Archive for the ‘SDN List’ Category


Oct

3

The Jeweller of Kingpins


Posted by at 11:41 pm on October 3, 2017
Category: OFACSDN List

Cartier Store Cannes via https://www.facebook.com/cartier.france/photos/a.1022361011213879.1073741852.462403637209622/1022361121213868/?type=1&theater [Fair Use]French retailer Cartier agreed to pay the Office of Foreign Assets Control $334,800 to settle allegations that it made four sales of jewelry in a United States store to a an individual designated under the Foreign Narcotics Kingpin Sanctions Regulations. In announcing the settlement, OFAC did not reveal the value of the jewelry sold by Cartier to Shuen Wai Holding Limited but did note that the ship-to address for Shuen Wai was the same as the address shown on the SDN List.

This is the first penalty that I am aware of levied against a retail operation in the United States. This, no doubt, will send shock waves through the retail community. Technically speaking, if an SDN walks into McDonald’s and orders a Happy Meal, McDonald’s would be in violation of OFAC’s rules if it sold the Happy Meal to the SDN and it did not keep any money for the Happy Meal that the SDN had handed to the cashier. Does this mean that McDonald’s can’t sell you a Happy Meal or a Big Mac now without checking your ID and running it against the SDN List?

For the moment at least, the answer is you won’t have to make sure you have your driver’s license with you before you purchase a Big Mac. The OFAC announcement pointed out several things that lead to its decision to seek a fine from Cartier. First, it noted, that this was an international transaction. So unless you’re planning on asking them to send the Big Mac to some foreign country for you, there’s one difference. OFAC also noted that the luxury jewelry business was an “industry at high risk for money laundering.” This is a little puzzling since OFAC is not in the business of enforcing money laundering laws and regulations but, be that as it may, Big Mac’s are probably not a good vehicle for money laundering. (Viewers of Breaking Bad will remember, car washes are good for that.)   Another important fact, not mentioned by OFAC, is that this was a third-party transaction.   Unlike a party using its own U.S.-issued credit card, where the bank would presumably have screened the customer, no one would have screened the recipient of the Cartier merchandise in this instance.

In any event, OFAC reaffirmed that compliance programs should be “risk-based” and should take into account the company’s “products and services, frequency and volume of international transactions and shipments, client base, and size and geographic location(s).”  It is a bit difficult to determine what that means in a practical matter for retail stores beyond meaning that restaurants, grocery stores, and dog grooming parlors do not need to screen all their customers against the SDN List.  But it is probably the case that other retail businesses, particularly where the transaction involves international shipments of merchandise paid for by third parties, should consider screening those customers receiving merchandise.

Permalink Comments Off on The Jeweller of Kingpins

Bookmark and Share


Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Aug

10

Rafa Marquez Shown Red Card By OFAC


Posted by at 1:08 pm on August 10, 2017
Category: Narcotics SanctionsOFACSDN List

By F. Vera | DailyHarrison.com (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)] via Wikimedia Commons https://commons.wikimedia.org/wiki/File%3ARafaelMarquezAlvarez.jpg [cropped and color corrected]
ABOVE: Rafael Márquez Alvarez

Yesterday the Office of Foreign Assets Control (“OFAC”) designated legendary Mexican footballer Rafael Márquez under the Foreign Narcotics Kingpin Sanctions Regulations. According to the press release accompanying the designations Márquez allegedly acted as a front man for, and held assets for, Flores Hernandez and his “drug trafficking organization.”

The press release takes specific note, if not some scarcely concealed glee, that Márquez is a “Mexican professional soccer player.” In fact, Rafa Márquez is not just any professional player. He is arguably the best defender in Mexican history and certainly its most decorated. He currently plays for the Mexican club Atlas and captains the Mexican national soccer team. All of which makes you wonder why on earth he would waste time fronting for a drug kingpin and whether OFAC’s charges that he did so are even credible.  Tom Brady may have deflated a few footballs but it is unimaginable that he would ever go full Walter Heissenberg and involve himself with a methamphetamine distribution network.

Márquez, as you have probably guessed, is vigorously denying these charges.

So by now you’re probably wondering this: where’s the red card that OFAC has shown Márquez? We all know, don’t we, that blocking an employee doesn’t block the organization. The Mexican national team isn’t blocked just because Márquez is on it. When Mexico and the United States play in the 2018 World Cup, the U.S. team won’t get in trouble, will they, if Márquez is playing for Mexico?

Well, that’s not clear. Section 598.406 of the Foreign Narcotics Kingpin Sanctions Regulations prohibits any U.S. person from providing any “services . . . for the benefit of” Márquez. You can’t play soccer without two teams, so the U.S. players are performing a service for Márquez by playing (and not just if they lose). Maybe even Mexico will insist on playing Márquez in that game hoping that the U.S. will have to forfeit the game.

Of course, there’s always the possibility that OFAC will issue a general license — analagous to Iran General License F which permits U.S. athletes to compete in professional sporting events in and with Iran (although even that license carves out blocked persons). Or maybe OFAC will issue a specific license for the World Cup.

Another possibility is that by the time of the World Cup Márquez will have successfully challenged the designation and will have been unblocked. Márquez is unlikely to prevail if his argument before OFAC is that he didn’t have anything to do with Flores. OFAC will no doubt say that it has evidence that he did and that such evidence is classified because disclosing it would reveal intelligence sources and methods. The more fruitful course for Márquez, and the one most often used for getting OFAC to undesignate a party, would be to argue to OFAC (if true) that he no longer has any dealings with Flores and that he will commit not to have any in the future. He might propose a compliance monitor to the agency to back up that promise. And he could promise to use his megastar status to make PSAs and visit schools and engage in other good works.

Another possibility is that Mexico will impose blocking sanctions on Buster Posey, Bryce Harper, and Anthony Rizzo, and promise to lift them only if the sanctions on Rafa are lifted by OFAC. Stay tuned. ¡El miedo no anda en burro!

Photo Credit: By F. Vera | DailyHarrison.com (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)] via Wikimedia Commons https://commons.wikimedia.org/wiki/File%3ARafaelMarquezAlvarez.jpg [cropped and color corrected]. Copyright 2011 F. Vera

Permalink Comments Off on Rafa Marquez Shown Red Card By OFAC

Bookmark and Share


Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jul

21

ExxonMobil Fined Two Million Dollars for Two Milliliters of Ink.


Posted by at 7:11 am on July 21, 2017
Category: OFACRussia SanctionsSDN List

By Dyor, STRF.ru (Own work) [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons [cropped]
ABOVE: Igor Sechint

Yesterday the Office of Foreign Assets Control (“OFAC”) announced that it was fining ExxonMobil $2 million in connection with contracts signed by ExxonMobil with Rosneft in violation of the Ukraine Related Sanctions Regulations. The basis for the fine was not dealing with Rosneft itself; rather, OFAC premised the fine on the fact that Igor Sechin, an individual designated under Executive Order 13661 and the Ukraine Sanctions, signed the contracts. Simultaneously with the OFAC announcement, ExxonMobil filed suit in federal court in Texas seeking to overturn the penalty.

The OFAC announcement is unusual in that rather than simply announcing the fine and going through its usual analysis of how it calculated the penalty, OFAC responds to arguments made by ExxonMobil that it did not violate the sanctions.  ExxonMobil argued that OFAC had designated Sechin in his private capacity and not in his capacity as an official of Rosneft. OFAC harrumphs, as if it were completely obvious, that there is no private/official distinction in designations. According to OFAC, it is completely clear that there will be a problem if the blocked officer signs any agreement with a U.S person. It supports this with a Burma FAQ that deals with a different situation, that was contained in a section dealing with the Burma regulations and that OFAC has removed from its website.

OFAC’s glib rejection of a public/private distinction is not founded in any analysis of the regulations at issue. In fact, as everyone has known for quite some time, the rules do not clearly address situations where an officer of a company is designated and blocked by OFAC but the company itself is not. The Ukraine regulations refer to Executive Order 13661 as defining what activities are illegal. That relevant part of the order is Section 4 which prohibits

the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any person whose property and interests in property are blocked pursuant to this order

It also prohibits the “receipt … of funds, goods, or services” from any such blocked person.

So how does Sechin’s signature of the Rosneft deals step over a line? Certainly ExxonMobil wasn’t providing any funds, goods or services for his benefit. The contracts were for the benefit of Rosneft. Nor did ExxonMobil receive any “funds, goods, or services” from Sechin in the contract. Unless perhaps OFAC thinks that Sechin provided a service to ExxonMobil when he whipped out his pen and spent three seconds spreading ink over the signature line.

If that is the illegal service that was being provided, and it seems that it is because OFAC is drawing a line at the signature line, it’s not very defensible. Let’s say that Sechin hid in a closet and told another company official to sign. That’s a service too. In fact, there is no way to imagine a scenario where a top official of a company does not ultimately approve a major contract, which is also a service, meaning that OFAC’s effort to maintain a distinction between sanctioning Rosneft and sanctioning its officers falls completely apart.

The FAQ relied on by OFAC does not help its position either. Because OFAC has disappeared this crucial guidance (in fact the only guidance from OFAC anywhere on the signature issue) from its website, I’ve retrieved it from the Wayback Machine:

285. If a Burmese Government minister is an SDN, how does that impact the ministry he leads?

A government ministry is not blocked solely because the minister heading it is an SDN. U.S. persons should, however, be cautious in dealings with the ministry to ensure that they are not, for example, entering into any contracts that are signed by the SDN. [03-18-13]

Significantly, guidance on the minister of a government ministry is not necessarily relevant to a situation involving an official of a private company. Additionally, it is hard to justify punishing a company for violating the Ukraine sanctions because it did not read a web document about another set of sanctions.  Not to mention that this guidance no longer exists at all.

It’s easy to see what ExxonMobil sued. I’ll be watching the lawsuit closely. Pass the popcorn.

UPDATE:  FAQs 398 and 400 released after the Rosneft contracts that caution against entering into contract signed by SDNs.  Both of these concern OFAC’s 50-percent guidance and not the Ukraine sanctions.  Neither explains how an SDN signing a contract in his or her official capacity actually violates a rule that OFAC has promulgated and published in the Federal Register and the Code of Federal Regulations.

 

Photo Credit: By Dyor, STRF.ru (Own work) [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons [cropped]. Copyright 2009 Dyor, STRF.ru

Permalink Comments Off on ExxonMobil Fined Two Million Dollars for Two Milliliters of Ink.

Bookmark and Share


Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jun

30

Jury Award for $60 Million Entered Against Transunion over SDN List Reports


Posted by at 4:49 pm on June 30, 2017
Category: OFACSDN List

https://www.instagram.com/p/BKeO97kg4MG/On June 20, a federal jury awarded a $60 million damage verdict against mammoth credit reporting agency Transunion arising from the company’s misuse of the Office of Foreign Assets Control’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”) on credit reports. The plaintiffs in that case where individuals who were not on the SDN List but whom Transunion identified as such, resulting in adverse credit decisions for these individuals.

The class action lawsuit was based on a number of related violations of the federal Fair Credit Reporting Act and a similar California statute. Among the violations at issue were the provisions of section 1681(e) which requires credit bureaus to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” The Third Circuit in Cortez v. Trans Union, 617 F.3d 688 (3d Cir. 2010), previously rejected Transunion’s efforts in that case to make the implausible argument that the SDN List information it supplied with respect to credit applicants was not part of their credit report.

In the current case, the complaint details the experience of one of the representative plaintiffs with Transunion’s OFAC reporting. That plaintiff, named Sergio L. Ramirez, had a car loan denied because his name was similar to two entries on the SDN List, namely, Sergio Humberto Ramirez Aguirre and Sergio Alberto Cedulo Ramirez Rivera. Not only were the names different, but also the birthdate for Plaintiff Ramirez, which Transunion had in its file on the plaintiff, was different from the birthdates listed in the entries for the two aforementioned SDNs.

OFAC has issued guidance about the use of the SDN List by credit bureaus:

The text on the report should explain that the individual’s information is similar to the information of an individual on OFAC’s SDN list. It should not state that the information matches or that the credit applicant is in fact the individual on the SDN list unless the credit bureau has already verified that the person is indeed the SDN.

Even assuming that Transunion followed this guidance, which is not clear, it seems hard to justify transmitting the information to the car dealership when Transunion had information that clearly indicated the credit applicant was not either of the SDNs. It seems to me that credit bureaus can easily protect themselves from outcomes like the $60 million verdict by transmitting SDN information with a disclaimer but doing so only in cases where the credit bureau does not itself have information, such as birthdates, places of birth, etc., sufficient to resolve the potential hit.

Permalink Comments Off on Jury Award for $60 Million Entered Against Transunion over SDN List Reports

Bookmark and Share


Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jun

15

Delaware Bill Proposes Mandatory OFAC Screening: What Could Go Wrong?


Posted by at 1:37 pm on June 15, 2017
Category: OFACSDN List

Rehoboth_Boardwalk

I love Delaware. I’ve spent many days on the Delaware beaches. Even so, recent legislation proposed in the Delaware House deserves ridicule and I’m willing to do that, even if that means I’m banned from ever having another slice of Grotto Pizza or bucket of Thrasher’s Fries.

The bill in question, House Bill No. 57, prohibits the Delaware Secretary of State from registering LLCs where the members are subject to OFAC sanctions.  It also requires registered agents to screen members to avoid presenting applications with sanctioned members.

The bill is the brainchild of the Delaware Coalition for Open Government  (“DelCOG”), which after untold hours researching Delaware LLCs, has discovered two (yes, two) cases where Delaware has registered LLCs on the OFAC SDN List. The companies in question are 200G PSA Holdings, LLC and Agusta Grand I, LLC, which were designated as Specially Designated Narcotics Traffickers by OFAC on February 13, 2017. Both companies were registered in Delaware, respectively, on January 29, 2013, and October 28, 2014. Because the designation occurred after the companies were registered in Delaware, the proposed legislation would not have had any impact on the registration of these companies.

DelCOG and the bill’s drafters seem to be unaware that SDNs will get registered in Delaware only when their designation occurs after registration. If it occurs before, the companies will be unable to pay their fees because banks will almost certainly block all payment of registration and agent fees. So the proposed legislation does not really accomplish its intended purpose at all.

What is does do is create is ample opportunity for confusion. Here’s some language from the bill:

The Secretary of State shall neither certify for formation or domestication nor register as a limited liability company any citizen, group, organization, or government of a listed Sanctioned Nation in the Active Sanctions Program of, or any Specially Designated National listed as such by, the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury when federal law is violated thereby.

The phrases “listed Sanctioned Nation in the Active Sanctions Program” is not defined in the proposed bill. This is an apparent reference to this web page on the OFAC site which lists countries subject to comprehensive sanctions like Syria and Iran but also countries with regime-based sanctions, such as Iraq and Venezuela, where only designated individuals and entities are affected. This sets up the possibility that when anyone in Venezuela (who is not an SDN) is a member of an LLC seeking registration the Delaware Secretary of State will have to decide whether this violates federal law. The same will occur if the member is a U.S. permanent resident that is also an Iranian citizen. Neither of these instances would violate federal law, but who knows what the Secretary of State of Delaware will decide.

The proposed legislation also wanders into CFIUS territory with equally dubious results. The bill requires registered agents to determine if the purpose of the proposed LLC conflicts with the “prohibited or restricted investment … requirements” of Exon-Florio, 50 U.S.C. App. § 2170. In such cases, the registered agent cannot file the registration application on behalf of the LLC and must advise them to file a CFIUS notice. Apparently, the drafters of the bill are not aware that the CFIUS notice process is voluntary.

This bill amply demonstrates the problems that arise when states take it upon themselves to interpret and enforce federal law.

Photo Credit: Rehoboth Boardwalk by Clif Burns Copyright 2014 Clif Burns. All rights reserved.

Permalink Comments Off on Delaware Bill Proposes Mandatory OFAC Screening: What Could Go Wrong?

Bookmark and Share


Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)