Palestine: A Reminder of the OFAC Regulatory Labyrinth
Posted by George Murphy at 1:36 pm on May 16, 2013
Category: Economic Sanctions • OFAC • Sanctions • SDN List
OFAC this week issued a general license redefining the term “Palestinian Authority” as that term is used in three sets of U.S. sanctions regulations relating to terrorism. The change was only to add a phrase to account for Prime Minister Salam Fayyad’s resignation. You may be asking yourself how we got to the point where OFAC issues licenses to redefine a regulatory term because of the resignation of a foreign political leader. The answer is, not surprisingly, not so simple.
The Palestinian Authority (PA) is not, and never has been, on the SDN List. But back in 2006, OFAC announced, by virtue of the Hamas victory in the PA legislative elections, it determined that Hamas “has a property interest in the transactions of” the PA and, therefore, “U.S. persons are prohibited from engaging in transactions with” the PA. The strained logic that an entity has a property interest in the transactions of a government because individuals affiliated with the entity won a plurality of a legislative election vote was implemented into the terrorism regulations as interpretive provisions, which still exist. This was a harbinger for things to come.
In 2007, as a result of Prime Minister Fayyad’s appointment, OFAC issued a general license authorizing U.S. persons to engage in all transactions with the PA that were otherwise prohibited by defining the PA to be the government of President Abbas and Prime Minister Fayyad. OFAC could have, instead, at that point explained the situation and removed the interpretive provisions from the terrorism regulations. It did not, and we commented here on the oddity of this situation over five years ago. The new general license this week perpetuates the situation further. Now the regulations include the interpretive provisions, the 2007 general license and the new general license clarifying the other general license.
It should not be this complicated. If OFAC’s goal is to hedge its bets that the PA may at any time fall back under control of Hamas, which the Gaza Strip effectively has been since 2007, there are more direct ways to make the PA subject to sanctions that are easier for U.S. persons to follow and understand. The most obvious candidate, if the United States believed there was a Hamas-related terrorism threat with the PA, would be adding the PA to the SDN List or some form of direct sanctions. If not direct, then an interpretive provision is second-best, but one that provides a more realistic justification than the current “property interest” logic. Of course, a new interpretive provision would put the onus on OFAC to explain further notions of ownership and control that have thus far not received enough attention.
Until then, we will wait for the next general license when the new prime minister is determined.
Re: Burma (or is it Myanmar?): Why We Are All Lost in Translation
Posted by George Murphy at 10:33 am on May 12, 2013
Category: Burma Sanctions • Economic Sanctions • OFAC • Sanctions
The White House last week issued a notice continuing the national emergency with respect to Burma. The notice itself is an annual rite of passage for all U.S. sanctions programs under IEEPA, including those relating to Burma. What is surprising this time around is that nothing has changed from past notices. The current notice still refers to the “unusual and extraordinary threat to the national security and foreign policy of the United States” by “the actions and policies of the Government of Burma.”
This is where the head-scratching should begin. A lot has happened in the past year or so that one would think warrants an updated (and apt) notice. In late 2011, Secretary of State Clinton made the first State visit to Burma since 1955. Last May, the President nominated the first U.S. ambassador to the country in over two decades. Just this past November, the President became the first sitting president to visit Burma. Most important to U.S. businesses was OFAC’s significant relaxation last year of countrywide sanctions prohibiting the export of financial services to Burma, new investments in Burma and imports from Burma.
All of these events are major developments in U.S.-Burmese relations. So why would the White House use a boilerplate notice when it could have taken the opportunity to depict an accurate picture of what U.S. foreign policy currently is? The notice is, of course, a legal requirement and the Burmese government has not shed all doubt over its commitment to democracy and human rights. But describing the situation as an “unusual and extraordinary threat” to the United States without any further context? In light of all this Administration has accomplished with Burma, it seems odd and misleading to use an off-the-shelf response in this instance.
One consequence of this on the U.S. business community will likely be time and resources many spend confirming that the sanctions that have been lifted against Burma have now not been repealed. Such a sanity check would be reasonable given the notice and especially for those who have begun exploring business with Burma.
The Administration should have a complete and consistent script of what U.S. foreign policy is with respect to Burma so it, and the rest of us, can all be on the same page.
The Bad News Is You’re Still on the SDN List
Posted by George Murphy at 6:37 pm on April 30, 2013
Category: Burma Sanctions • Economic Sanctions • OFAC • Sanctions • SDN List • Zimbabwe Sanctions
ABOVE: Robert Mugabe
OFAC last week issued its first general license for U.S. sanctions relating to Zimbabwe. The license authorizes for the most part “all transactions involving Agricultural Development Bank of Zimbabwe and Infrastructure Development Bank of Zimbabwe.” Both banks, however, are on OFAC’s SDN List.
Since the two banks have been and remain on the SDN List, the license does not unblock the banks’ property interests that had been blocked as of the date of the license. OFAC issued a similar general license in February of this year authorizing dealings with four banks in Burma but kept the banks on the SDN List and continue to block the banks’ property interests blocked prior to the license. A major development from these licenses is, of course, giving U.S. exporters local banking options that were previously unavailable and without them likely stymied business development in those countries.
Exporters should also take note, however, of how OFAC’s easing of sanctions through these licenses has an onerous side-effect on U.S. companies. If a company’s policy is to determine whether to deal with entities or individuals based on their presence on the SDN List or other relevant sanctioned party lists, the authorization granted to deal with listed banks through these general licenses would go unnoticed. Exporters now must check all the lists they routinely do as well as stay on top of licenses issued by OFAC to know whether someone has, from most exporters’ perspectives, been in effect delisted.
If these SDN-lite designations continue, exporters will either need to monitor closely OFAC’s daily activity or make sure their screening software is doing so for them, at least if they want to be sure they are not unnecessarily limiting their export opportunities.
An Egregious “Non-Egregious” Sanctions Violation?
Posted by George Murphy at 11:36 pm on April 17, 2013
Category: Economic Sanctions • Iran Sanctions • OFAC • Sanctions
OFAC announced on Friday a settlement with California-based SAN Corporation (“SAN”) for an alleged violation of the Iranian Transactions Regulations that occurred in September of 2007. OFAC alleged that SAN sold nutritional supplements to an entity in Kuwait with knowledge that their end use was to be in Iran. SAN agreed to pay $22,500 to settle liability for the alleged violation. OFAC reported that the base penalty amount for the alleged violation was $25,000.
OFAC determined that the alleged violation was non-egregious and it provided several conditions to support that finding: (1) its allegation involved one instance, (2) SAN had no history of prior OFAC violations and (3) the goods at issue, in OFAC’s words, “appear to have been eligible for a license” under TSRA.
What leaves us bewildered is the parade of horribles that OFAC also recites: (1) SAN did not voluntarily disclose the transaction to OFAC, (2) SAN acted with “reckless disregard” for sanctions law by selling to an entity in Kuwait with knowledge that end use was in Iran and having been informed by the Iranian end-user that intended shipment to Iran required an OFAC license and (3) SAN did not fully cooperate with OFAC by providing “incomplete and/or inaccurate statements” to OFAC.
Whatever all the reasons were behind OFAC’s agreeing to this settlement, the result is a good reason to give pause before going to OFAC with a voluntary disclosure. While much goes into a decision of whether to make a voluntary disclosure, it is important to assess enforcement actions like this one to determine carefully if efforts spent to prepare, submit and deal with a voluntary disclosure are worth it.
Clif adds: If shipping an item to Iran without a license even after the Iranian end-user tells you that a license is required isn’t enough to make something an “egregious” violation, I am not sure the word egregious has any meaning left.
SEC To TSRA: Drop Dead!
Posted by Clif Burns at 10:05 pm on May 26, 2011
Category: Sanctions • SEC
You may never have heard of the SEC’s Office of Global Security Risk and probably have no idea what they do. Well, although I know what they are supposed to do, I have always wondered what the people at that office do during the work day.
Now we know. They surf websites looking for sanctioned countries, like Syria and Sudan, in drop down address lists on the websites of U.S. companies. Allegedly this is to advise U.S. investors about publicly-traded companies that supposedly jeopardize their stockholders’ investments by dealing with sanctioned countries.
After a heavy day of web surfing the Office of Global Security Risk fired off this missive to UPS in respect to a price table it found on the UPS site.
We also note an Air Freight peak season surcharge table on your website which lists surcharge amounts for regions including Latin America and Europe, Middle East, Africa in the Destination section. According to the notes section, the destinations listed include Cuba under “Latin America (All Other Countries)” and Iran, Sudan and Syria under “Europe, Middle East, Africa.” Iran, Sudan and Cuba are identified by the U.S. State Department as state sponsors of terrorism and are subject to U.S. economic sanctions and export controls.
Apparently the SEC thinks that all exports to these countries are banned. The time that the OGS staff spent surfing the web apparently did not extend to researching economic sanctions laws and discovering, say, TSRA, which permits exports of agricultural products, medicine and medical devices to sanctioned countries. Or the Berman amendment which permits export of informational materials. Never mind any of the other exceptions.
UPS replied by saying this:
The appearance of any country on the sanctions list on a UPS listing of surcharge amounts, explained [UPS Vice-President Norman] Brothers, applies only to lawful deliveries. “During the period July 10, 2006 through December 31, 2010, UPS rejected at least 55 shipments destined for Syria because they were determined to be impermissible under U.S. export controls.”
The SEC was reportedly unembarrassed its crude understanding of U.S. export laws and immediately returned to more web surfing. You can start humming that Gershwin tune: “Nice work if you can get it.”