Archive for the ‘OFAC’ Category


Feb

4

Don’t Just Stand There Doing Nothing, People Will Think You’re a Supervisor!


Posted by at 9:46 pm on February 4, 2016
Category: OFACSudan

Meroe (49) by joepyrek [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://https://flic.kr/p/dD4ue9 [cropped]The Office of Foreign Assets Control (“OFAC”) announced today that it had issued a “notice of violation” (but no fine) to Johnson and Johnson (Middle East), Inc. (“JJME”), a New Jersey Corporation, in connection with five shipments by Johnson and Johnson (Egypt) S.A.E. (“JJE”) to Sudan in violation of the Sudanese Sanctions Regulations. No description was given of the shipped goods other than that they were worth $227,818.

Not surprisingly, the violation involved “facilitation” by JJME of the shipments by JJE to Sudan in violation of section 538.206 of the Sudanese Sanctions Regulations. OFAC did not detail how JJME facilitated the shipments other than by saying that it did so by “coordinating and supervising” those shipments. It’s hard to discern exactly what is meant by “coordinating” a shipment and perhaps some things that might be called “coordination” might also be facilitation.

But the use of the word “supervising” is a bit odd. The Sudanese Sanctions Regulations, in section 538.407, provide the only clarification in all of OFAC’s regulations of the meaning of the slippery term “facilitation.” That section says:

Activity of a purely clerical or reporting nature that does not further trade or financial transactions with Sudan or the Government of Sudan is not considered prohibited facilitation. For example, reporting on the results of a subsidiary’s trade with Sudan is not prohibited, while financing or insuring that trade or warranting the quality of goods sold by a subsidiary to the Government of Sudan constitutes prohibited facilitation.

Supervising the shipments could simply be keeping track of the shipments and perhaps reporting their progress, and that would fall clearly on the side of reporting the trade with Sudan, which is not facilitation according to this definition. Who among us has not been “supervised” by someone sitting on a sofa while we perform some task? And how did that ever “facilitate” that task?

It’s no secret that OFAC has consciously tried to leave the scope of facilitation vague in order to have exporters over-regulate themselves out of fear of transgression and the attendant punishment. By suggesting that supervising is somehow facilitating it contributes to this regulatory ambiguity. If OFAC truly wanted to provide guidance on what it means by facilitation, it would would have described exactly what JJME did with respect to the shipments rather than fall back on vague terms that might not really even describe facilitation as anyone understands it.

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Feb

2

The Case of the Missing Airline


Posted by at 10:15 pm on February 2, 2016
Category: Iran SanctionsOFAC

Iran Air A300 by allen watkin [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/4vzYqi [cropped]I have spoken before about the weirdness surrounding the E.O. 13599 List, which has some (but unaccountably not all) of the entities controlled by the Government of Iran that were removed by the Office of Foreign Assets Control from the SDN List as part of Implementation Day. As far as U.S. persons and companies are concerned, entities owned or controlled by the Government of Iran are still blocked whether they are on the SDN List or not, and the E.O. 13599 List was designed to flag some (but not all) of those entities owned or controlled by Iran that were once on the SDN list but are still off-limits.

What seems odd is this “some but not all” nature of the E.O. 13599 List. OFAC in its guidance made clear that U.S. persons could not assume that just because an entity was removed from the SDN List but not put on the E.O. 13599 List that it was okay to do business with that entity. Whether any such omission was the result of incompetence, uncertainty, a desire to lay a trap for U.S. exporters or some super secret reason only known to OFAC, no conclusion, OFAC said, should be drawn from such omission.

That being said, the most puzzling instance of an Iranian government entity falling into the uncertain limbo between the SDN List and the E.O. 13599 List is Iran Air. Although it appears that Iran has made several unsuccessful attempts to privatize Iran Air, the best evidence appears to be that Iran Air is owned and controlled by the government of Iran. The Iran Air website is, not surprisingly, cagey about revealing its ownership.

It seems clear that Iran Air was removed from the SDN List in order to make it eligible as an end-user under the new policy permitting licensing the sale of aircraft and parts to Iran. But why it was not added to the E.O. 13599 List is a complete mystery. Certainly OFAC, with the vast apparatus of the U.S. intelligence and spying apparatus, knows precisely whether Iran Air is owned and controlled by the government of Iran. The rest of us are forced to rely on the markedly less reliable Internet which seems to say, in some places and probably inaccurately, that Iran Air may have been privatized and in other places confirms that it is state-owned.

One has to imagine, but hope that it is not the case, that the omission of Iran Air from the E.O. 13599 is simply a trap for the unwary with OFAC hiding in the bushes, poised to pounce on the first U.S. company that dutifully checks the lists and concludes that it can deal with Iran Air.

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Jan

26

Financing For Cuba Exports Eased for Everything but Agricultural Exports


Posted by at 11:42 pm on January 26, 2016
Category: Cuba SanctionsOFAC

Malecon, Havana by Bryan Ledgard [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/nAvqjV [cropped]Today the Office of Foreign Assets Control (“OFAC”) announced more amendments to the Cuban Assets Control Regulations which, among other things, broadens the general license for travel to Cuba to include other activities such as professional meetings, participating in sports events, and movie and television production. The new rules alter provisions relating to financing of permissible exports of goods but, oddly, does so in such a way that there are now more restrictions on financing exports of agricultural goods than there are on financing for other permitted exports such as informational materials, building materials authorized under license exception SCP, and consumer communications devices authorized under license exception CCD.

Under the amended rules, the provisions in sections 515.533(a)(2)(i) and (ii) which described the only permissible payment and financing terms for exports to Cuba have been revised to impose that restriction only on “agricultural commodities, as that term is defined in 15 CFR part 772” and “agricultural items authorized for export or reexport pursuant to 15 CFR 746.2(b)(2)(iv).” This is a bit odd given that there is no 15 C.F.R. § 746.2(b)(2)(iv). This is presumably a reference to 15 C.F.R. § 746.2(b)(3)(iii) which deals with BIS licensing policy for “agricultural items” and which covers items that are not “agricultural commodities” as defined in Part 772 of the EAR or license exception AGR. I can only speculate that this is a reference to an amended section 746.2 which has not yet been released by BIS.

The restrictions on payment and financing terms in 515.533(a)(2) are a requirement for “payment of cash and advance” or “financing by a banking institution located in a third country” other than a Cuban or U.S. bank. The reason that these restrictions remain on exports of agricultural commodities is that these restrictions are mandated by the Trade Sanctions Reform and Export Enhancement Act of 2000, which, although it was intended to expand trade to Cuba, contains in section 7207(b)(1) these two requirements for exports of agricultural products. The paradoxical result is that the statute that was intended to liberalize trade in agricultural commodities to Cuba now requires restrictions on that trade not required for other exports.

The theoretical effect of these changes is that U.S. exporters could, in theory, offer delayed payment terms to Cuban purchasers and that U.S. banks can finance the transactions. The practical effect is likely to be less. It is doubtful that many exporters or banks will be willing to run the risk of extending payment or financing terms to Cuban purchasers.  Instead, it seems likely that exports to Cuba will follow the normal practice of payment of cash against documents of title. A new section 515.584(f) now allows U.S. banks to confirm letters of credit issued by Cuban banks with respect to non-agricultural exports, something not previously permitted, but again whether U.S. banks will confirm Cuban letters of credit remains to be seen.

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Jan

20

Heads We Win; Tails You Lose


Posted by at 10:11 am on January 20, 2016
Category: Iran SanctionsOFAC

Ground Hog by John Sonderman [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/4zUjkf [cropped]Well, Implementation Day has come and gone.  Hassan Rouhani peeked out of his house, did not see his shadow, and his handlers declared that winter would soon be over … at least if you’re in Europe.  If you’re in the United States, not so much, where the sanctions remain pretty much the same, albeit more confusing.  Meanwhile half of the CEOs of European companies are booking first class flights on Air France to Tehran where they will sign lucrative contracts to sell their goods and services.

For U.S. persons, there are a few minor benefits to Implementation Day.   U.S. companies can sell civil aircraft parts to Iran as long as they get a license from OFAC.  And you can now enjoy Iranian foodstuffs such as Iranian caviar and pistachios.   In addition, foreign subsidiaries of U.S. companies can deal with Iran as long as the parent company, its employees and all U.S. persons carefully tread the treacherous facilitation line where one misstep leads to immediate catastrophe, penalties and, maybe, jail terms for all.

The only other benefit of Implementation Day to anyone in the U.S. involves removals of certain persons and companies from the SDN List.  But, but, but (surprise!) there are major caveats.   The removed parties are still blocked and off-limits to U.S. persons if they are part of the Iranian government (including state-owned enterprises) as defined in section 560.304. Second, they can’t be an Iranian financial institution as defined in section 560.324.

Now this is where the fun begins.   Many of the entries removed from the SDN List on Implementation Day were either Iranian government entities or financial institutions.   So, OFAC now has a new list for you to check of people removed from the SDN list who are still blocked and off-limits to U.S. persons.  That’s right:  implementation day brought U.S. citizens yet another list to check.  These are the entities marked with an asterisk in Attachment 3 to Annex II of the JCPOA which are now compiled in the new list, the E.O 13599 List, and which can be found here (at least until OFAC, to keep its web designers employed, reorganizes its website again and breaks all previous links).

But the fun doesn’t stop there.  The federal government, aware of its own incompetence and keen to punish those who rely on it, says this in the otherwise excellent January 16 guidance on the effect of implementation day:

Please be advised that, under the ITSR, U.S. persons continue to have an obligation to block the property and interests in property of individuals and entities listed in Attachment 3 to Annex II of the JCPOA that do not have an asterisk next to their name and are not included on the E.O. 13599 List if such persons meet the definition of either the Government of Iran or an Iranian financial institution as set forth in section 560.304 or 560.324 of the ITSR, respectively.

In plain English, just because we screwed up and didn’t put a removed party on the 13599 List and that party is in fact related to the Government of Iran, we still get to fine you if you blithely assume that removed parties not on the 13599 List are safe to deal with.  Heads we win, as they say, tails you lose.

Happy Implementation Day, everyone!

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Jan

15

OFAC List Prevents Professor From Slaying Imaginary Dragons


Posted by at 10:51 am on January 15, 2016
Category: OFACSDN List

Epic Building by Epic Games via https://epicgames.com/images/values/epic_building.jpg [Fair Use]
ABOVE: Epic Games HQ

Although I confess to being baffled as to why grown-ups play online video games (at least until after they have read the entire Western canon), recently a grown-up (and a college professor at that) pitched a fit after the OFAC blocking software of Epic Games choked on his name and told him he was not allowed to open an account with them and play one of their video games. More fun probably than playing the video game (and pretending to be a buff warrior in possession of awesome weapons and spells) is unraveling what occurred next.

Muhammad Zakir Khan, an assistant professor at Broward College in Florida, tried to sign up for an account online with Epic Games in order to play something called “Paragon” (which sounds more like a dish detergent than a video game, but that’s another issue). His effort to create the account was refused, and he was informed that this was because of a match against the SDN List, something that Mr. Khan had never heard of, so, like any other online warrior, he took the battle to Twitter, tweeting:

@EpicGames My name is Khan and I am not a terrorist.

Within a just a few hours, the CEO of Epic Games responded (via Twitter of course):

Sorry, this isn’t intended. We’re working to fix ASAP. Cause: Overly broad filter related to US trade restrictions.

Later, he tweeted how they thought they might fix the problem:

We’re working to figure this out. Ideally, not at signup, but by matching name and billing address at purchase time.

Obviously Epic deserves some credit for its efforts to take on OFAC and its SDN list, even though phaser energy guns and revivifying potions are of no use against either. Unfortunately, once there is a name match there is no simple automated solution to resolving the hit. In the case of Mr. Khan, having his address would have been useless because there is no address listed for the Mohammad Khan on the SDN List that caused the hit. Indeed, there is no single adequate way that one can automate resolving false hits. Computers may be able to drive cars, vacuum your living room, and play Jeopardy, but this is something that best practice requires be done by an actual human being.

But there is another point to be made here. Why on earth do we care at all whether terrorists and narcotics kingpins spend money to play online video games? In fact, wouldn’t we prefer that terrorists and drug dealers spend more time slaying imaginary dragons and enemies on their computers and less time doing what they do in the real world?

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