In the last release of civil penalty information, the Office of Foreign Assets Control (“OFAC”) announced that it whacked Essie Cosmetics Ltd. with a whopping $450,000 fine for exports the company made to Iran in violation of the U.S. embargo on Iran. So what did Essie export to merit such an enormous fine? Uranium enrichment centrifuges? Missile guidance systems? No. Nail polish. Yes, you read that correctly: nail polish

The apparent violations relate to Essie and Individual’s knowing sale and export of nail care products on or about September 17, 2009, December 8, 2009 and February 23, 2010, to an Iranian distributor pursuant to an Exclusive Distributorship Agreement in apparent violation of § 560.204 of the ITR.

Well, it must have been boatloads of nail polish, right? No.

The total transaction value for the three transactions settled with OFAC was $33,299.

I guess the thinking was that it is pretty hard to enrich uranium, build nuclear weapons, threaten our allies, and engage in general terrorist activities if you aren’t wearing nail polish. I don’t know about you, but I’ll sleep better tonight knowing that a few people with unpolished nails are sitting at home rather than working on nuclear bombs.

This blog reported on March 29 that OFAC had provided guidance on various technologies eligible for export to Iran as incidental to the exchange of personal communication over the Internet. Most significantly, OFAC indicated a willingness to permit certain fee-based services, such as Skype and Google Voice, to Iranians under this exception. I had suggested that given comprehensive sanctions on major Iranian banks, ordinary Iranian citizens would be hard-pressed to actually pay for these services even if licensed.

Now it appears that Iran might even more effectively prohibit U.S. exports of services and software incidental to personal communications over the Internet. According to this story in Ars Technica, the Iranian government is planning to create a national intranet and cut off access to the Internet for ordinary citizens in Iran, possibly as early as October 2012. The source for this story is a report by Reporters Without Borders entitled Enemies of the Internet

After a number of other outlets picked up the story, Iran is now claiming, somewhat bizarrely, that the story of shutting down the Internet in Iran is an April Fool’s day hoax. Seriously, I guess the mullahs sat around and decided it would be hilarious to tell a whopper about the Internet on April Fool’s day. I think the only April Fool is anyone who actually believes the story that the report was an April Fool’s day joke. Iran’s history of pervasive Internet censorship is well detailed in the Reporters Without Borders report, so the idea of a “clean” national intranet in Iran to replace the real Internet hardly strains credibility.

Last week, the Office of Foreign Assets Control (“OFAC”) issued an interpretative guidance on section 560.545 of the Iranian Transactions Regulations which permits exports from the United States to Iran of services incidental to the exchange of personal information over the Internet. The rule requires that such services be “publicly available at no cost to the user.” The guidance gives some examples that seem to have been obviously covered even without the guidance:

• Personal Communications (e.g., Yahoo Messenger, Google Talk, Microsoft Live, Skype (non-fee based))
• Updates to Personal Communications Software Personal Data Storage (e.g., Dropbox)
• Browsers/Updates (e.g., Google Chrome, Firefox, Internet Explorer)
• Plug-ins (e.g., Flashplayer, Shockwave, Java)
• Document Readers (e.g., Acrobat Readers)
• Free Mobile Apps Related to Personal Communications
• RSS Feed Readers and Aggregators (e.g., Google Feed Burner)

More significant is what the guidance has to say about paid services which aren’t covered by section 560.545. According to the guidance, fee-based personal communications are now covered by the favorable licensing policy set forth in the Statement of Licensing Policy On Support of Democracy and Human Rights in Iran. Specifically, this favorable policy will cover paid web hosting services, paid mobile apps and paid internet communications services such as Skype and Google Voice. The policy also covers payment to Iranians in connection with online advertising on Iranian websites.

This all laudable, but it seems unlikely that anyone will be able to take advantage of these new policies. Specifically, how are Iranians going to pay for these services without routing them through one of the many designated Iranian banks? All such payments will wind up being blocked. Even if the payments are somehow routed only through the few banks that are not designated, it’s not clear how the transfers from individual Iranians will be able to reference the specific licenses to avoid being rejected by U.S. banks.

So although Iranians might find some comfort in OFAC’s lip service on democracy in Iraq, it will be cold comfort if they actually try to obtain the paid services in question.

A number of news reports, like this one, indicate that MV Eglantine was hijacked by Somali pirates yesterday near the Maldives and about 460 nautical miles west south west of India’s Cape Comorin. The scene of the hijacking was 1,800 miles from Somalia. Twenty-three crew members were on board.

Regular readers might recognize the name of this ship because it is one of the Iranian vessels on the Office of Foreign Assets Control’s list of Specially Designated Nationals and Blocked Persons. This leads to a number of interesting questions. Will OFAC send a charging letter to the pirates accusing them of engaging in illegal transactions with a blocked vessel? Or should it send the pirates a thank you note for more effectively blocking the ship than OFAC has so far managed to do?

Another news report says this:

US Naval forces have said they will attempt aid and rescue just as if it were any other flagged ship, Iranian or not.

Doesn’t the U.S. Navy need a license from OFAC to provide rescue services to the Iranian crew members and shipping company? Will OFAC send the Navy a charging letter if it rescues the crew without an OFAC license? Will the Navy have to block the ship once it rescues it?

Of course, these are all rhetorical questions. Even so, one must wonder how we ever expect our sanctions to deter Iran’s nuclear ambitions if we let our Navy rescue their ships every time they get in a tight spot. A few unrescued Somali hijackings and I’m sure Iran would just throw in the towel and turn their nuclear facilities over to us.