.C. § 1702(b)(3), restricts the actions that the President can take with respect to using the International Emergency Economic Powers Act (“IEEPA”) to limit, among other things, the import and export of informational materials.

The new designation is the result of section 105 of the Countering America’s Adversaries Through Sanctions Act (“CATSACT”) which specifically directs the President to sanction IRGC under Executive Order 13224. Now perhaps OFAC thinks that it can escape the Berman Amendment because these sanctions are under CATSACT and not under IEEPA. The problem is section 105 explicitly cites IEEPA in imposing the obligation to sanction the IRGC under Executive Order 13224. Moreover, the other three executive orders under which IRGC was previously sanctioned cite other statutory authority in addition to IEEPA, so it’s not quite clear why OFAC now says that throwing some statute other than IEEPA into the mix makes the Berman Amendment provisions on informational materials inapplicable. Finally, the result of a designation under Executive Order 13224 is to make the IRGC subject to the Global Terrorism Sanctions Regulations.  Those regulations, in section 594.305, have a definition of “informational materials,” a definition that would be completely unnecessary if OFAC thought that the Berman Amendment’s provisions on “informational materials” did not apply.

Photo Credit: Imam Khomeini by Kaymar Adl [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/kamshots/515002010/ [cropped]. Copyright 2007 Kaymar Adl

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

Sep

13

Beware the Smiley Face!


Posted by at 6:06 pm on September 13, 2017
Category: Criminal PenaltiesIran SanctionsOFAC

Camellia George via http://blog.venmo.com/2015/10/20/introducing-camellia-george-kah-meel-ya-head-of-product-development-1 [Fair Use]
ABOVE: Parisa Mohamadi

A recently unsealed criminal complaint alleges that Parisa Mohamadi, an Iranian-born U.S. citizen, was responsible for exports of approximately $3 million of goods from the United States to Iran between 2010 and 2012. The fact pattern alleged in the indictment is a familiar one: the items, requested by Iranian buyers, were purchased by Mohamadi in the United States and shipped to a free zone company she incorporated in Dubai and then were transshipped to Iran from there.

Of course, there is no criminal violation without criminal intent. And in these transshipment fact patterns, where the shipment from the U.S. to Dubai would not require a license (if considered alone) and the shipment from Dubai to Iran was also one that was legal under UAE law, it is conceivable (indeed fairly likely) that the exporter may think that this shipment route is legal. (Remember we live in a country where 7 percent of the population believes that chocolate milk comes from brown cows.)

The criminal complaint understands this issue and tries to forward proof of Ms. Mohamadi’s criminal intent.  Truth be told, the government’s proof of criminal intent by Ms. Mohamadi can only be described as, well, completely whack-a-doodle.

The first “proof” cited by the complaint is this statement made by Mohamadi in an email:

I KNOW WHICH COUNTRIES ARE EMBARGO AND SANCTION AND WHICH COUNTRY WILL BE EMBARGO AND SANCTION, I AM AS SHIP OWNER, SO I KNOW HOW IS SHIPPING WORKS TO FIXED THE SHIPMENTS IN ADVANCE THUS DO NOT WORRY FOR THIS DELIVERY SCHEDULE, I NEVER SHOOT MY SELF.

The complaint adds a snarky footnote pointing out that the spelling mistakes and grammatical errors are those of Ms. Mohamadi alone and not an indication of any illiteracy on the part of the investigating DHS agent who signed the affidavit. This snark might have been justified but for the agent’s reference elsewhere in the complaint to an “I-Phone” (for iPhone) and multiple references to “U.S. Principal Party of Interest” (instead of “U.S. Principal Party in Interest”). Of course, nothing in this difficult-to-parse statement is inconsistent with a belief that the shipment was legal if it went through Dubai first.  As Ms. Mohamadi tried to make clear, she never shoots herself.

But the agent saved the best “proof” for last (with my bold and italics added):

Similarly, on November 1, 2011, Individual D from Iranian Business A emailed MOHAMADI: “How are you. I am at the sanction solution and money transfer conference in the university. So far I we doing it like no one does, very happy to be here, of course I am the youngest here, and and we do it like no one. That’s what separate us from the others.” MOHAMADI responded: “Good to hear that we are the best but off course in knew that already.” This was followed by three smiley faces.

The best I can tell the agent believes that the smiley faces are proof of criminal intent because nothing else in Mohamadi’s quoted statement about “being the best” even comes close. You might recall that FBI agents get specific training in smiley faces and their meaning, so I suppose DHS agents get that training as well.

And that’s it. That’s what the criminal complaint cites to prove that the defendant knew that shipping items from the U.S through a foreign company in Dubai to Iran was illegal:  three smiley faces and a desire not to shoot herself.  Maybe that’s why Ms. Mohamadi doesn’t have much of a smiley face in her mug shot.

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Copyright © 2017 Clif Burns. All Rights Reserved.
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Aug

15

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

Aug

2

Touch a U.S. Dollar Anywhere, Go Directly to U.S. Jail


Posted by at 11:58 pm on August 2, 2017
Category: Iran SanctionsOFAC

DSME Drillship via http://cse-transtel.com/wp-content/uploads/2016/06/DSME-Ultra-Deep-Water-Drillship-Project.jpg [Fair Use]Two companies in Singapore, CSE Global and CSE Transtel, agreed to pay the Office of Foreign Assets Control (“OFAC”) $12,027,066 to settle charges that they violated the Iran Transactions and Sanctions Regulations (“ITSR”). The charges arose from CSE Transtel supplying telecommunications goods and services to energy projects in Iran. OFAC did not allege that these goods and services originated in the United States. Rather, OFAC alleged that because the vendors were paid in U.S. Dollars that CSE had caused the export of financial services from U.S. Banks to Iran in violation of section 560.204 of the ITSR.

Now we’ve been through this U.S. dollar business with OFAC before. In the typical case, OFAC’s claim of jurisdiction over the foreign company is based on the fact that the foreign company’s bank and the foreign company’s customer’s bank would have used correspondent accounts denominated in dollars and held in U.S banks to effectuate the transaction. Of course, whether the transfer of dollars between U.S. banks in connection with a foreign company’s sale of goods to Iran is the export of a financial service to Iran is not entirely clear. But at least in this scenario you can see a direct flow of dollars related to a specific Iranian transaction.

But the Singapore situation is different because Singapore is authorized to engage in offshore dollar clearing transactions. And, as the OFAC release admits, the transactions in question were effectuated through U.S. Dollar accounts held in Singapore banks. The way that U.S. Dollar transactions are cleared in Singapore is described here. Suffice it to say, there are cases where U.S. Dollar transactions can be cleared in Singapore under this system without a U.S. bank ever being involved. If, for example, CSE and its vendor had U.S Dollar accounts at the same bank, or were the only dollar transactions between two Singapore banks on a clearing day, the Singapore clearing house would clear the transactions without the need for either bank to make up a dollar deficit as part of the clearing process.

But in the other possible (and more likely) situations where the dollars clear in Singapore but dollar transfers are needed to make up differences between banks, it still can’t be said that the dollar transfers to settle the dollar position of the Singapore bank is the export of a financial service to Iran. Say a bank in Singapore pays $10,000 for a customer’s Iran transaction but during the day pays out $200,000 and receives $100,000 where none of these other dollar transactions have anything to do with Iran. It will need to transfer $100,000 to the Singapore clearing house, which will be effectuated through a U.S. Dollar correspondent account in the United States. In that case the bank in the United States has not transferred any financial service to Iran because the payment relates to an aggregate of transactions valued at $300,000, almost all of which have nothing to do with Iran.

The only scenario in the Singapore clearing situation where the U.S. bank would transfer a financial service to Iran would be where the Iran payment by the Singapore bank is the only U.S. dollar transaction by the Singapore bank during the clearing day. In that case, the transaction looks like a traditional one where the dollar payment is cleared through the U.S. bank. But there is no reason to believe that any or all of the CSE Iran transaction were the only dollar transactions during that clearing day. But that doesn’t stop OFAC from inaccurately claiming that every dollar transaction conducted by CSE through its Singapore accounts caused a transfer of financial services from the United States to Iran.

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Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)