Archive for the ‘SDN List’ Category


Jun

23

Seeing Through the Smoked-Filled Rooms of Sanctions


Posted by at 6:37 pm on June 23, 2014
Category: Economic SanctionsGeneralOFACRussia SanctionsSanctionsSDN List

By Erifnam at en.wikipedia [GFDL (www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], from Wikimedia Commons http://commons.wikimedia.org/wiki/File%3AK_Street_NW_at_19th_Street.jpg

The Canadian newspaper The Globe and Mail reported last week that lobbying records made public this month show the CEO and a lobbyist for Kinross Gold Corp., a Canadian gold mining company and one of the world’s largest, “have had numerous communications” with Prime Minister Stephen Harper’s foreign affairs policy adviser, Canada’s deputy minister of foreign affairs and the Canadian ambassador to Russia in order to discuss “policies and regulations related to the imposition of economic sanctions.”

With almost a third of Kinross’s global gold production reportedly coming from its two mines in Russia, Kinross has good reason to to try to find out, to the best extent possible, whether the Canadian government plans to impose sanctions relating to Russia that may affect Kinross business in that country.

Canadian sanctions against Russia, like U.S. and EU laws, involve prohibitions on dealings with targeted persons and give government authorities wide latitude to designate individuals and entities with essentially no public notice or consultation.  Under U.S. law, for example, OFAC can designate an SDN at any time without having to comply with public notice and review requirements imposed on almost all government agencies so long as the person meets the often broad criteria of a sanctions target under an executive order.

Moreover, OFAC deems any entity owned 50% or more by an SDN to be treated as an SDN itself.  As we previously reported, the so-called 50% rule has caused a variety of compliance conundrums relating to Russia as a few individuals, like Gennady Timchenko, Arkady Rotenberg and Boris Rotenberg, own major companies in many sectors of the Russian economy.  To boot, Kinross may have gotten understandably skittish when, south of the border, President Obama issued his latest Russian sanctions-related executive order in late March permitting imposition of sanctions on those operating in various sectors of the Russian economy, including metals and mining.  Under that criteria, Kinross itself might later be designated an SDN.

Sanctioning governments have, of course, reasons for their secrecy.  Intended targets can’t be announced prior to sanctions being imposed and, therefore, given a head start in transferring their property and money to safe haven countries.  But with little guidance and a lot at stake, Kinross has every reason to reach out to government officials to gain any clarity possible and do one’s best to make sure business can continue as usual or, if not, how to adjust its operations to comply with applicable laws.

Kinross is not alone.  U.S. federal lobbying records for this year’s first quarter are now publicly available.  For example, Coca-Cola, Xerox and Citgo are among the variety of companies that have reported lobbying efforts relating to sanctions against Russia.  Because sanctions against Russia weren’t imposed until the end of the first quarter in March, we expect to see disclosures in subsequent quarters from more companies involved in such efforts.

If there are smoke-filled rooms in economic sanctions, the smoke is mostly from government cigars (and maybe Cuban-origin for the Canadians).  The smoke arises where statutes, regulations and executive orders give government agencies dangerously broad discretion in identifying the sanctions targets and enforcing sanctions laws in ways that are not readily apparent from the laws themselves.

Future economic sanctions laws are not likely to be written any clearer.  Much of their effectiveness lies in not knowing who will be targeted and, as a result, the better chance there is that companies and individuals will police themselves in order to avoid possible violation.  In such an uncertain environment, finding people who can get as much information as possible from government officials enforcing sanctions will always be an invaluable resource.

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May

19

There’s More Than One Way to Sanction a Russian under U.S. Sanctions


Posted by at 9:09 pm on May 19, 2014
Category: Economic SanctionsOFACRussia SanctionsSanctionsSDN ListSyria

By Rakkar at en.wikipedia (Transferred from en.wikipedia) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ABashar_and_Asmaa_al-Assad_in_Moscow.jpg
ABOVE: Assad in Moscow

OFAC recently announced the designation of Russian bank Tempbank and one of its Russian officials, Mikhail Gagloev, to its Specially Designated Nationals List “for providing material support and services to the Government of Syria.”  According to OFAC, Tempbank “arranged to deliver millions of dollars in cash” to a Russian airport for pickup by “cash couriers” for the Central Bank of Syria and Gagloev “personally travelled to Damascus to make deals with the Syrian regime on behalf of Tempbank.”  Six senior officials of the Syrian government and two Syrian companies were also designated for apparently unrelated reasons.

Not surprisingly, the Russian Foreign Ministry responded that Russia believes the designations of Tempbank and Gagloev are “absolutely unacceptable” and “would like to remind the U.S. side yet again that the language of sanctions is useless and counterproductive.”  To the Russian government, the basis for which a Russian individual or entity is designated as a U.S. sanctions target is, of course, irrelevant.  Russia can, moreover, understandably disregard the reason behind OFAC’s designations because the resulting sanctions against the identified Russians are effectively the same.

In light of the designations of Tempbank and Gagloev, it is reasonable to suspect that OFAC may start designating more Russians to the SDN List for reasons unrelated to Ukraine to augment the U.S. sanctions target range.  Indeed, it is peculiar that no one had been designated to the SDN List under sanctions against Syria for almost a year until this latest development.

Perhaps, OFAC is changing course from designating Russians to the SDN List for shaky reasons like being part of Putin’s “Inner Circle,” as was the justification given for targeting the likes of Gennady Timchenko, Arkady Rotenberg and Boris Rotenberg.  Targeting someone for sanctions just because he is a Putin crony may be enough under IEEPA’s broad authorization to the President, but doing so has not been met with the same enthusiasm by others, namely the EU.  The EU has, for sure, its own reasons not to tread into designating Russian businesses and businessmen with substantial ties and influence on European markets.  However, the result, which we recently pointed out, is that U.S., EU and even Canadian sanctions relating to Russia are becoming quite the confusing patchwork to follow.

 

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May

13

Russian Sanctions Creep


Posted by at 6:39 pm on May 13, 2014
Category: Economic SanctionsEURussia SanctionsSanctionsSDN List

By President of Russia [CC-BY-3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File:Volodin_V_V.jpeg?uselang=ru
ABOVE: Vyacheslav Volodin


The EU yesterday added new names to its sanctions list.  The latest additions include Russian President Putin’s deputy chief of staff, Vyacheslav Volodin, and Vladimir Shamanov, the commander of the paratroop unit that allegedly took part, despite Russian denials, in the annexation of Crimea.

Also added were a number of Crimean companies:  One is Chernomorneftegaz, a Crimean gas company; another is Feodosia, a Crimean oil supplier.

Volodin but not Shamanov and Chernomorneftegaz, but not Feodosia, are on the U.S. sanctions list. Differences like these suggest incoherence and, at the least, create compliance challenges for multinationals.

Being on a U.S. or EU sanctions list means that the assets of the listed person are frozen and dealings with them by those subject to U.S. or EU jurisdiction are prohibited.

Whether these sanctions will deter further Russian involvement in the Ukrainian crisis is anyone’s guess.  The reluctance to impose so-called sectoral sanctions, that is, prohibitions on dealings with anyone in a given sector like oil and gas, exposes concerns about the double-edged sword of sanctions:  They truly cut both ways.

Individuated sanctions are, nonetheless, a headache for companies subject to U.S. and EU law because of the broad-based shadow lists of those subject to sanctions under the U.S. rule freezing the assets of any company that is 50% or more owned by a designated person and the EU rule  freezing any assets “controlled by” a designated person.

Shadowing the shadow list means that simple screening of listed persons is not enough.

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Apr

30

U.S. Long Arm Stretches But Likely Won’t Reach Its Chinese Target


Posted by at 6:12 pm on April 30, 2014
Category: ChinaDoJEconomic SanctionsExtraditionIran SanctionsSDN List

FBI Wanted Poster [Public Domain]

The U.S. Department of Justice announced yesterday that it charged Li Fangwei, a Chinese national, with violating U.S. sanctions against Iran as well as with federal fraud violations.  Li, also known by a panoply of aliases including Karl Lee, Sunny Bai and Patric, is accused by the Justice Department of using a number of Chinese companies he controls to sell “metallurgical goods” and other items to Iran that are prohibited from sale to Iran under U.S., UN and other sanctions around the world because of their potential use in nuclear weapons or ballistic missiles. Li himself was added to the SDN List in 2009 and his Chinese companies have been added to the SDN since 2006.  In fact, OFAC added eight Li companies to the SDN List yesterday.

With respect to U.S. sanctions, Li is alleged to have used front companies to engage in funds transfers through U.S. banks in order to conduct his business with Iran.  In a related matter, the Justice Department announced yesterday that the U.S. Government has already seized almost $7 million in funds attributable to Li’s companies that were held in U.S. correspondent accounts of foreign banks used by the Chinese companies.

The seizures are, of course, a success for U.S. sanctions enforcement.  It raises, however, the question of whether a criminal prosecution of Li is fruitful or may be even necessary in an effort to curtail his dealings with Iran.  In announcing the indictment, Assistant Attorney General John Carlin described the criminal prosecution as “part of the ‘all tools’ approach our government is taking against Li Fangwei.”  Indeed, other tools like those used by OFAC, in cooperation with the FBI and the Marshals Service, have so far seized millions attributable to Li front companies on the SDN List.  If OFAC can designate entities to the SDN List and funds in the United States attributable to them can be seized, what more can U.S. sanctions be expected to accomplish under the circumstances.

On that score, Li was part of a post here over five years ago when Robert Morgenthau, as then New York County District Attorney, announced a 118-count indictment against Li and one of his companies, LIMMT, alleging Li and LIMMT falsified business records in violation of New York law in transferring funds through New York banks in connection with transactions with Iran.  Back then, we questioned the legitimacy and efficacy of New York trying, in effect, to enforce U.S. sanctions and wondered whether OFAC wanted any assistance (or ultimately the distraction) from New York in its attempt to enforce U.S. sanctions policy.

History has a funny way of repeating itself.   Although the Justice Department actually has the authority to prosecute a U.S. sanctions violation, the same question of efficacy lingers.  Under a fair assumption that Li is in China now and the Chinese government knows Li’s exact whereabouts, there is almost no reason to think China will extradite him or even possibly curtail his activities with Iran.  Perhaps the Department is hoping that the $5 million bounty the FBI placed on Li’s head might prompt someone in China to nab Li, tie him up, put a bag over his head, put him in a container and ship him to the U.S. in order to claim the reward.

The case of Li Fangwei, therefore, should not be sidetracked to the U.S. justice system.  This is in OFAC’s bailiwick and OFAC should lead the charge, in cooperation with other U.S. agencies, to seize blocked property in the United States and liaise with Canadian, EU, Swiss and other foreign sanctions enforcement authorities to convince them that similar seizures should take place around the world and intelligence should be shared with each other on what new companies Li, and possibly others, are using to do impermissible business with Iran.

In the words of the Justice Department, Li Fangwei is a “fugitive.”  That could not be more of a misnomer.  The case of Li Fangwei simply does not fit the parlance used by U.S. prosecutors.  The Justice Department is right, however, that the United States is afforded a lot of tools in sanctions enforcement.  Sometimes, there are tools best left in the toolbox.

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Apr

29

Bad Times for Timchenko


Posted by at 9:45 pm on April 29, 2014
Category: BISEntity ListOFACRussia SanctionsSanctionsSDN List

Gennady Timchenko via http://www.timchenkofoundation.org/en/about/trustees/1/ [Fair Use]The Bureau of Industry and Security (“BIS”) yesterday added thirteen companies to the Entity List as part of new sanctions against Russia. Many of these companies are connected to Gennady Timchenko who was added to the SDN List in the first round of sanctions and whom we have discussed previously on this blog. Under the Export Administration Rules, licenses are required for exports of all items “subject to the EAR” (i.e., U.S. origin items or foreign produced items with specified percentages of U.S. content) to anyone placed on the Entity List. BIS has said that there will be a presumption of denial for license applications to export items to the thirteen companies newly added to the list.

The companies added to the entity list are the following:

Stroytransgaz Holding, located in Cyprus; Volga Group, located in Luxembourg and Russia; and Aquanika, Avia Group LLC, Avia Group Nord LLC, CJSC Zest, Sakhatrans LLC, Stroygazmontazh, Stroytransgaz Group, Stroytransgaz LLC, Stroytransgaz-M LLC, Stroytransgaz OJSC, and Transoil, all located in Russia.

The Volga Group is owned by Timchenko and itself owns Aquanika, Avia Group, Avia Group Nord, Transoil, Sakhatrans and Stroytransgaz. The only company on the list not connected to Timchenko is CJSC  Zest, which is a leasing company owned by Rossiya Bank.

Interestingly, if you are on pins and needles about whether Justin Timberlake will perform at Hartwall Arena in Finland, the Volga Group, owned by Timchenko, is the vehicle by which Timchenko owns 50 percent of Hartwell Arena. Volga Group, like all of the thirteen companies listed above that have been added to the Entity List, was added yesterday by the Office of Foreign Assets Control to the SDN List. So Justin Timberlake fans planning on heading to Helsinki might want to see if they can get refunds.

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