Archive for the ‘OFAC’ Category


Feb

23

Federal Judge Protects Banks from Injured Sailors and Widows


Posted by at 5:15 pm on February 23, 2017
Category: OFACSanctionsSudanTerrorism Risk Insurance Act

Image viahttps://commons.wikimedia.org/wiki/File:INTEL-COGNITIVE-Cole.jpg [Public Domain]A recent decision by a federal district court in New York prohibited sailors and their families holding a $314 million judgement against Sudan from collecting any of the judgment from funds that had been wired by a Sudanese bank to various other banks and that were then blocked under the Sudanese Sanctions Regulations.  The judgment arose from Sudan’s participation in Al Qaeda’s bombing of the U.S.S. Cole on October 12, 2000.  Instead, now that the Sudanese Sanctions have been lifted, those funds will go to the banks and not to the sailors and their families.

The decision is premised on a highly questionable reading of section 201(a) the Terrorism Risk Insurance Act. That section permits victims of terrorism to execute judgments arising from a terrorist act “against the blocked assets of that terrorist party,” including the blocked assets of “any agency or instrumentality of” that terrorist party.

At issue were funds transferred by El Nilein Bank.  The bank was an instrumentality of the Sudanese government when the funds were blocked, which is why they were blocked in the first place, but not at the time the plaintiff sought to attach the assets. The court held that the TRIA did not apply because El Nilein was not an agency of the Sudanese government at the time the plaintiffs attempted to attach the funds and because the blocked funds, under New York law, were the property of the blocking bank and not El Nilein.

Oddly, the court reached these conclusions without even citing the definition of “blocked assets” in section 201(d)(2) of the TRIA, a definition which would seem to mandate the exact opposite conclusion.

The term “blocked asset” means— (A) any asset seized or frozen by the United States under section 5(b) of the Trading With the Enemy Act (50 U.S.C. App. 5(b)) or under sections 202 and 203 of the International Emergency Economic Powers Act (50 U.S.C. 1701; 1702)

As readers of this blog know well, OFAC takes the position that assets can be frozen under IEEPA even if they are not legally owned by the blocked party and are legally owned by another party. It is sufficient that the blocked person have some interest, direct or indirect, including a contingent interest. So an asset can be a “blocked asset” of a party even if it is not the property of that party.   Moreover, under the court’s analysis, a wire blocked by an intermediate bank can never be levied against under TRIA unless the intermediate bank was itself a blocked party — an absurd result that Congress never could have intended.

This definition of “blocked asset” also is inconsistent with the Court’s idea that the blocked assets could not be seized because Nilein Bank was not an agency of Sudan at the time the plaintiffs sought to attach the blocked assets. The definition is, significantly, in the past tense. As a result, under this definition and under OFAC rules, the wires did not become unblocked when Nilein Bank was allegedly privatized. The blocked funds did not cease being the “blocked assets” of an agency of Sudan because of that privatization; they would only cease to be such blocked assets when they were unblocked. Nor is their any conceivable reason why Congress would want to create, as the Court did, a class of blocked assets of unblocked parties that are somehow exempt from the TRIA.

Permalink Comments (0)

Bookmark and Share


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

Feb

14

SDN List Hit Holds Up Food Bank Funds in Britain


Posted by at 11:12 pm on February 14, 2017
Category: Economic SanctionsOFACSDN List

Eventbrite Instagram Post via https://www.instagram.com/p/032C0eyzj7/?taken-by=eventbrite [Fair Use]So, UK accountant Mamunal Islam was minding his own business trying to raise money for a Bedford food bank. He thought maybe he’d sell tickets to a film through Eventbrite and use the proceeds to help people in his home town who needed food. He had never even heard of this obscure agency in the United States call the Office of Foreign Assets Control until San Francisco based Eventbrite told him that they were keeping his money and the hungry people in Bedford, well, they could eat cake. (Eventbrite didn’t really say the last part.)

It seems that Eventbrite thought that Mamunal Islam was a match on the SDN List, and although it never said that the food bank customers could eat cake, it did, according to an article on BBC News, say this:

Eventbrite said it was “truly sorry” but “a person with a very common name is more likely to make the list.” … Eventbrite said the Office of Foreign Assets Control (OFAC) had only recently added “M Islam” to its list. … A spokesman for the company said: “As a US company, Eventbrite must comply with US law. “In this instance, a payment to the organiser was temporarily held because of a potential OFAC name match. “Whether that is J Smith or M Islam does not make the slightest difference.”

To begin with, I don’t know what SDN List Eventbrite was using but it’s certainly not the one that OFAC publishes. Here’s every individual on the SDN List with Islam in his/her name:

ATABIEV, Islam SDN
ATABIYEV, Islam SDGT
ATABIYEV, Islam Seit-Umarovich SDGT
ABU ISLAM, Karim SDGT
ABU ISLAM SDGT
AL-SURIR, Abu Islam SDGT
AL-GADDAFI, Saif al-Islam LIBYA2
AL-QADHAFI, Saif al-Islam LIBYA2
EL-QADDAFI, Seif al-Islam LIBYA2
ELKADDAFI, Saif al-Islam LIBYA2
GADDAFI, Saif al-Islam LIBYA2
GADHAFI, Saif al-Islam LIBYA2
GHADAFFI, Saif al-Islam LIBYA2
GHATHAFI, Saif al-Islam LIBYA2
QADDAFI, Saif al-Islam LIBYA2
QADHAFI, Saif al-Islam LIBYA2
DEL ROSARIO SANTOS, Ahmad Islam SDGT

I don’t see any “M Islam” there, do you?  I don’t see anything even close other than “Islam” — which should not be cause to say that “Mamunal Islam” is a hit.  If sharing one part of a name is enough, than Eventbrite would need to block every Sally, Carol, José, Mohammed, Ahmed, Tom, Robert, Paul and James, because all those names also show up on the list.

Beyond this, Eventbrite had already burned the barn after the horses had escaped, so to speak.   If Mamunal Islam was really on the list — and he is not — then it would have been illegal to have sold any tickets on his behalf.  By the time there were actual funds to block, the rules had already been broken. So it’s not clear why Eventbrite didn’t tell Mr. Islam that there was an issue when he signed up or registered a new event rather than after he’d already sold a bunch of tickets for the food bank event.

Ultimately Eventbrite reversed its action after Mr. Islam provided “information confirming his country of birth” thereby proving, I suppose, that he is not the second son of Muammar Gaddafi.  So there was, ultimately, a happy ending, more or less, for Mr. Islam, Eventbrite, and the food bank in Bedford.

I understand that OFAC is in the business of scaring people to death and that Eventbrite’s reaction was not entirely irrational.  I’m also guessing that Eventbrite was the victim of one of the numerous paranoid screening services that market their value by claiming to screen against a semi-dubious list of sixty-two billion names of dodgy people.   Last, and perhaps least,  I’m sure “Islam” is scarier to an Internet company in San Francisco than, say, “Sally” or “Carol.”  Still, it seems that common sense should have prevailed here sooner than it did.

 

 

Permalink Comments (0)

Bookmark and Share


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

Feb

9

OFAC Radically Expands Its Extraterritorial Jurisdiction with B Whale Ruling


Posted by at 9:26 am on February 9, 2017
Category: Iran SanctionsOFAC

TMT Ship via http://www.tmtship.com [Fair Use]The recent decision by the Office of Foreign Assets Control (“OFAC”) to issue a finding of violation, but no fine, against B Whale, a member of the Taiwanese TMT Shipping Group represents a new high (or low, depending on your point of view) for OFAC’s general belief that it has jurisdiction over anyone anywhere in the world. At issue was the transfer of Iranian oil from an Iranian vessel in international waters to a Monrovian-registered Liberian-flag ship owned by a Taiwanese company without any branches or business operations in the United States.

OFAC claimed that this was an illegal importation of Iranian goods into the United States in violation of section 560.201 of the Iranian Transactions and Sanctions Regulations (“ITSR”).  Say what?  According to OFAC, the foreign flagged ship in international waters became a part of the United States once TMT filed a bankruptcy petition in the United States, thereby placing all its assets under the control of the bankruptcy court.  Because, you see, the ITSR defines the United States in section 560.307 of the ITSR as “the United States, its territories and possessions, and all areas under the jurisdiction or authority thereof.”  I imagine that TMT, and probably the government of Taiwan, will be somewhat surprised to learn that real property owned by TMT in Taipei is now a part of the United States.  By this logic, a bankrupt’s trucks in foreign countries would become “areas” under the jurisdiction of the United States. Certainly these absurd results demonstrate that “area” in section 560.307 means geographic areas and not simply any physical space somewhere in the world.

I am unable to find any precedent from OFAC itself or any other court or agency for such an expansive definition of the United States   Interestingly, Congress, when defining the scope of federal criminal law, stops far short of OFAC’s definition.   The definition of “United States” in the federal criminal code is defined as “all places and waters, continental or insular, subject to the jurisdiction of the United States, except the Canal Zone.” See 18 U.S.C. § 5.  To cover ships, which aren’t “places and waters, continental and insular” the federal criminal code defines the “special maritime and territorial jurisdiction” of the United States which covers ships on the high seas owned by at least one U.S. citizen or a foreign vessel with a scheduled departure or arrival in the United States “to the extent permitted by international law.”  See 18 U.S.C. § 7. Ships owned by bankrupts aren’t either the United States or part of the special maritime jurisdiction as far as Congress was concerned.  It’s hard to imagine that OFAC has the statutory authority to expand the scope of its jurisdiction in this fashion by calling every asset of a bankrupt anywhere on the face of the planet a part of “the United States.”

Not only does OFAC stretch the concept of “United States” beyond the breaking point, but also it does the same thing to the definition of “United States person.”  Whale B was found to have violated section 560.211 when it engaged in a transaction with a blocked Iranian vessel.  The violation occurred because OFAC decided that Whale B was a “United States person.” That term is defined in section 560.314 to cover a “person in the United States.”  And Whale B, a company organized under the laws of Taiwan and without any physical presence in the United States, was “in the United States” because it filed a bankruptcy case in the United States. It’s difficult to imagine where a principled limit could be drawn if filing a lawsuit in the United States means that a company is “in the United States.”  Is a company with a U.S copyright registration now “in the United States” and fully subject to U.S. sanctions? What if it has a dot com domain name issued by a U.S. registrar? Or it uses an email service that has servers in the United States?  Or it has a pending sales order it made with a U.S. company over the Internet?

And here’s one last comment on the B Whale shipwreck. OFAC cites this as an aggravating factor: B Whale “took steps to conceal a ship-to-ship transfer of Iranian oil with an Iranian vessel on the SDN List … by … switching off the vessel’s automatic identification system during the time period corresponding with the ship-to-ship transfer.” Apparently OFAC forgot that, because of the TMT bankruptcy, B Whale was subject to seizure and detention by foreign creditors in jurisdictions not interested in observing the automatic stay arising from the U.S. bankruptcy. In such a situation, the more likely reason for turning off the AIS was the common practice of doing so to hide from foreign creditors, not from OFAC.

Permalink Comments (2)

Bookmark and Share


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

Feb

7

Sometimes Mistaken Identity Is Not A Laughing Matter


Posted by at 11:38 pm on February 7, 2017
Category: Economic SanctionsIran SanctionsOFAC

Tehran by Ninara [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/7QX7nZ [cropped and processed]Last week, on the heels of Iran’s ballistic missile test, the Office of Foreign Assets Control (“OFAC”) announced new sanctions on Iran. These sanctions appear to have been in the works for some time judging by wealth of detail in the explanatory press release.

The sanctions target, among other individuals, Abdollah Asgharzadeh and a network of people and companies that have assisted him in procuring items for Iran’s ballistic missile program. One person alleged to be in the network is Carol Zhou, who is described as one of “three China-based brokers” who assisted in these procurement activities. No  information is provided with respect to Carol Zhou other than her date of birth. And because she is being sanctioned under the Weapons of Mass Destruction Proliferators Sanctions, this means that secondary sanctions can be imposed under the Iran Financial Sanctions Regulations against foreign financial institutions that deal with Ms. Zhou.

It should come as no surprise to anyone, including the staff at OFAC, that Carol Zhou is an extremely common name and a name that no one would want to have right now. Not only will any transaction with the name of Carol Zhou on it, whether or not it involves the designated Carol Zhou, risk being blocked by U.S. financial institutions and entities but also that transaction will risk being rejected by every other financial institution in the world. Of course, for blocked transactions, the other Carol Zhous can just hire lawyers and march into OFAC with their passports (which hopefully will show a different birthdate) to get the blocked funds back. But there is nothing an innocent Carol Zhou can do about a rejection by a non-U.S. bank, which likely will not want to be bothered inspecting passports and will simply automatically reject the transaction.

So, while the Daniel Garcias of the world get a reprieve, the Carol Zhous of the world get a raw deal. If OFAC is going to continue to designate people with common names, it has an obligation to craft a process to minimize the collateral damage of the designation.

Photo Credit: Tehran by Ninara [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/7QX7nZ [cropped and processed]. Copyright 2010 Ninara

Permalink Comments Off on Sometimes Mistaken Identity Is Not A Laughing Matter

Bookmark and Share


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

Feb

2

OFAC Answers Call To Fix Unintended Result of FSB Designation


Posted by at 6:35 pm on February 2, 2017
Category: Cyber SanctionsOFAC

Vladimir Putin via http://en.kremlin.ru/events/president/news/27394 [Fair Use]In an earlier post, I pointed out an unintended consequence of the designation of the Vladimir Putin’s spy masters, the FSB, by the Office of Foreign Assets Control to punish the FSB for meddling in the last election. The problem was the designation would prohibit exports of encryption-enabled products like mobile phones by U.S. companies to Russia. Such exports require either the approval of, or notification to, the FSB prior to the import of such items into Russia, either of which would be forbidden as a result of the designation. I suggested that OFAC was unaware of this requirement and that, as it did in a similar situation in Crimea, OFAC would likely issue a general license to permit dealing with FSB for the limited purpose of such exports to Russia.

Well, I’m awarding myself the Jeanne Dixon Psychic of the Year award, because that is exactly what OFAC did earlier today. The new General License No. 1 issued relative to Executive Order 13694 authorizes applications to, and notifications of, the FSB in connection with “the importation, distribution, or use of information technology products in the Russian Federation.” Needless to say, the general license makes clear that items subject to the EAR still require any necessary authorizations from the Bureau of Industry and Security such as, for example, an authorization under license exception ENC. Exports of these products to Crimea are also, not surprisingly, not permitted by the new general license.

(Side note on Jeanne Dixon who claimed to have predicted JFK’s assassination: She used to live in a townhouse on 19th Street, NW, in Washington, DC, not far from where I was working at the time. The gate outside the house had two plaster lions perched on the columns on either side of the gate. One day the lions mysteriously went missing. Several days later a handwritten sign was posted on the gate offering a significant reward for the safe return of the lions. Almost immediately some wag — not me, I promise — wrote on the reward sign: “If you’re psychic, find them yourself!” The sign disappeared and the lions never returned.)

Permalink Comments (1)

Bookmark and Share


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