Archive for the ‘OFAC’ Category



Cuba Sanctions Confuse Miami Television Station

Posted by at 3:47 pm on October 2, 2015
Category: Cuba SanctionsOFAC

Baracoa Main Street by Jorge E. San Roman (CC BY-SA 2.5)The NBC affiliate in Miami on September 29 issued an “investigative report” with the title “Millions of Dollars Sent to Cubans Abroad Being Blocked by U.S. Government.”  It starts as follows:

As the U.S. continues to ease sanctions against Cuba, more money is being allowed to flow from the states to the island. While the changes have benefited those living in Cuba, the NBC6 Investigators found that millions of dollars being sent to Cubans abroad are being blocked by the U.S. government.

The report says that it heard that money being sent to Cuban nationals outside of Florida was disappearing and that “after months of investigation,” it finally determined what should have been obvious. The money had been blocked because of OFAC rules. This led to the money quote in the story from one of the victims who sent money and had it blocked:

“That’s people’s money and they can’t keep it just because,” Cruz said.

Oh, yes they can. (Of course, I sympathize with Mr. Cruz’s point and certainly believe that OFAC shouldn’t keep money “just because,” but that’s what they do.)

So what’s going on here? The “investigative report” doesn’t really help much, probably because the reporters probably have no clue as to how OFAC’s regulations work here. The starting point in figuring this out, as regular readers know, is that section 515.201 prohibits transfers of funds to Cuban nationals, wherever located, whether they are in Cuba or Mexico. Blocking transfers to Cuban’s outside Cuba is pretty much an example of blocking “just because,” if the purpose of the sanctions is to deprive the Castro regime of money.

Of course, there are two exceptions that come into play here that may permit transfers to funds to Cubans wherever located. The first is the provision for personal remittances in section 515.570. There is no dollar cap on those now, but we can speculate that prior wires to Cuban nationals would have been blocked because they exceeded the limits (in terms of amounts and permissible transferees) that were in place prior to these restrictions being (mostly) lifted.

The second, of course, is the general license (beloved to Major League Baseball) in section 515.505. That general license unblocks Cuban nationals that have taken up permanent residence outside Cuba. You have to suspect this would have applied to many, if not most, of the transfers at issue. Since permanent residence can be documented under section 515.505 by a sworn statement that the individual does not intend to return to Cuba, it shouldn’t be that hard to transfer money, particularly now, to Cubans outside Cuba.

So, when the “investigative report” left the misleading impression that money couldn’t be sent to Cubans outside Cuba, that was simply because the reporters had not figured out that the dollar amount and permissible transferee restrictions have been, largely, lifted and that no restrictions are imposed on Cubans that have decided to move permanently to countries other than Cuba.  The moral of the story is this: don’t believe everything you see on TV news.

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Voluntary Disclosure Serves as Chum for Derivative Suit Plaintiffs’ Lawyers

Posted by at 9:50 pm on September 28, 2015
Category: BISIran SanctionsOFAC

Shark by Jeff Kubina [CC-BY-SA-2.0 (], via Flickr [cropped]

An unfortunate issue for publicly traded companies that file voluntary disclosures is what seems to be an increasing trend: plaintiffs’ lawyers specializing in derivative shareholder suits circling the company looking for a kill. This seems to be particularly true if there is a whiff of Iran in the voluntary disclosure, something that attracts plaintiffs’ lawyers like buckets of chum in the water, the lawyers well knowing that once they can ominously whisper Iran in front of jury, their contingent fee award and that new Ferrari are a done deal.

Here’s a particularly instructive example of a plaintiffs’ firm called Harwood Feffer LLP trolling for plaintiffs in a press release on PR Newswire on the heels of a company’s voluntary disclosure to OFAC and BIS:

Harwood Feffer LLP … is investigating potential claims against the board of directors of VASCO Data Security International, Inc. … concerning whether the board has breached its fiduciary duties to shareholders.

On July 21, 2015, VASCO disclosed that certain of its products may have been illegally sold to parties in Iran subject to economic sanctions. The Company has notified the U.S. Department of the Treasury, Office of Foreign Assets Control and the U.S. Department of Commerce, Bureau of Industry and Security and will report to them the full extent of the violations once an internal review has been completed.

If you own VASCO shares and wish to discuss this matter with us, or have any questions concerning your rights and interests with regard to this matter, please contact [us].

Oh dear. That sounds grim. The company’s products sold “to parties in Iran subject to economic sanctions.” Somebody better get out their checkbooks so that Mr. Harwood and Mr. Feffer can make the down payment on that Ferrari. (Nevermind, of course, the misunderstanding of U.S. sanctions evinced by “sold to parties in Iran subject to economic sanctions” . . . as if there were parties in Iran not subject to sanctions.)

But, of course, this frightening scenario cooked up by Harwood Feffer loses most, if not all, of its steam when you look at the SEC filing that prompted the Harwood Feffer “investigation.”

VASCO regularly sells products through third party distributors, resellers and integrators (collectively “Resellers”). VASCO’s standard terms and conditions of sale and template agreements that are in general use prohibit sales and exports of any VASCO products contrary to applicable laws and regulations, including United States export control and economic sanctions laws and regulations. VASCO, however, does not always have visibility over its Reseller’s ultimate customers.

VASCO management has recently become aware that certain of its products which were sold by a VASCO European subsidiary to a third-party distributor may have been resold by the distributor to parties in Iran … .

The Audit Committee of the Company’s Board of Direc.tors has initiated an internal investigation to review this matter with the assistance of outside counsel. VASCO has stopped all shipments to such distributor pending the outcome of the investigation which will include a review and recommendations to improve, if necessary, VASCO’s applicable compliance procedures regarding these matters. As a precautionary matter, concurrent initial notices of voluntary disclosure were submitted on June 25, 2015 with each of the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”), and the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”). The Company will file a further report with each of OFAC and BIS after completing its review and fully intends to cooperate with both agencies.

Regular readers of this blog will, no doubt, find risible claims that the actions by VASCO management described above are a breach of fiduciary duty. The products were not sold by VASCO but by a distributor under a contractual obligation not to resell the products to Iran. VASCO, once it learned of the sales, halted all sales to the distributor, commenced an internal investigation, and filed precautionary initial notifications with BIS and OFAC. In other words, they followed what appear to have been best practices in such a situation. And now, they have to deal with the likes of Messrs. Harwood and Feffer.

There are two lessons here. First, the potential discovery requests from plaintiff’s lawyers in search of contingent fee awards mean that companies must be particularly careful to assure that the internal investigation is covered, to the extent possible, by attorney-client privilege. Second, I think publicly traded companies will begin to re-evaluate filing precautionary initial notices of voluntary disclosure with respect to sales made, without the company’s knowledge or consent, to embargoed countries. Rather, I think we’ll see companies decide to conduct a robust internal investigation and then file an initial notification only if that investigation turns up evidence that the company or its employees knew of, or consented to, the sales in question.

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New Cuba Rules Admit the Embargo Threatened the Safety of Civil Aviation

Posted by at 8:54 pm on September 22, 2015
Category: BISCuba SanctionsOFAC

A Cubana Ilyushin Il-96-300 at Domodedovo International Airport by Dmitriy Pichugin [GNU Free Documentation License, Version 1.2 ], via [cropped]

This blog has noted before that comprehensive embargoes by the United States that cover civil aircraft parts flaunt the Convention on International Civil Aviation to which the United States is a party inasmuch as they endanger the lives of people in the air and on the ground in countries not subject to the embargo.  The new Cuba rules proposed by the Bureau of Industry and Security (found here) and by the Office of Foreign Assets Control (found here) begin to correct this problem, at least as far as the Cuba embargo and BIS are concerned.

Articles 4 and 44 of the Convention make clear that member states are not to compromise the safety of civil aviation  as an instrument of national policy against other countries or to take actions in pursuing national goals that would endanger civil aviation in other member states. Use of an embargo to withhold essential parts for civilian aircraft clearly conflicts with these principles and with the United States’ obligation under the Convention.

The proposed amendments forthrightly admit that the U.S. embargo endangers civil aviation by now adding section 746.2(b)(6) which, as now amended, states:

License applications for exports or re-exports of items to ensure safety in civil aviation, including the safe operation of commercial passenger aircraft will be considered on a case-by-case basis.

Not only does this admit that the embargo had a deleterious effect on flight safety, but it leaves open the possibility that the U.S. could continue to endanger flight safety on a “case-by-case basis.” One has to wonder why there would ever be a question with respect to “items to ensure safety in civil aviation.”

Of course, OFAC is up to its neck as well in this problem, because it also regulates exports and re-exports to Cuba. The general license in section 515.533* for exports of items licensed by BIS only covers items exported from the United States or items re-exported from the United States with 100% U.S. content. In the case of items with less than 100% U.S. content re-exported from outside the U.S., an OFAC license will be required (which will be in addition to a BIS license if the item is subject to the EAR, i.e., has 25% or more U.S. content.)

The new OFAC rules, however, do not contain an explicit statement of the licensing policy for Cuba. And unlike the case with Iran, where OFAC published a licensing policy for exports “to ensure the safe operation of Iranian commercial passenger aircraft,” there is no such published policy with respect to Cuban commercial passenger aircraft, although OFAC may informally be applying that policy. So, at least with respect to re-exports of goods with less than 100% U.S. content, OFAC appears to be free to continue to violate the Convention to the detriment of international civil aviation, although whether it will do so remains to be seen.

*Because the Internet is hard, OFAC has, apparently by mistake, removed the complete text of the Cuba regulations from its site and now links instead only the text of the public notice announcing the new amendments.

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Friday Grab Bag

Posted by at 5:32 pm on September 18, 2015
Category: BISCuba SanctionsOFAC

Grab BagHere are a few recent developments that you may have missed:

  • Adam Szubin, former OFAC head, threatens to re-impose sanctions on Iranian banks in confirmation hearings on his nomination as Treasury Department Under Secretary for Terrorism and Financial Intelligence.
  • DC  tabloid Washington Examiner suggests that BIS is about to realize more rules lifting parts of the Cuba embargo; quotes DC attorney and embargo cheerleader who predicts end of the world as we know it if that happens. UPDATE: New BIS regulations are here and new OFAC regulations are here. They will be effective when published on Monday (9/21/2015). World to end on following day.
  • Sony’s deal to distribute Cuban music is premised, naturally, on the informational materials exception, and has been in the works for two years with OFAC granting travel licenses for Sony executives to go to Cuba to negotiate the deal.
  • Foreign Policy magazine’s blog is all worked up about military applications of mind-reading machines and possible proliferation of this “dual use” technology. Next week, the folks at Foreign Policy blog are going to urge that warp speed space ships be added to the USML.
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Glaring Omissions from OFAC LIst of Medical Items Criticized

Posted by at 8:34 pm on September 16, 2015
Category: OFAC

GE Giraffe Baby Warmer via [Fair Use]As regular readers probably know, the Office of Foreign Assets Control (“OFAC”) has issued a list of medical devices and items that are eligible to be exported to otherwise sanctioned countries under a general license, such as this list of medical devices and items that can be exported to the Crimea region of Ukraine.

There has been considerable criticism of these lists because of what appears to be arbitrary omissions of necessary and common medical items that should be eligible for a general license. But no one has put it better than Kathleen Palma, GE’s senior counsel for international trade compliance, did on Monday at meeting of the President’s Export Council Subcommittee on Export Administration [WARNING: EXPLICIT LANGUAGE AHEAD! NSFW!!] when she said this:

I would note that condoms are on the list but baby warmers and units for neonatal intensive care are not on the list.

Unflustered, an OFAC official at the meeting said that the agency was in the process of reviewing proposals to add more items to the list. No time frame, other than sometime before the zombie apocalypse, was given, nor was any indication offered of what items might be added.

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