Archive for the ‘OFAC’ Category

Aug

31

Update from BIS’s Update 2010

Posted by Clif Burns at 9:16 pm on August 31, 2010
Category: BIS • OFAC

Commerce DepartmentThe Bureau of Industry and Security’s Update 2010 conference started off this morning with free coffee and pastries, a military honor guard procession, and the Star Spangled Banner. At first, it was hard to tell whether I was attending a military parade or a sporting event. But, of course, I was in a stuffy ballroom in the Grand Hyatt Washington with about 3 million other people stuffed cheek-to-jowl like coach class on Aeroflot. This could only mean it wasn’t a parade or a ball game but instead BIS’s annual conference for exporters. Here are a few highlights.

Eric Hirschhorn, Under Secretary for Industry and Security, after summarizing parts of the ongoing (and welcome) export reform initiative, injected a more somber, and frankly somewhat disconcerting, note:

I ask that you carry a message back to your senior management and those who market your products. … [W]e are planning increased efforts against individuals who flout the rules and against companies whose inadequate internal compliance programs tell us that they are indifferent to whether they follow the rules.

Having a compliance program was always considered a mitigating factor in an enforcement action, but Under Secretary Hirschhorn’s statement goes far beyond that. Now, apparently, not having a compliance program can trigger an enforcement action.

What is disturbing about this is the Export Administration Regulations do not require an exporter to have a formal compliance program. Many small exporters, who are nonetheless otherwise in compliance with export regulations, can’t afford, and shouldn’t have to implement, a formal written program. Does a mom and pop exporter gain anything by adopting a sixty-page compliance program? More significantly, if BIS is going to effectively require a compliance program, it should adopt a rule saying so, with provisions detailing what is expected in a compliance program. It should not simply jawbone exporters with threats of huge fines and worse if they don’t do something that is not affirmatively required by the agency’s own regulations.

Assistant Secretary Kevin Wolf provided more detail on the export reform initiative in his speech (which I recommend you read in its entirety). Assistant Secretary Wolf’s speech included this interesting passage:

For example, the current plan is that revised USML categories must not contain any (a) catch-all controls for generic “parts,” “components,” “accessories,” “attachments,” or “end-items” or (b) other types of controls for specific types of defense articles because, for example, they were “specifically designed or modified” for a defense article.

Also, items are not to be listed on both the CCL and the USML unless there are specific technical or other objective criteria –- regardless of the reason why any particular item was designed or modified –- that distinguish between when an item is USML-controlled and when it is CCL-controlled.

“Specially designed” –- which is different than “specifically designed” — is to be used as a control criterion only when required by multilateral obligations or when no other reasonable option exists.

The distinction between “specially designed” and “specifically designed” prompted a chuckle from the audience. I’m not sure whether this was because most audience members understood that the difference between “specially” and “specifically” is that the Wassenaar Munitions List uses the former and the USML uses the latter. More likely it was because many members of the audience were sadly acquainted with the fine metaphysical arguments required in many commodity jurisdiction requests to determine whether an item was specifically designed for military use.

But notice the two exceptions: treaty obligations and no other reasonable option. I don’t think these exceptions will swallow the new rule, but I can’t help but wonder how broad these exceptions will turn out to be. The Wassenaar Munitions List is littered with references to items that are “specially designed” for military use.

Finally, in a breakout group on economic sanctions, Andrea Gacki, Assistant Director of Licensing at the Office of Foreign Assets Control (“OFAC”) announced that OFAC was about to debut an electronic licensing system for license applications for exports of agricultural products, medicine and medical devices under the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”). Gacki wouldn’t say when this would occur, but she intimated that they were hoping to roll out the electronic system sooner rather than later. Exporters will certainly welcome an electronic system. One person in the licensing division who spoke to me at the end of the breakout was also looking forward to the new system because, apparently, some license applications filed by exporters are literally boxes of documents that have to be rolled into the licensing division.

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Aug

25

OFAC Trifecta

Posted by Clif Burns at 9:59 pm on August 25, 2010
Category: OFAC

Department of Treasury[This is the third post in a row on OFAC, which is just a coincidence. The blog is not about to be renamed OFACLawBlog.]

Last week the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) announced a settlement with Colombian bank Colpatria S.A. under which Colpatria agreed to pay $91,849 to settle allegations of 26 violations of the Narcotics Trafficking Sanctions Regulations (“NTSR”). The violations occurred in 2004 and 2005 at Colpatria’s now closed Miami branch office. Although the Miami branch checked beneficial owners of accounts against the SDN list prior to opening the account, it did not do so thereafter and only checked the name of the account holders against SDN list updates. As a result, it processed transactions for an account after the beneficial owners had been designated under the NTSR.

OFAC said that the base penalty amount was $229,623. It was reduced to $91,849 because Colpatria voluntarily disclosed the violation, had no previous OFAC violations, revised its procedures for checking the SDN list, and signed a tolling agreement. Interestingly, OFAC mitigated the penalty because

Colpatria Miami revised its software configuration to review automatically the names of authorized signatories and beneficial owners of accounts rather than just the names of the account holders when performing account opening and periodic name checks against OFAC’s SDN List

This suggests that Colpatria was checking accounts at regular intervals rather than each time the SDN list was updated. This seems inconsistent with the position that OFAC took back in June in its settlement with GEICO in which it seemed to insist that companies must rescrub their customer list each time the SDN list is updated and not simply periodically.

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Aug

23

OFAC Issues Iranian Financial Sanctions Regulations

Posted by Clif Burns at 6:38 pm on August 23, 2010
Category: Iran Sanctions • OFAC

Department of TreasuryLast week, the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) published a final rule in the Federal Register adopting the Iranian Financial Sanctions Regulations as required by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”). A major focus of CISADA was to extend U.S. sanctions to foreign banks that engaged in transactions that assisted the nuclear proliferation efforts of the Iranian Government.

In particular, section 104(c) of the Act required OFAC to issue regulations within 90 days of the passage of CISADA imposing conditions on the opening of correspondent accounts with U.S. financial institutions by any foreign bank that provided such assistance to Iran. These regulations satisfy that requirement. Section 561.201(c) provides that no U.S. financial institution shall open or maintain a correspondent account for foreign banks providing such assistance. OFAC plans to list all such foreign banks subject to this condition in Appendix A to the new regulations. No bank is currently listed on Appendix A.

Compliance with section 561.201(c) should not cause any particular heartburn for U.S. financial institutions, because it is simply another list that banks must check when opening new accounts and when scrubbing existing accounts for compliance. Another portion of CISADA, however, was the subject of much speculation and concern that it would pose complex and laborious due diligence obligations on U.S. financial institutions doing business with foreign financial institutions. Section 104(e) of CISADA requires OFAC to promulgate regulations requiring U.S. financial institutions with foreign bank correspondent accounts to undertake one or more of four activities designed to determine whether the foreign banks are providing services to Iran in aid of its proliferation goals. These include audits and “due diligence” on the foreign banks.

However, section 104(e) imposes no time limit on when OFAC must promulgate such regulations, and they were not included in the new Iranian Financial Sanctions Regulations. This comes as a relief — perhaps only a temporary one — because few financial institutions are keen on engaging in these extra activities with respect to foreign correspondent accounts.

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Aug

18

OFAC Whacks Bank for $600k Because of Three Wires to Sudan

Posted by Clif Burns at 8:53 pm on August 18, 2010
Category: OFAC

BBVA Compass BranchThe latest batch of civil penalties released by the Treasury Department’s Office of Foreign Assets Control (“OFAC”) has a real eye-opener. Alabama-based Compass Bank, a subsidiary of the Spanish global banking company BBVA, agreed to pay $607,500 to settle charges that it processed three wires “on behalf of one of its clients related to the petroleum or petrochemical industries in Sudan.” That’s right, you didn’t misread that. The predicate violations for the $607,500 fine were three (3) wire transfers, not thirty, not three hundred, but three.

Consistent with OFAC’s “keep-em-guessing” policy, OFAC provides as little information as possible about the violation, which was not voluntarily disclosed by Compass, making it completely impossible to determine why Compass was hit with such a high fine. The maximum possible fine here was $750,000, and for some reason OFAC shaved very little from the maximum. This is even more puzzling given OFAC’s statement that the violation was “a non-egregious case.” Moreover, the description of the wire as related to one clients activities in Sudan suggest the possibility that Sudan might not have even been mentioned in the wire. An article (subscription required) in Law 360 quoted a bank spokesman as saying that the transfer was not “intentional.”

Your guess is as good as mine as to the reason for the harsh treatment of Compass. Perhaps somebody from Compass used a naughty word and irritated one of the regulators. My theory is that OFAC was giving Compass the Admiral John Byng treatment, which Voltaire described when he said “il est bon de tuer de temps en temps un amiral pour encourager les autres.” (“Every now and then it’s a good idea to kill an admiral in order to encourage the others.”)

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Aug

4

Lawsuit Challenges OFAC’s Efforts to Limit Right to Counsel

Posted by Clif Burns at 8:50 pm on August 4, 2010
Category: OFAC • SDN List

An Attorney Pleads His CaseJust last week, I reported on guidelines newly issued by the Office of Foreign Assets Control (“OFAC”) relating to the use of blocked assets to pay attorneys fees to challenge orders blocking those assets. And I was more than a little critical of the absurd limits that OFAC put on attorneys fees that could be paid from blocked assets as well as OFACs express justification of the policy on the grounds that lawyers make it harder for OFAC to do what it wants to do. Specifically, OFAC said — if you can believe it — this:

This policy is not intended to ensure complete compensation to counsel. Limitations on the amount of funds released to a Blocked Party are necessary to preserve the President’s authority and leverage in the conduct of foreign policy

And I predicted that this statement might come back to haunt OFAC if any lawyers were ever able to challenge the policy notwithstanding OFAC’s efforts to make that as difficult as possible.

Well, it would seem that this day may have come. An article in the New York Times reports that lawyers who are attempting to file a lawsuit on behalf of Anwar al-Awlaki have filed suit to challenge an OFAC requirement that the lawyers obtain an OFAC license prior to filing the lawsuit on behalf of Mr. al-Awlaki even if the lawyers are acting pro bono, i.e., without compensation. Anwar al-Awlaki was added to OFAC’s SDN list on July 10, making him one of the few Americans on that list. Among other things, al-Awlaki is alleged to have been the mastermind behind the failed Christmas Day bombing attack on a commercial jetliner headed for Detroit.

Under existing regulations, found in 31 C.F.R. § 594.506, some legal services can be provided to specially designated global terrorists without a license. But none of the services authorized under section 594.506 are involved in al-Awlaki’s case. The lawyers are seeking to file suit on his behalf to challenge an alleged administration order making al-Awlaki subject to extrajudicial execution.. And although the regulations permit lawyers to initiate legal proceedings “in defense of property interests subject to U.S. jurisdiction,” there is no provision permitting lawsuits to defend al-Awlaki from extrajudicial execution or loss of non-property rights.

The lawyers had requested a license from OFAC, which had not been granted, so the lawyers filed suit challenging the license requirement itself. The money quote from the complaint is this:

The same government that is seeking to kill Anwar al-Awlaki has prohibited attorneys from contesting the legality of the government’s decision to use lethal force against him

I am inclined to believe that al-Awlaki is probably a dangerous terrorist, a loathsome individual, and a threat to humankind. Still, everyone, no matter how loathsome, deserves legal counsel. It’s one of the bedrock principles that differentiates us from our enemies; and if we abandon those principles in any instance, then we are on the path to becoming no better than those against whom we fight.

Having finished my inspirational Atticus Finch speech in the previous paragraph, I should note that what’s involved in the al-Awlaki matter is somewhat different from the issues raised by the OFAC guidelines on using blocked funds to pay for legal representation. Here the lawyers, who are provided by the ACLU and the Center for Constitutional Rights, are not seeking any compensation, much less compensation from any of al-Awlaki’s blocked funds (assuming that any even exist). A judicial determination that OFAC cannot block right to counsel in this situation will not necessarily mean that there are constitutional or other legal problems with the agency setting limits on hourly fees — even the paltry fees permitted under the current blocked asset guidelines. Still, OFAC’s unabashed admission in the blocked fund guidelines that lawyers diminish the President’s “leverage” in the conduct of foreign affairs is not likely to help the governments case in defending any power by OFAC to deny American citizens the right to counsel.

OFAC has, it seems, two options here. It could issue the licenses to moot the ACLU challenge to the OFAC rules at issue and allow the Anwar al-Awlaki suit to proceed. Or it could double down and argue that the suit challenging OFAC’s rules is, in effect, a suit on behalf of al-Awlaki in violation of OFAC’s rules and start a penalty proceeding against the lawyer-plaintiffs. Speculation on what OFAC might do here is welcome in the comments section.

UPDATE: Doug Jacobson notes in the comments section that CCR and ACLU issued a press release tonight indicating that they had received a license from OFAC but would continue to press their suit that the license requirement is unconstitutional.

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