Archive for the ‘OFAC’ Category


Jun

30

OFAC Sets Mousetrap; Company Takes Cheese


Posted by at 10:49 pm on June 30, 2015
Category: OFAC

JBT Cargo Loader via http://www.jbtaerotech.com/~/media/JBT%20AeroTech/Images/GSE/Loaders/C60i/JBT%20C60i%20Brochure%200813%20c.ashx [Fair Use]The Office of Foreign Assets Control (“OFAC”) recently announced a fine of $391,500 agreed to by John Bean Technologies, a maker of aircraft ground support equipment, to settle charges that it violated the U.S. economic sanctions against the Islamic Republic of Iran Shipping Lines (“IRISL”). The announcement, however, or at least its description of the underlying facts, is a little odd.

The violation is described like this:

[F]rom on or about April 8 to April 17, 2009, JBT appears to have violated E.O. 13382 and § 544.201(a) of the Regulations when goods that JBT sold to a Chinese company were shipped by Islamic Republic of Iran Shipping Lines (IRISL) aboard a blocked vessel from Spain to China, and trade documents related to the shipment were presented to a U.S. bank for payment pursuant to a letter of credit (“L/C”) in the amount of $2,897,936 …

Notice first that the violation alleged here is not a violation of the Iran sanctions caused by shipping goods with IRISL; rather the violation is dealing in property blocked under the WMD sanctions, namely, the letter of credit.  Later in the announcement, OFAC notes that JBT reimbursed its Spanish subsidiary for payments it made to its freight forwarder in connection with the shipment, meaning it is likely the sale was made by the foreign subsidiary. Given OFAC’s apparently accidental reference later to “CSA” instead of  the “Chinese Company,” it is also likely that the sale is the one announced here involving the shipment of airport ground equipment, including cargo loaders, to China Southern Airlines. This means that the shipment of these EAR99 goods by a foreign subsidiary, which occurred before the restrictions on foreign subsidiaries imposed by the Iran Threat Reduction and Syria Human Rights Act of 2012, would not have been  a violation of the Iran Sanctions. Hence, the violation occurred here when the U.S. company presented the blocked letter of credit, along with the required bill of lading from IRISL, to a U.S. bank.

Now look what happens next:

[F]rom on or about May 8 to May 19, 2009, JBT appears to have violated E.O. 13382 and § 544.201(a) of the Regulations when it presented trade documents related to the IRISL shipment to Banco Santander, a Spanish bank, in the amount of $2,897,936, in order to receive payment for the goods sold to CSA, after the U.S. bank declined to advise the L/C and the trade documents had been returned to JBT pursuant to an OFAC license.

Notice anything unusual here? The U.S. bank, of course, could not return the letter of credit, which was blocked property, to JBT without a license, and in 3-4 weeks it received a license from OFAC to do just that. OFAC almost never grants licenses to release blocked property and almost never issues any license that quickly. Obviously, the unnamed bank and OFAC were setting up JBT, which promptly scurried off to a Spanish bank with the returned letter of credit to get its money. Oops.

OFAC further noted that JBT did not voluntarily disclose the matter to the agency. In reply, JBT told Samuel Rubenfeld at the Wall Street Journal that it did disclose the violation as soon as it knew about it, but the bank had disclosed the violation first. This story does not quite hold up. JBT obviously knew of the violation when the U.S. bank returned the letter of credit and explained its reasons for doing so. It would appear, then, that JBT went to the Spanish bank to get its money with what it knew to be a blocked letter of credit before it disclosed the issue to OFAC.

Also, notice the set-up here. When the bank notified OFAC of its blocking of the letter of credit, OFAC then gave the bank a license to return the blocked property to JBT. The purpose of this was to make it clear, if JBT again tried to negotiate the letter of credit, that JBT knew of the violation and could not claim that it had not examined the shipping documents to see the reference in the bill of lading to IRISL. And the bank was willing to cooperate to get future brownie points from OFAC. Game. Set. Match.

Moral of the story: beware of Greeks bearing gifts and banks bearing blocked letters of credit.

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Jun

26

Hostage Ransom Policy Leaves OFAC a Free Hand to Fine Families


Posted by at 4:56 pm on June 26, 2015
Category: OFACSDN List

The **** Wins the Wad by Laurence Simon [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/isfullofcrap/4288487825 [cropped]

We reported earlier this week on an anticipated policy announcement by the White House that would permit families of hostage victims to pay ransoms to the captors without fear of prosecution by the federal government. Of course, we wondered whether this amnesty would extend to relieving families from penalty actions by OFAC and the answer is, not surprisingly, no.

The new executive order on this policy can be found here. It says nothing about administrative penalties and leaves OFAC with a free hand to fine families that pay ransoms if the captors are on the Specially Designated Nationals and Blocked Persons List. The non-prosecution promise is not even in the executive order but is in a non-binding “Statement” from the Department of Justice that says: “The department does not intend to add to families’ pain in such cases by suggesting that they could face criminal prosecution.”

And what does OFAC have to say about payments of ransom by families to SDN kidnappers? Not one single word. So, as things stand now, families that pay ransoms will probably, unless DoJ changes its mind, not go to jail but they could wind up paying a second ransom payment to OFAC.

Samuel Rubenfeld at the Wall Street Journal digs deeper into the issue. (Full disclosure: Mr. Rubenfeld interviewed me and quoted me in his article.) As he correctly notes, the DoJ statement only provides some solace to families and not to any of the necessary parties that assist in the payment of the ransom. Unless the family itself carries a suitcase of cash to the Middle East to pay the ransom personally to the kidnappers, which is probably not the smartest idea in the world, they are going to need help from someone outside the family. And whoever provides such assistance would be liable to prosecution for material support of terrorists as well as fines from OFAC if the kidnappers were on the SDN List.

What this means, as I said in the WSJ article, is this: “This change in policy is a way to put a nice face on an uncomfortable situation, but it’s not going to ultimately change anything.”

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Jun

24

OFAC Fines Bank for Defective Screening Software


Posted by at 11:17 pm on June 24, 2015
Category: OFAC

National Bank of Pakistan Chauburji [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimapia http://wikimapia.org/17730284/NATIONAL-BANK-OF-PAKISTAN-CHAUBURJI[cropped]The Office of Foreign Assets Control (“OFAC”) announced that it had fined the New York branch of the National Bank of Pakistan $28,800 in connection by seven wire transfers made by the Bank in an amount totaling $55,952.14 to an entity on OFAC’s Specially Designated Nationals and Blocked Persons List. The transfers went to Kyrgyz Trans Avia, an airline headquartered in Bishkek, Kyrgyzstan. The transfers were from or to an account denominated “LC Aircompany Kyrgyztransavia.” Although the SDN List contains references to both Kyrgyz Trans Avia and Kyrgyztransavia, the Bank’s screening software failed to identify the match.

OFAC noted that the base amount for the penalty under its guidelines was $64,000. That the error was a software error, meaning that no one at the Bank was aware of the violation, was considered a mitigating factor. But this mitigation still resulted a substantial fine equal to approximately half of the funds transferred and far more than any conceivable profits the bank made on the transfers.

The interesting issue here is whether the Bank has any recourse against the unnamed software provider. The answer is probably no, given that it is quite likely that the software license includes standard language disclaiming any liability for consequential damages arising from any failures or errors by the software. The take-away is this: select your screening software carefully, audit it frequently and do your best to get an indemnification from the provider.

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Jun

23

White House Okays Private Ransom Payments to SDNs


Posted by at 9:57 pm on June 23, 2015
Category: OFACSDN List

Iran Hostages by State Department via Flickr https://www.flickr.com/photos/statephotos/14059711278 [Public Domain]A number of press reports today, including this one, indicate that the Obama Administration will announce on Wednesday that it was revising its policies and will no longer threaten to prosecute families that pay ransoms to terrorists in an effort to release their loved ones. The stories that I read appear to believe that paying ransoms is, in general, a violation of federal law. Readers of this blog will, of course, probably know that such payments are illegal only when the persons receiving the ransom are on the Specially Designated Nationals and Blocked Persons List. In many cases of hostage taking in the Mideast, the responsible groups are indeed on the list and so payment to those groups, no matter how well-intentioned would otherwise be illegal.

How exactly this exemption will be accomplished is not made clear in the news reports. This is an interesting question. It hardly seems likely that the White House will direct the Office of Foreign Assets Control to issue a general license for hostage payments by family members. This leads to an even more interesting question. Even if the DoJ, under the new policy, will not prosecute or threaten to prosecute families making such payments, will there still be a chance of administrative penalties imposed by OFAC on families that make ransom payments to SDNs?

This is not an entirely far-fetched question. Remember that OFAC has previously said that payments should not be made to pirates without being certain that the pirates were not on the SDN List, leading, of course, to the logical question as to how that was to be done. Do you make the pirates show you their passports before you drop the money on the ship?

Payments of ransoms are, of course, a thorny policy issue given that such payments undoubtedly encourage further kidnappings. On the other hand, it is hard to ask families to sacrifice their own loved ones on the chance that this will deter future kidnappers and save other people’s husbands, wives, sons and daughters.

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Jun

17

How To Go To Jail Right Now: A Gothamist Primer


Posted by at 9:55 pm on June 17, 2015
Category: Cuba SanctionsOFAC

Cuba - Havana - Car by Didier Baertschiger [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/didierbaertschiger/11785935544[cropped]

Popular local website group Gothamist (which is also responsible for DCist, LAist, Chicagoist, and others) ran on its websites today the intriguingly titled: “How To Go To Cuba Right Now: A Travel Primer.”  You can guess what I think of that article by my title for this post: “How To Go To Jail Right Now: A Gothamist Primer.”

The Primer is authored by Tod Seelie, who appears to be a talented photographer, who describes his trip to Cuba.  He said he wanted to go to see the old cars, the crumbling buildings and the beaches.  Wondering if it was as “easy as buying a ticket online,” he bought a ticket from a website.  He notes he “checked ‘journalistic activity,’ though my visa ultimately identified me only as a tourist.”  And he was off.

The rest of his story details how to get an AirBNB room, the different currencies for locals and tourists, the drinkability of the water, the cost of cabs, the absence of soap in bathrooms,  the skimpy miniskirts worn by Cuban customs agents, and how hard it was for him to understand Cuban Spanish because they drop their s’s at the end of words. Finally, he noted that on the way back from what appeared to be more a vacation than anything else, the only question he was asked by the CBP agent was “Did you have fun?”

Nowhere in the article does Seelie do anything to rebut the likely assumption by his readers that anybody who wants to bop around Old Havana for a weekend getaway can just book an online ticket, sign on to AirBNB to book a room, stuff a moneybelt with cash and head off for sun and mojitos. As readers of this blog know, but readers of blogs in the Gothamist empire probably won’t know, you can’t just go to Cuba as a tourist. You have to go for one of the permitted reasons set forth in the regulations.

What about Mr. Seelie? Did he break the rules? Well, he has a colorable case that he is a journalist, since the regulations include in the definition in section 515.563 “a freelance journalist with a record of previous journalistic experience working on a freelance journalistic project.” Mr. Seelie’s bio suggests he’s published some pictures in some newspapers so we’ll give him this. But, but, but, there’s this in the rules:

The traveler’s schedule of activities does not include free time or recreation in excess of that consistent with a full-time schedule.

You be the judge whether Mr. Seelie was in Cuba for full-time journalism and incidental fun or full-time fun and incidental journalism.

UPDATE:  The article in Gothamist was written by Lauren Evans; Mr. Seelie accompanied her to Cuba to take photographs.  Although Ms. Evans clearly fits, in my view, the definition of a journalist under section 515.563, she still leaves the impression that anyone can hop on a plane and go to Cuba, which, of course, is dead wrong and can lead to an unpleasant encounter with OFAC.  And the question still remains whether she, in addition to Mr. Seelie, was there for full time journalism and incidental fun or full-time fun and incidental journalism.

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