ABOVE: Reza Zarrab
I often joke about the number of foreigners who arrive in the United States with their families hoping to see Mickey Mouse but who wind up seeing Elliot Ness and a jail cell instead. Controversial Turkish businessman Reza Zarrab showed up in Miami on March 19 of this year to take his wife and daughter to Disneyland and was arrested at the airport. His application for bail was denied, and he is still languishing in jail, despite having retained fifteen lawyers from top-flight law firms.
Zarrab is accused of violating U.S. sanctions on Iran by processing payments through his financial network for companies in Iran. His dream team of lawyers sought to dismiss the indictment, arguing that U.S. sanctions could not reach a foreign citizen requesting foreign banks to send money from foreign citizens to persons in Iran. Judge Berman, writing for the United States District Court for the Southern District of New York, just issued an opinion disagreeing with the defendant’s claim and asserting that the United States could prosecute anyone anywhere in the world engaged in any transactions involving U.S. Dollars.
There are two questions here, one much easier than the other. The first is whether the Iran Transactions and Sanctions Regulations prohibit this conduct. The court held, and probably rightly so, that since dollar-based transactions were involved, the transactions ran afoul of the prohibition in the regulations against the export of services from the United States to Iran. Clearly, if a U.S. bank was used to clear the dollar transaction, there is a good argument that financial services were exported from the United States to Iran in violation of the prohibition in section 560.204 on the export of services from the United States to Iran.
The second and harder question is whether Congress, when it passed the International Emergency Economic Powers Act, under which the regulations were promulgated and which establishes criminal penalties for violations of those regulations, intended to reach extraterritorial conduct. And on this issue, Judge Berman reaches the conclusion that Congress intended in IEEPA intended to criminalize any conduct involving U.S. dollars but he does so by misquoting the relevant statutory provision:
50 U.S.C. § 1702(a)(l)(B) grants the President broad powers, including the power to
“investigate, block during the pendency of an investigation, regulate, direct and compel … any property in which any foreign country or a national thereof has any interest … subject to the jurisdiction of the United States.”
Except here is what the statute really says with the omitted portions bolded and the significant provisions underlined:
investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States
The significance of Judge Berman’s misquotation is that he omits a significant qualification regarding “property subject to the jurisdiction of the United States.” The actual language gives the President the power “with respect to, or transactions involving,” property in which a foreign national has an interest but omits the power with respect to “transactions involving” property “subject to the jurisdiction of the United States.” This is significant because Congress’s omission of “transactions involving” underlines the common understanding that Congress granted authority to block such property but did not go so far as to assert that it can criminalize foreign conduct by foreign persons that could be characterized as “transactions involving” such property.
NOTE: My apologies for the sporadic posting but anyone who knows me knows that I am a die-hard Cubs fan, meaning that I’ve been up late, way too late, watching baseball games. These games, as you may know, have run so late into the night in large part because pitchers (we’re looking at you Pedro Baez!) are blithely ignoring the never-enforced 12-second rule and are taking the time it takes for Watson to break a 256-bit AES cipher between pitches. Once baseball finishes up for the season, I’ll be back to a more regular schedule.