A helpful reader emailed me earlier today that some guy was so impressed with this blog that he decided to start his own site* (pdf image file of site - safe) by stealing each and every one of my posts — text, images, links and all. If you click on the link to the site, it doesn’t look exactly like it did earlier today. I utilized the geeky magic of the htaccess file to change the images on his site from the images taken from my site to a new image that I felt was a more appropriate illustration to the stolen posts. (You may need to refresh your browser when you return here to clear the alternative image from your browser’s cache.) Of course, I can’t wait to see if this post shows up on the site in question.

While poking around in the links of the site in question to see if I could figure out the identity of Export Law Blog’s new BFF, I discovered a document posted at California’s Centers for International Trade Development that reinforces my long-held belief that these state centers provide atrocious advice on export matters. My favorite bit of “advice” from these “Export FAQs” was this:

1. Do I need any special permits or approvals to start an export business in the U.S.?

The U.S. Government does not require a company to have a license or permit to engage in the import/export business. Contact your appropriate state or local city hall regarding requirements and procedures for obtaining business permits.

I think that deserves the Export “Epic Fail” award of 2009. Exporters of defense articles certainly need to register under Part 122 of the ITAR to export those items. But perhaps the author of the document said what he did because he was totally unfamiliar with the Directorate of Defense Trade Controls (”DDTC”). Although he discusses the Bureau of Industry and Security and the Office of Foreign Assets Control, there is not one reference in these “Export FAQs” to the DDTC. Oops.

UPDATE: The blogger has taken down his site and replaced them with pornography links. I’ve removed all links to the site and will link to a pdf of the file I captured yesterday.

UPDATE: More on this here.

*I’ve changed the link to the offending site to a tinyurl link in order to make sure that the site doesn’t get search engine credit for my having linked to it. Also it appears that our “friend” has two addresses for his site. One is hosted on blogbugs, a Ukrainian porn-centered blog hosting service, and can be found here (link removed). This explains why some readers haven’t been able to get on the site. So he/she has another site which uses the same porno sites nameservers but has a URL that might sneak past porn filters. That’s the URL linked in the post above. You know that the person behind the sites in questions is up to know good when he’s operating namelessly from Ukrainian porn site.

OFAC released today its monthly civil penalties report and it is, as is usually the case, all Cuba all the time. EFEX Trade, LLC, a company that provides both management consulting and massage therapy services, paid $2,000 for unlicensed remittance forwarding to Cuba. The fine paid is, of course, much less interesting than EFEX’s unusually diverse business model. Please feel free to suggest possible synergies between the company’s two lines of business in the comments section.

In addition, Texas-based Varel Holding, a manufacturer of drill bits, agreed to pay $110,000 for exports made by one of its foreign subsidiaries to Cuba between June 2005 and June 2006. Varel voluntarily disclosed the exports. The OFAC notice indicated that the case was handled under prior enforcement guidelines which provided for a maximum penalty of $11,000 per violation. It’s hard to understand then why the penalty ultimately imposed was only slightly less than the maximum penalty ($121,000) notwithstanding the company’s voluntary disclosure.

Nonagenarian New York prosecutor, Robert Morgenthau, still keeps trying to grab the spotlight after all these years, even if it means wasting immense amounts of New York state funds on a criminal prosecution he can’t win and which should have been brought, if at all, by federal prosecutors. I’m talking about his 118-count indictment released today against a Chinese citizen Li Fang Wei and a Chinese company LIMMT Economic and Trade Company, Ltd., both safely ensconced in China.

Notwithstanding the 59 pages of the indictment, it can all be boiled down to a few sentences. LIMMT was added to the Department of Treasury’s Specially Designated Nationals (”SDN”) list in 2006. This meant that any funds destined to LIMMT which passed through the U.S. banking system would be blocked. In order to avoid this outcome, LIMMT, and its manager Li Fang Wei, told its customers, all foreign, to send U.S. dollar payments to other accounts held by LIMMT under other names or by related companies at various Chinese banks. Some of these transactions transited New York banks 118 times. The indictment claims that each of these 118 transactions constituted the falsification of business records which is a criminal offense under New York Penal Law § 175.10. And there you have, in under two minutes, all 59 pages and all 118 counts.

I think that even if your legal training consists solely in watching Law and Order marathons on cable, you can probably see a glaring flaw in the theory of the indictment. In order for a crime to have been committed, the entries that each bank made when wiring funds at the request of LIMMT’s foreign customers had to be false. But these were all the real names of real accounts held at real Chinese banks, and the indictment does not try to claim otherwise. It’s not clear, then, what was falsified, particularly in the context of a statute that appears principally directed at cooking the books — i.e., entering a wrong dollar amount in the ledger and pocketing the difference.

Beyond that, there is of course the question of the jurisdiction of New York state courts over Chinese citizens for acts that occurred in China, that were legal in China, and, even to the extent that they fostered trade with Iran, didn’t have concrete effects in the United States. Even if there were a credible theory of prescriptive jurisdiction here, hell will freeze over before China will allow the U.S. to extradite Li Fang Wei under these charges.

Finally, of course, there is the legitimate question as to why a state prosecutor, even a New York state prosecutor, is mucking around in matters of U.S. foreign policy that are more properly in the purview of the Office of Foreign Assets Control (”OFAC”) which designated LIMMT in the first place. After all, OFAC had been blocking these attempts by LIMMT to alter its corporate identity by amending the SDN listing for LIMMT to include the aliases that are the subject of the New York state indictment. That was an appropriate response by OFAC to LIMMT’s shenanigans. I think it’s safe to say that OFAC doesn’t need, and probably doesn’t want, the efforts of a state DA and inveterate publicity hound to handle the foreign policy issues created by LIMMT’s trading activities.

What next? Is Morgenthau going to indict Syria’s Bashar al-Assad for supporting designated terrorist groups?

ABOVE: Golden Escrow HQ

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The Treasury Department’s Office of Foreign Assets Control (”OFAC”) released its monthly report on civil penalties today and one case, involving Golden Escrow, Inc., caught our eye. The escrow company was accused of attempting to transfer $364,595.48 to the Sudan office of Jilin International Economic and Technical Corp., a Chinese road and bridge construction company. Jilin’s Sudan projects have included most recently the construction of a Nile river bridge in Merowe, Sudan.

OFAC imposed a fine of $11,000 on Golden Escrow in connection with this transaction. Since the pre-penalty notice was issued before October 16, 2007, and thus before the passage of the International Emergency Economic Powers Enhancement Act, this was the maximum fine that OFAC could impose.

The reason that the maximum fine was imposed seems clear from the Penalty Notice:

The [Pre-Penalty] Notice [PPN] proposed a penalty in the amount of $11,000 and advised Golden of the right to make a written presentation to OFAC setting forth reasons why a penalty should not be imposed, or if imposed, why it should be less than that proposed. Such written response was required to be made within thirty (30) days of the mailing of the Notice.

On May 8, 2007, OFAC mailed the Notice to Golden’s address. On May 18, 2007, a Golden representative telephoned OFAC and informed OFAC of its receipt of the Notice and stated that Golden did not intend to pay the fine. No written response to the PPN has been received from Golden.

After that, I’m sure OFAC had to think long and hard before finding that there were no mitigating factors warranting a reduction in the proposed penalty.

The Office of Foreign Assets Control (”OFAC”) today announced that it was adding the Export Development Bank of Iran (”EDBI”) to its list of Specially Designated Nationals and Blocked Persons. The effect of the designation is to freeze all assets of the bank in the United States now or in the future. According to the press release issued in connection with the designation, the Iranian bank is assisting the Government of Iran in connection with its nuclear proliferation activities.

More interesting than yet another Iranian bank designation was OFAC’s simultaneous designation of EDBI’s Venezuelan subsidiary Banco Internacional de Desarrollo. The name of the Venezuelan subsidiary is perilously similar to the Banco Interamericano de Desarrollo, otherwise known as the Inter-American Development Bank, an international banking organization just blocks away from the Treasury Department in Washington, D.C. To make the situation worse, a Google search on “Banco Internacional de Desarrollo” returns the Banco Interamericano de Desarrollo as its first result.

The possibility of confusion, as well as the desire to avoid about 4 million calls to the OFAC hotline, led OFAC to take a step so far unprecedented on the SDN list: it specifically noted that the designation did not cover the Banco Interamericano de Desarrollo. Here’s the entire designation:

BANCO INTERNACIONAL DE DESARROLLO, C.A., Urb. El Rosal, Avenida Francisco de Miranda, Edificio Dozsa, Piso 8, Caracas C.P. 1060, Venezuela; RIF # J294640109 (Venezuela); SWIFT/BIC IDUNVECA; Banco Internacional de Desarrollo, C.A. is a separate and distinct entity from Banco Interamericano de Desarrollo, known in English as the Inter-American Development Bank (IADB), and from Banco Desarrollo Economico y Social De [sic] Venezuela (BANDES), an entity owned by the Government of Venezuela [NPWMD]

And, as you can see, OFAC also gave a “Get Out of Jail Free” card to the somewhat less similarly named Banco Desarrollo Economico y Social de Venezuela. These preemptive exclusions are, to my knowledge, unprecedented on the SDN list.

OFAC has been subject to substantial criticism that it is easier for an SDN to remove itself from the list than for an innocent party with the same or similar name to an SDN to obtain from OFAC an official clarification that the innocent party isn’t on the list. This unusual new designation substantially erodes OFAC’s claim that cases of mistaken identity aren’t its problem.

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.