Archive for the ‘OFAC’ Category


Aug

25

Skateboarding on Thin Concrete


Posted by at 9:02 pm on August 25, 2015
Category: BISCuba SanctionsOFAC

Santa Monica Skateboarder by Clif BurnsAn article in today’s Washington Post may be attracting some attention over in the halls and cubicles of the Office of Foreign Assets Control (“OFAC”).  It describes in some detail how Miles Jackson, a local DC man and skateboarding enthusiast, appears to have been skating around the U.S. embargo on Cuba to deliver skateboards to Cuba and to spend time with his skateboarding buds in Havana.

Apparently the skateboarder became interested in Cuban skateboarding while studying abroad in Cuba during college.  So far, so good; nothing wrong with that.

The dicey stuff starts after he returns to the United States and wants to keep up with his skateboarding buddies in Cuba and send them real skateboards, notwithstanding the travel and export bans for Cuba.

Jackson and [a friend] Bradley began traveling to Cuba that September to drop a few boards off. Because direct travel from the United States was limited, their first trips went through Toronto, Bradley said.

That sentence probably should be re-written to remove the word “limited” — “Because direct travel from the United States was illegal, their first trips went through Toronto.” Of course, direct travel would be legal with a license, but then you wouldn’t go through Canada. Of course, maybe Jackson did get an OFAC license to go skateboarding in Cuba and decided to take the long route through Toronto.

On top of that, Jackson started exporting skateboards to Cuba:

Jackson … regularly travels with up to 50 skateboards at a time. He and his friends, through their nonprofit organization Cuba Skate, have ferried more than 200 skateboards in the past five years to aspiring skaters in the island country.

Of course, that would be okay if licensed, but there is no indication that such licenses were obtained. Another possibility would be export pursuant to BIS License Exception GFT. But that covers parcels addressed to an individual containing quantities normally given as gifts; it does not cover carrying 50 skateboards to Cuba through Canada if that is what happened.

Now Jackson wants to fix up the skateboard parks in Havana. He and some friends

plan to travel again to Havana in September, when they hope to start an ambitious renovation of the country’s only official skatepark, El Patinodromo, on the outskirts of the city. During the rainy season, the park floods, and the metal ramps and rails have begun to rust.

With the embargoes relaxed, Jackson hopes to replace the aging ramps and rails over five to eight weeks, pending permission from the State Department.

The State Department? Really?? Apparently the editors at the Washington Post (like their colleagues at the Wall Street Journal) must also be on vacation.

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Aug

12

The Unspeakable in Pursuit of the Inedible: Iran Edition


Posted by at 9:41 pm on August 12, 2015
Category: Iran SanctionsOFAC

Hunters in Iran via http://stiliyankadrev.com/en/gallery/asia/iran.html [Fair Use]U.S. sanctions on Iran make a number of benign transactions with Iran difficult. If you want to send, say, a chia “pet” to a relative in Tehran, you need a license, and you probably can’t get one. On the other hand, if you want to pay the Government of Iran tens of thousands of dollars to hunt, say, a Transcaspian Urial or a Laristan Mouflon in the wilds of Iran, hey, no problem!

Apparently almost a decade ago, the Office of Foreign Assets Control put aside national policy considerations to permit U.S. persons to tromp around the woods and mountains of Iran hoping to bag some rare Iranian wildlife. According to this article published today by the BBC, the government fees to kill a Transcaspian Urial are around $15,000 and for a Laristan Mouflon around $20,000. This is exclusive of fees paid to local guides.

Not only has OFAC apparently eased the sanctions to permit huge payments to Iran for wild game hunting, but it’s relatively easy to bring the dead animal, or at least parts therof, back. The Fish and Wildlife Service have said that “sport-hunted trophies” can be brought back from Iran in a traveler’s luggage but not shipped separately. Interestingly, such “trophies” can’t be brought back at all from Sudan, in case you were wondering.

Many sites, such as this one listing references from U.S. citizens, detail the prices for expeditions to Iran, including the governmental fees that must be paid. This site, clearly aimed at Americans, is somewhat cagier about mentioning that hunting in Iran requires making payments to the Government of Iran and apparently supplies information on such fees only by email in response to specific inquiries.

My point here is not so much whether hunting for the sport of killing alone is right or wrong. Rather it is this: why would OFAC have a conniption over exports by American of fingernail polish to Iran but seem to have no issue with Americans giving the government of Iran tens of thousands of dollars to hunt exotic animals?

 

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Aug

10

NYDFS Disciplines Consulting Group for Engaging in Legal Analysis


Posted by at 5:52 pm on August 10, 2015
Category: OFAC

Wall Street by Dave Center [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/davidcenterphotography/4171023612/[cropped]The saga of the over-reaching New York Department of Financial Services (“NYDFS”) and Standard Chartered Bank, chronicled on this blog here, here, and here, is the blogging gift that just keeps on giving. Standard Chartered Bank hired Promontory Financial Group to help investigate transactions that the bank conducted with countries subject to U.S. economic sanctions. Today the NYDFS announced that it was restricting Promontory’s access to certain confidential reports necessary for it to provide consulting services to banks because its final report on the Standard Chartered investigation “exhibited a lack of independent judgment.” Apparently, Promontory, at the behest of Standard Chartered’s outside counsel, changed some words in the investigative report, for example, changing a description of transactions “that should be called to the attention of authorities” to transactions that “may be of interest to the authorities.” Seriously.

But that’s not the worst of it. What really got the NYDFS to clutch its pearls and fall on the fainting couch was that Promontory had the unmitigated gall to engage in a legal analysis to determine whether certain transactions were actually OFAC violations or not.

While Promontory was preparing reports for the Department, Promontory was also providing arguments to the Bank’s counsel to help it assert that certain transactions should not be considered violations. On September 16, 2011, a Senior Analyst suggested some “fresh thinking” about emphasizing categories of transactions that were potentially exempt from OFAC sanctions. Several days later, on September 19, 2011, a Managing Director replied, “[g]ood points on fresh thinking although I think that fresh thinking about reducing the number of violations is more likely to command attention for obvious reasons.” The Senior Analyst replied about the value that Promontory might add, stating that “big wins” will come from payments that Promontory “might be able to drop off.” Regarding this email exchange, the Senior Analyst testified that Promontory provided information to the Bank’s counsel to help reduce the number of violations and a Managing Director testified that the Bank and its counsel asked Promontory if they had observed anything that “might have an impact on reducing the amount of violations.”

That’s right. Promontory was punished for actually trying to analyze whether certain transactions violated OFAC’s rules or not rather than just assuming that everything the bank did was a violation. This takes particular significance when you recall that NYDFS punished Standard Chartered for U-Turn transactions with Iran that were legal under OFAC’s rules on the ground that, no matter what OFAC itself said, these transactions violated OFAC’s rules.

Promontory, not surprisingly, has said that it will seek a stay of NYDFS’s action against it.

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Aug

5

I’m from the Government and I’m Here To Fine You


Posted by at 11:51 pm on August 5, 2015
Category: OFAC

PPI via https://m.facebook.com/ProductionProducts/photos/pb.207851795988965.-2207520000.1438832505./368040763303400/?type=1&source=54 [Fair Use]Today the Office of Foreign Assets Control (“OFAC”) announced that it fined Production Products, Inc., a small family-run business in Maryland, the sum of $78,500 in connection with charges that the company exported HVAC duct manufacturing equipment to a company in China on the Specially Designated Nationals and Blocked Persons List. OFAC noted that, because the equipment was valued at $500,000, it could have fined the company $1 million and touted its own beneficence in imposing such a reduced fine. Given that the maximum fine would likely have been a death blow to the company, this is somewhat equivalent to claiming that someone should be grateful because, although you could have killed them, you decided only to cut off a few fingers.

OFAC noted a number of “aggravating factors” that had gotten its dander up, all of which boil down to the fact that PPI had no idea that there was an SDN List and had no idea that it needed to check it or have a — gasp! — compliance program. Apparently not having an OFAC compliance program is the new Eighth Deadly Sin, ranking only slightly behind sloth and lust.

Rather than being an opportunity to add to the Federal coffers, this case should have been an opportunity for governmental self-reflection. Shouldn’t OFAC ask itself why this company — like millions of other small companies — has never heard of OFAC or its SDN List? These companies almost certainly know that there are certain things — guns, explosives and the like — that they can’t export but would be shocked (and justifiably so) to learn that you can’t ship so much as a pencil to a company in China on the mysterious list without suffering grievous consequences.

But instead of wondering why so many people have not heard of OFAC or its rules, OFAC gets its feelings hurt and lashes out with penalties. It seems to me that the efforts used to punish people for not knowing about OFAC might be better shifted to educational efforts to deal with the fact that so few small companies are aware of their obligations with respect to the SDN List.

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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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