The Twin State Peregrines, a little league baseball team from Vermont and New Hampshire, is currently playing ball in Cuba with Cuban teams their own age, the first little league tour of Cuba by an American team since 2000 and the first since more stringent travel regulations went into place in 2002. Obtaining approval from OFAC for the privately-funded trip took the team twenty months and three rejections until the travel license was obtained in March of this year. Ironically it’s easier to export cows from Vermont to Cuba than a bunch of pint-sized little leaguers.

News of the baseball tour to the island, not surprisingly, generated an alarmed reaction from some of the predictable corners of support for the Cuba embargo on the Hill. Congressman Lincoln Diaz-Balart called the OFAC action granting the license to the kids “very troubling.”

”Sporting events may be interpreted as diplomatic gestures even when they are not meant to be,” Diaz-Balart said. “And a sporting event is not an appropriate way to respond to the ongoing torture of political prisoners Yuselin Ferrera, Nelson Aguiar and many others.”

Vermont’s Senator Patrick Leahy took Diaz-Balart’s pitch and knocked it out of the park:

”He should pick on someone his own size,” [Leahy] said.

The latest report on the series has the Peregrines 1-1 in the series, losing 16-5 to the Santos and beating the Mangos 19-8.

As previously reported on this blog, Syriatel, Syria’s largest provider of mobile phone service, was recently put on the Specially Designated Nationals (”SDN”) List by the Office of Foreign Assets Control (”OFAC”). As a result, U.S. citizens are prohibited from doing business with Syriatel. Last Thursday, Syriatel sent a fax to the Associated Press claiming that it was hiring lawyers in the United States to contest this designation.

The basis for this objection, as stated in that fax, is that Syriatel is owned by more than 7,500 shareholder and not only by Rami Makhluf whose ownership of Syriatel served as the basis for the designation. The company is going to need a stronger argument than that because OFAC seemed to be quite aware, judging by its press release announcing the designation, that Makhluf was not the only owner of Syriatel but simply the majority owner.

Syriatel’s efforts to contest the designation may face a larger barrier. A recent guidance document from OFAC suggests that OFAC is going to limit the fees paid to lawyers representing SDNs to $125 per hour, with a cap of $7,000 per lawyer for up to two lawyers. We’ll be interested to see who agrees to represent Syriatel under these conditions.

Last week the Office of Foreign Assets Control (”OFAC”) issued a document with the catchy title “Guidance on the Release of Limited Amounts of Blocked Funds for Payment of Legal Fees and Costs Incurred in Challenging the Blocking of U.S. Persons in Administrative or Civil Proceedings.” Although it did not purport to change current policy, it did so in significant and unstated ways.

Indeed, the guidance document is less than forthright about what it intended to accomplish. The guidance states:

This policy is aimed at enhancing the ability of a Blocked Party that lacks alternative access to funds to acquire legal representation in connection with its designation or the blocking of its property and interests in property.

In fact, the document is designed to prevent and/or burden legal representation in ways that OFAC has not previously sought to do. First, the guidance states that OFAC will only unblock funds to pay legal fees of U.S. Citizens that have been placed on the Specially Designated Nationals (”SDN”) list. Second, the guidance imposes limits on the amounts that will be unblocked with severe limits both on hourly rates and total fees reimbursed.

[T]he payment of legal fees from blocked funds may be licensed at a rate not to exceed $125 per hour, up to a cap set for each stage of the administrative proceedings or litigation. OFAC anticipates tracking the [Equal Access to Justice Act] hourly rate if it changes in the future. The policy incorporates fee caps per proceeding, as does the CJA, and limits the amount of licensable fees to $7,000 per attorney, for up to two attorneys, for administrative proceedings; $7,000 per attorney, for up to two attorneys, for district court litigation; and $5,000 per attorney, for up to two attorneys, for appellate court litigation. In extraordinary cases, such as cases involving lengthy or complex proceedings (e.g., may include cases lasting more than a year or with multiple parties whose designation or blocking resulted from a substantially similar administrative record or set of facts), the maximum fees allowed could be doubled for each stage of the litigation.

It’s probably a safe bet to assume that all the lawyers ran out of the room when they heard these figures. Suffice it to say that few persons challenging their inclusion on the SDN list will be able to find competent representation at these rates.

Prior to the guidelines, OFAC granted licenses to pay attorneys’ fees from blocked funds and assets without these limitations. Unlimited licenses were granted both to Global Relief Foundation and to Benevolence International Foundation.

Admittedly, this was not a uniform policy, and in the case involving the Islamic American Relief Agency, OFAC would only grant a license to pay attorneys’ fees from “fresh funds,” i.e., funds that came from outside the United States and had not been previously blocked. This, of course, is equivalent to licensing blocked funds since these fresh funds would also have become blocked once they entered the United States. And the guidance document leaves open the possibility that it may still permit broader reimbursement for attorneys in future cases from “fresh funds.”

What follows is admittedly rank speculation, but one has to wonder whether OFAC’s crackdown on attorneys in designation cases is the result of the bitter taste left in its mouth in the Al-Haramain case, where OFAC inadvertently disclosed to the attorneys a Top Secret document that revealed the attorneys’ phone calls were being illegally wiretapped by the U.S. government.

Today the Office of Foreign Assets Control (”OFAC”) added three Burmese entities to the Specially Designated Nationals and Blocked Persons List, i.e., the SDN List. Among the three entities was the Myanmar Gem Enterprise, the state-owned monopoly that is in charge of gem sales in Burma. As you may know, Burmese rubies are especially prized and the sale of these rubies is thought to constitute a significant part of the revenues to the military junta that controls Burma.

Current OFAC regulations forbid the import into the United States of Burmese-origin goods. OFAC, however, refers to U.S. Customs rules for determining whether a good is of Burmese-origin, as can be seen from this OFAC guidance letter on Burmese teak sawn into planks in third countries. Most Burmese rubies are exported in uncut form to Thailand where they are processed and cut for sale to jewelers. In December 2004, Customs ruled that rough rubies mined in Burma that were processed and cut into gemstone rubies in another country underwent a “substantial transformation” and were no longer considered to be of Burmese origin. Notwithstanding this ruling, the 11,000 member association Jewelers of America urges its members not to traffic in blood rubies.

It is not clear that the designation of the Myanmar Gem Enterprise will have any substantial effect. Because the Burmese rubies must be processed in Thailand or elsewhere in order to be imported into the United States, no U.S. persons have any dealings with Myanmar Gem Enterprise but, rather, deal exclusively with companies in Thailand that process and cut the rough stones.

OFAC also designated the Myanmar Pearl Enterprise, hence the opportunity to swipe a line from an A.E. Housman poem as the title of this post.

The Wall Street Journal’s Law Blog had an interesting post last Friday regarding Iranian santurs (a dulcimer-like instrument) that a UCLA professor of ethnomusicology had been importing from Tehran. These instruments had been sailing through customs until last August when somebody in customs woke up and seized the instruments. A curt notice from DHL informed the professor of the seizure and the possibility that the santurs might be destroyed.

So Professor Sadeghi hired a lawyer to free the santurs. The lawyer told the WSJ blog that he “scoured” the Iranian Transactions Regulations for an exception for “dulcimers” — to no avail, of course. I suspect that the lawyer is speaking figuratively here because anyone familiar with the regulations would have known immediately that there were no applicable exceptions that would cover Professor Sadeghi’s santurs.

So, the lawyer did his best to make something up:

In his package, he acknowledged that the dulcimers didn’t have the appropriate licensing from the Office of Foreign Assets Control (OFAC) but argued that the instruments met the requirements for the regulatory exceptions made for informational materials and gifts.

Er, no. The gift exception provided in section 560.506 of the Iranian Transaction Regulations is limited to gifts valued at less than $100 dollars, and Persian santurs seem to exceed this dollar limit by a considerable amount. And I’m not quite sure how one gives a gift to oneself. Nor is the informational exception applicable. A musical instrument does not fit within the category of items described as informational materials in section 560.315. Frankly, he could just as well have argued that the santur is a carpet covered by section 560.534.

Even the lawyer himself appeared to be a little embarrassed by these arguments and offered an alternative justification:

Furthermore, [he] argued, even if they didn’t meet those exceptions, this was an ideal case for OFAC to exercise its discretion.

Okay, now were talking. And, miraculously enough, he received a letter from OFAC, stating:

Mr. Manoochehr Sadeghi is hereby authorized to engage in all transactions necessary to receive delivery from Iran of four miniature hammered dulcimers (santurs) seized by U.S. Customs and Border Protection on or about August 30, 2007.

More interesting, it appears that the lawyer, rather than filing a voluntary disclosure, filed something akin to a retroactive license request. If he did file a voluntary disclosure, the WSJ blog doesn’t relate whether OFAC imposed a fine or mitigated the fine completely.

In the end, it appears that two factors were at play in OFAC’s decision. In the past, the Bureau of Industry and Security (”BIS”) has used its discretion to permit exports of musical instruments to Cuba, and so a direct appeal to OFAC’s discretion in this case, without relying on inapplicable regulatory exceptions, was probably the best approach. Additionally, it seems possible that OFAC may have been influenced by Professor Sadeghi’s fame: he performed at the Kennedy Center and received a National Heritage Award from the National Endowment for the Arts.

Last week the Department of Treasury’s Office of Foreign Assets Control issued a guidance document that answered a question that has probably prompted legions of law firm associates and export compliance officers to call OFAC. The question: what if a company is not on the SDN list, but one of its partners/shareholders/members is? Can we do business with the company?

And the answer, given out by countless on the Hotline team and other OFAC employees is what you might think: only if the SDN does not control, directly or indirectly, a “50% or greater” interest in the company. Note that’s 50 percent or greater, not greater than 50%, although this distinction may not have been carefully observed by folks at the OFAC Hotline.

OFAC promises to start putting this into new regulations and to amend existing regulations to reflect this guidance. Be very careful, however, and don’t assume that this guidance applies to all sanctions programs. Some programs — such as the Cuba and Sudan sanctions — cover entities where persons of interest might hold less than 50 percent. Under section 515.201(a) of the Cuban Assets Control Regulations, transactions are prohibited in connection with property in which a Cuban national has any interest.

US Embassy in Khartoum

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Late last week Reuters reported that Adam Szubin, head of the Office of Foreign Assets Control (”OFAC”), announced that OFAC was stepping up its enforcement actions for violations of the U.S. sanctions on Sudan. According to Szubin, agents have built up a “queue” of enforcement actions against violators that will be rolled out in as early as a month’s time.

And Szubin is hoping to go for the big bucks:

Violating companies now face fines of up to $250,000 a breach or a charge of twice the offending transaction — a penalty that in some cases could run into millions, said Szubin. …

The recent increase in penalties for sanctions violators had strengthened OFAC’s hand, he added. …

Before the penalty increase, the company would have only had to pay up to $50,000 for each illegal sale — a charge that many organisations could write off.

“We’re now able to say, if your transactions totalled $40 million, and those were violative transactions, you could be facing a maximum penalty of $80 million. And that is no longer something that people will shrug off.”

This prospective uptick in enforcement actions, corresponds with increasing diplomatic parries between the U.S. and Sudan over the sanctions. According to a story in the Sudan Tribune, last year the government of Sudan had blocked 400 containers bound for the U.S. Embassy in Khartoum for failure to pay customs fees. The U.S. premised this non-payment on the Sudan sanctions and it was not until Sudanese president Omar Hassan Al-Bashir issued a decree granting an exception to the containers from custom fees that the containers were released. The Sudanese government later reversed its position and recently blocked entry of containers bound for the U.S. Embassy for non-payment of customs fees. In response, the U.S. has threatened to halt construction of a new U.S. Embassy in Khartoum. That construction has been underway for the past two years.

Screen clip from Al-Zawraa

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On January 9, the Department of Treasury designated Syrian television station Al-Zawraa under Executive Order 13438. That executive order targets parties that threaten Iraqi stabilization, including insurgent and militia groups and their support. Among the reasons cited for sanctioning Al-Zawraa were its broadcast of insurgent videos showing attacks on U.S. troops in Iraq.

According to a State Department authored article disseminated by the Voice of America:

Administration officials concede Wednesday’s order will likely have little practical impact. But Treasury Undersecretary for Terrorism Stuart Levey said the move brings to light “the lethal actions” of the sanction targets, and he urged the international community to join the United States in isolating them from the global economy.

One reason that this order “will likely have little practical impact” is that Al-Zawraa has been off the air since July 2007 and no longer appears to exist.

This is also the first time, at least that I am aware of, that Treasury has based a designation, at least in part, on the content of a broadcast or a publication. There is no reason to doubt Treasury’s claim that the station, while it was in existence, broadcast videos of insurgent attacks on U.S. troops. But so did major U.S. networks, including CNN.

The Treasury release also stated as a ground for the designation of Al-Zawraa that the station agreed “to broadcast open-coded messages through patriotic songs to [a] Sunni terrorist group.” Of course, coded messages are quite a different story from broadcast of insurgent videos and should have been sufficient, in and of itself, to designate that station. At least assuming that there is any point in blocking the assets of defunct entities.

A spokesman for the Treasury Department’s Office of Foreign Assets Control (”OFAC”) told Export Law Blog this morning that discussions between OFAC and the North Pole over Santa Claus’s Christmas Eve itinerary had broken down and were not expected to be resumed before Santa’s scheduled departure on December 24 at 10 pm EST.

The dispute arose from a dilemma that the U.S. sanctions against Cuba posed for Santa’s planned delivery of toys to children in Cuba. If Santa delivers toys for U.S. children first, there will be toys destined for Cuba in the sleigh in violation of 31 C.F.R. § 515.207(b). That rule prohibits Santa’s sleigh from entering the United States with “goods in which Cuba or a Cuban national has an interest.” On the other hand, if Santa delivers the toys to Cuban children first, then 31 C.F.R. § 515.207(a) prohibits the sleigh from entering the United States and “unloading freight for a period of 180 days from the date the vessel departed from a port or place in Cuba.”

A press release from the North Pole announced that the OFAC rules left Santa no choice but to bypass the children of the United States this Christmas. A spokesman from OFAC warned that if Santa attempted to overfly the United States, his sleigh would be forced to land and his cargo seized. He continued:

We know that the outcome is harsh, but we cannot allow Fidel Castro’s regime to continue to be propped up by Santa’s annual delivery of valuable Christmas toys to Cuban children.

Congressional leaders had left for the holiday recess and could not be contacted for comment.

There has been some discussion here at Export Law Blog about the proper role of freight forwarding companies in export enforcement. If a customer of a freight forwarder proffers a package addressed to Iran without an OFAC license, should the freight forwarder decline the package and tell the customer that shipments to Iran must be licensed? Or should the freight forwarder accept the package and call the authorities? The recent settlement agreement entered into between Kuwaiti-owned Proclad International Pipelines and the Bureau of Industry and Security shows, I think, a freight forwarder that struck exactly the right balance.

At issue were attempted exports by Proclad of nickel alloy pipes classified as EAR99 to Iran without a license. The company attempted to export the pipes to Iran by transshipping them through the UAE. In the recitation of the various counts with which Proclad was charged is this interesting language:

Proclad altered markings for use on the crates of nickel alloy pipes that it was attempting to export to Iran. The altered markings were provided to the U.s. manufacturers in lieu of markings previously provided indicating that pipes were being exported to Iran. Proclad altered the markings to conceal the true ultimate destination of the items after it had been informed by a freight forwarder of the applicable licensing requirements during a previous attempt to export the pipes to Iran.

What apparently happened was that once the freight forwarder said the pipes couldn’t be shipped to Iran, Proclad simply slapped on new labels saying that the pipes were going to the UAE. I suspect the freight forwarder then called the authorities.

The freight forwarder did the right thing by initially telling the exporter that exports to Iran required licenses. Clearly any exporter that hands documents to the freight forwarder showing Iran as the ultimate destination is clueless about U.S. law. Proclad Pipelines is located in Scotland, so it’s a reasonable assumption that they may not have been familiar with U.S. export restrictions.

But what initially might be seen as an innocent mistake quickly became an illegal undertaking when Proclad decided that the appropriate response wasn’t to decline to export items to Iran but to pretend to export the Iranian-bound goods elsewhere. And a freight forwarder who saw that a package previously bound for Iran now had on shipping labels for the UAE would have to be well-aware that the exporter was attempting some shenanigans. And that, in my view, fully-justified the freight forwarder ratting out Proclad.