Archive for the ‘OFAC’ Category


Jun

24

A Brief Brexplanation of Brexit and Brexport


Posted by at 11:37 am on June 24, 2016
Category: BrexitEconomic SanctionsEUOFAC

Boatleave-12 by Gary Knight [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/J5K8dc [cropped]

Although Brexit is unlikely to be in effect for almost two years or more, there are some questions as to what impact Brexit might have on British export controls and economic sanctions.  Any prediction here is risky beyond my speculation that the UK will be unlikely to alienate the U.S. and other allies by significantly altering its export and sanctions regimes.

At this point, and in the wake of the vote last night, you may find it useful to understand the legal background under which Brexit will affect U.K. export controls and sanctions.   Given that all your Facebook friends have suddenly become experts on Brexit (soon to be known as Brexperts), you can now impress them as a Brexport Brexpert.

Let’s start with the Wassenaar Arrangement.  The European Union is not a party to the Wassenaar Arrangement.  Rather all member states of the E.U. (other than Cyprus) are individual members of the Wassenaar Arrangement.   Accordingly, Brexit will have absolutely no impact on Britain’s obligations under Wassenaar.   The Wassenaar Agreement is the source, via Council Regulation (EC) No 428/2009 (and associated legal amendments) of the UK Control Lists.  Although the intermediate authority for the lists will go away on Brexit, no alteration in those control lists will occur by virtue of Brexit alone.

This brings us to Council Regulation (EC) No. 428/2009, which establishes the E.U. framework for export controls. Here it is important to understand that the regulation did not create a centralized EU export control regime. Rather it left principal authority with Member States to implement their own control regimes in accord with principles set forth in the regulation. Britain’s Export Control Order of 2008 implements 428/2009 and related EU authorities. Although it will become untethered from 428/2009 on Brexit, there is no reason that it should not remain in place post-Brexit.

The situation with sanctions is somewhat more complicated and depends on the particular EU sanction. The JCPOA, which lifted many international sanctions on Iran, for example, will not be affected because the U.K. is an independent signatory to the JCPOA.  Other E.U. sanctions, such as the Russia/Ukraine sanctions, have direct legal effect in the U.K., although it is up to the member state to establish and enforce penalties. In these instances, there is no independent legal authority in the U.K. for that sanction, and its status after Brexit becomes uncertain. It is, of course, likely that Britain will not seek to alienate its allies by walking away from these sanctions, but it will have to enact domestic legislation to implement them before or after Brexit.

Photo Credit: Boatleave-12 by Gary Knight [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/J5K8dc [cropped]. Copyright 2016 Gary Knight

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jun

15

DOJ Issues Misleading Press Release in Connection with Export Guilty Plea


Posted by at 11:47 pm on June 15, 2016
Category: BISCriminal PenaltiesIran SanctionsOFAC

All in a Day's Work by Damian Gadal via Flickr https://flic.kr/p/5xQkWj [Fair Use]
ABOVE: Erdal Kuyumcu

This blog reported earlier on the case against Erdal Kuyumcu in connection with exports of an EAR99 Cobalt Nickel powder (CoNiCrAIY) to Iran. In that initial post, I questioned the government’s evidence that Mr. Kuyumcu knew that his sales of this powder to a customer in Turkey were destined to Iran, noting that the criminal complaint based its allegations on the “training and experience” of an investigating agent who felt that unrelated emails discussing Iran covered these shipments. (I also mocked the agent’s claim that a “[b]ased on my training and experience … [a] colon followed by a close parenthesis … represents a smiley face.”)

Yesterday the Department of Justice issued a press release stating that Mr. Kuyumcu had pleaded guilty to the charges against him. Of course, the DoJ, as usual, could not restrain itself from misleading hyperbole in the process of patting itself on its own back:

Kuyumcu, a United States citizen, conspired to export from the United States to Iran a metallic powder composed of cobalt and nickel without having obtained the required license from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). The metallic powder can be used to coat gas turbine components, such as turbine blades, and can also be used in aerospace, missile production, and nuclear applications. Such specialized metals are closely regulated by the U.S. Department of Commerce to combat nuclear proliferation and protect national security, and exporting them without an OFAC license is illegal.

Why, you ask, if CoNiCrAIY powder is “closely regulated” by the U.S. Department of Commerce was its export a violation of OFAC rules? Good question. CoNiCrAIY powder is EAR99 and its export is not regulated, either “closely” or otherwise, by the Department of Commerce. Perhaps the DoJ has gotten confused, innocently or otherwise, by ECCN 2E003.f which controls certain “technology” for application of certain specified inorganic compounds, including CoNiCrAIY and similar compounds, on non-electronic substrates. But even this is not tantamount to close regulation of the powder because other inorganic compounds covered within these controls of deposition technology include tungsten and oxides like, er, carbon dioxide. By this logic, if Kuyumcu exported a carbonated soft drink to Iran, the DoJ could claim that he exported a product to Iran “closely regulated” by the Department of Commerce.

Once again, we see that the government can misinterpret export laws and regulations with immunity while everyone else does so at their peril.

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Jun

7

Russia Sanctions Aren’t Rocket Science


Posted by at 7:08 pm on June 7, 2016
Category: OFACRussia Sanctions

OA 4 Launch by NASA via http://www.nasa.gov/sites/default/files/styles/full_width_feature/public/thumbnails/image/oa-4-launch-1c_0.jpg?itok=LZznlmsx [Public Domain - Work of U.S. Government]The U.S. still buys certain rocket engines from Russia for rockets that, among other things, launch U.S. satellites. This has gotten various Hill types, including Senator John McCain, all worked up and provides an opportunity for them to demonstrate their lack of knowledge about the current sanctions against Russia.

Indeed, Senator McCain a few days ago launched a letter to OFAC demanding that they justify this “selective enforcement of sanctions.” The problem, as the Senator thinks he sees it, is that Sergei Chemezov, who is on the SDN List, is on the Board of Directors of Roscosmos, which makes the engines. Novikombank, which is on the Sectoral Sanctions Identifications List, as is its owner Rostec, finances Roscosmos. So, according to Senator McCain, it’s game over, case closed, for Roscosmos:

[W]e are funneling U.S. taxpayer dollars to a Russian space agency that is financed by a sanctioned Russian bank, which is owned by a sanctioned Russian defense company, and which is controlled by a sanctioned Russian CEO, who also happens to be a close personal friend of Vladimir Putin.

Why this is “selective enforcement” of the Crimea sanctions is far from clear. To begin with, Senator McCain lumps the SDN List and the SSI List together as equivalent sanctions, which they aren’t. A company owned by one on the SSI List is not automatically blocked or even put on the SSI List.  Next, he doesn’t understand OFAC’s guidance which blocks companies that are owned 50 percent or more by blocked companies; it does not automatically block companies controlled by blocked entities. So Roscosmos isn’t automatically blocked because it’s financed by an unblocked bank on the SSI List that is owned by another entity (Rostec) on the SSI List just because Rostec is controlled by an SDN.

Now, leaving aside whether this is “selective enforcement,” which it’s not, there may be an argument, perhaps, that OFAC ought to sanction Roscosmos because of its connections with these companies. This is something OFAC has the discretion to do but which it is not required to do and which would not make it guilty of “selective enforcement” if it does not. Still, that question is not simply answered by looking around and pointing to all of Roscosmos’s unsavory connections. If Roscosmos produces something that the United States needs, then to target Roscosmos in that situation would be, as they (sorta) say, targeting your own foot.

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jun

3

Nork Money Laundering Designation Targets Chinese Banks


Posted by at 10:24 am on June 3, 2016
Category: FinCENNorth Korea SanctionsOFAC

Kim

On May 25, the U.S. Treasury Department issued a finding designating North Korea as a  jurisdiction of “primary money laundering concern.”  On the same date, Treasury, through FinCEN, issued a notice of proposed rulemaking (“NPRM”) setting forth the measures that it proposes be implemented as a result of the finding.  Although the finding was immediately effective, the proposed rules will not become effective until some time after the 60-day comment period expires.

The designation comes shortly after evidence that North Korea hacked the SWIFT system to steal money from foreign banks and after an increase in activity by North Korea relating to nuclear and missile proliferation. The finding, however, is based instead on the  requirements set forth in section 311 of the Patriot Act as predicates for such a finding — namely that entities in North Korea were engaged in proliferation of WMD, that North Korea has no controls on money laundering, that North Korea does not have a mutual legal assistance treaty with the United States, and that there is a high level of corruption in the North Korean government.

Once such a  finding is made, section 311 permits Treasury to impose one of five special measures, and in this instance Treasury, as detailed in the NPRM, selected the so-called Special Measure Five to impose. Under that special measure, Treasury “may prohibit, or impose conditions upon, the opening or maintaining in the United States of a correspondent account or payable-through account” by foreign banks that involve the designated jurisdiction. The proposed rules implementing Special Measure Five would prohibit U.S. financial institutions from opening or maintaining a correspondent account for a foreign bank if the foreign bank was engaged in transactions on behalf of North Korea. They also impose certain due diligence obligations on U.S. banks to ferret out North Korean activities by foreign correspondent accounts.

These rules, when adopted, will go beyond current restrictions imposed by the Office of Foreign Assets Control (“OFAC”). Under current OFAC rules, banking transactions with blocked entities in North Korea as well as those that would involve the unlicensed import of North Korean goods into the United States are prohibited. But under the new FinCEN rules, foreign banks could be cut off from the U.S. financial system for engaging in transactions with any entity in North Korea, whether blocked or not.

Chinese banks are clearly the target here. China is North Korea’s biggest customer, and many of those transactions are believed to be denominated in the U.S. Dollars that North Korea needs to buy goods from around the world. These transactions will clearly become much riskier for Chinese banks when the rules go into effect. Although it is certain that Chinese banks have in the past concealed from U.S. banks the extent to which their correspondent accounts are used in connection with purchases from, or sales to, North Korea, it seems unlikely they will continue to run the risk that these activities will be uncovered now that the stakes (namely continued participation in the U.S. financial system) are higher and now that U.S. banks will be more closely scrutinizing the correspondent accounts of Chinese banks.

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

May

25

More Border Search Shenanigans by Customs in Sanctions Case


Posted by at 8:51 pm on May 25, 2016
Category: Border SearchesCriminal PenaltiesCustomsIran SanctionsOFAC

Los Angeles International Airport by Daniel Betts [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/redlegsfan21/13789084574 [cropped]Here we go again. Another case has surfaced where U.S. Customs seized computers and other electronic media from a U.S. traveler at the border, shipped them off to be imaged, rifled through the imaged contents looking for evidence and then weeks later, based on emails they found while going through the computer images, finally sought a search warrant arguing that there is probable cause that the Iran sanctions had been violated.

This almost identical scenario recently led a federal district court in Washington, DC, to toss out evidence gathered in this fashion. And neither of these cases is particularly tough: if you have the time to haul the computer from the airport after the passenger has departed, you have time to get a warrant before snooping through the computer. This is not like the typical border search where Customs looks at a suitcase before the traveler takes it with him to a foreign country.

The latest case involves a search of Idin Rafiee, a San Diego resident and U.S. citizen, who, on October 5, 2012, was traveling to London through LAX. He had a computer, an external hard drive, a smart phone and a tablet with him. A Customs agent told Mr. Rafiee that Customs was detaining his electronic media on the ground that there was reason to believe that there was child pornography on it. The media was imaged on October 9 and returned to Rafiee on  October 13. The government did not seek a search warrant until November 1, 2012, and based the warrant on emails that it obtained from the seized media before it had obtained a warrant. Subsequently, Rafiee was charged with violating the U.S. sanctions on Iran.

The child pornography claim was a complete fabrication. There was never any evidence supporting such a belief and no such pornography, or any pornography for that matter, was alleged by the government to have been found. Instead, the only evidence the government had before it searched Rafiee’s devices was an alleged statement by a disgruntled employee that the defendant was doing business in Iran, even though the notes of the conversation with the employee produced by the Government did not mention Iran.

Of course, even if the Government had some valid reason to grab Rafiee’s stuff, there was no exigency once they had it to justify searching it before getting a warrant. They had all the time in the world, as their one month delay in applying for a warrant amply demonstrates. Beyond that, the notion that you can bootstrap a warrant request with evidence from the same computer you are asking to be permitted to search is, at best, ludicrous.

Not surprisingly, the Government finally dropped all charges against Rafiee on May 13, 2016, before the Court even had an opportunity to rule on Rafiee’s motion to suppress.

 

Photo Credit: Los Angeles International Airport by Daniel Betts [CC-BY-SA-2.0 (http://creativecommons.org/ licenses/by-sa/2.0)], via Flickr https://flic.kr/p/n1uEru [cropped]. Copyright 2014 Daniel Betts

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)