Archive for the ‘SDN List’ Category



I’m from the Government and I’m Here to Fine You (Twice)

Posted by at 12:25 am on November 6, 2015
Category: BISSDN List

PPI via [Fair Use]

Back in August, we detailed the sad story of Production Products,  a small family-run business in Maryland that sent OFAC into a tizzy and received a $78,5000 fine because, heaven forfend, the company had never heard of the SDN list and sent HVAC duct manufacturing worth $500,000 to an SDN in China, which equipment is now probably being used to make bombs and missiles and stuff. We took the occasion to suggest that, rather than pitch a fit, OFAC should engage in a bit of reflection and wonder why a small mom-and-pop company in Maryland might never have heard of its SDN list.

Well, Production Products’s woes were scarcely over because BIS, equally annoyed that Production Products doesn’t have someone read the Federal Register cover-to-cover every day, has decided it ought to pile on with its own $50,000 fine for the same violation, as well punishing the company with a year in detention or the equivalent, namely requiring three officials to attend export school and report back to BIS Special Agents with “attendance certificates.”

BIS gets to attend this punching party as a result of section 744.8 of the Export Administration Regulations which makes it a violation of the EAR to deal with any SDN that is listed “with the bracketed suffix [NPWMD].” And that was the case here. The Chinese company on the list has the “bracketed suffix [NPWMD]” which means (for those of you who don’t speak the Low Middle Inflected Dialect of the Exportish language) that they were put on the list for reasons having to do with their involvement in nuclear proliferation and/or weapons of mass destruction.

Like OFAC, BIS was miffed that Precision Products had never heard of the SDN and, as a result, imposed a fine and the requirement that the miscreants take course at Export School and bring back proof of attendance. But, also as was the case with OFAC, this was less an opportunity for BIS to get lathered up than it was an opportunity for self-reflection. What has BIS done to make sure that small businesses know about its arcane and complex regulations?


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Federal Court Gives OFAC Carte Blanche to Seize Funds

Posted by at 9:12 pm on October 15, 2015
Category: OFACSDN List

OgKKO Gas Station via OKKO's Facebook Page ([Fair Use]A federal court recently upheld, in OKKO Business v. Lew, a decision by the Office of Foreign Assets Control  (“OFAC”) to refuse to unblock funds sent by a Ukrainian company as an auction deposit for an auction conducted by a Belarusian company on OFAC’s List of Specially Designated Nationals and Blocked Persons.  The court’s opinion, a thinly-disguised love note addressed to OFAC, endorsed OFAC’s overly broad interpretation of what constitutes an “interest in property” held by an SDN and leaves open the question of what, if any, limits can ever be placed on OFAC’s authority.

At issue was an auction deposit sent by OKKO Business, a filling station operator in Ukraine.  OKKO sent a €200,000 bidder’s deposit in 2012 to UE Belarusian Oil Trading House, an entity that was designated as an SDN in 2008. The deposit was required to participate in an auction to be conducted by UEB. If the bidder lost the auction, the deposit would be returned to the bidder. If the bidder won the auction, the deposit would be returned to the bidder upon its execution of a sales contract with the seller. If the bidder won but refused to enter into such a contract the funds would be forwarded to the seller. There was no contingency under which UEB would ever be entitled to all or any part of the funds. Because the deposit transited a U.S. bank, the funds were blocked

OKKO sought unsuccesfully to unblock the funds, arguing that it did not know that UEB was sanctioned when it transferred the funds, that it had terminated the contract with UEB, and that it would not conduct further business with UEB. OFAC denied the request, stating simply that because UEB has an “interest” in the deposit, it was required to be blocked and that OFAC did not normally unblock funds in cases involving “commercial activity.”

Notwithstanding the difficulty in determining what “interest” UEB could be said in the deposit in this situation, the federal court ate up OFAC’s rationale with a spoon of extreme judicial deference stating that there was “no limit on the scope of interest” that could be blocked by OFAC. The court went on to state that it was completely irrelevant that UEB had no “legally enforceable ownership interest” in the auction deposit. Finally, the court bolstered it’s argument that UEB had an interest in the auction deposit because it was “not certain” that Okko would demand the funds back if it lost the auction. (Yeah, right, they are just going to walk away from €200,000; perhaps the district court judge had no idea of the value of the Euro and thought that €200,000 was worth something like $2.00.)

But if the SDN’s interest need not be a “legally enforceable” interest to be blockable, it’s hard to see where this stops. Consider this: an SDN hacks into an account, steals money and deposits it at a U.S. bank in its own name. The bank blocks its and, under the rationale of the court in this case, the victim of the hacking can’t get the funds back without OFAC’s permission because the hacker has an interest, even if not legally enforceable, in any account he controls. The only principle left in determining what is a blockable interest is that it is whatever OFAC says it is.

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Hostage Ransom Policy Leaves OFAC a Free Hand to Fine Families

Posted by at 4:56 pm on June 26, 2015
Category: OFACSDN List

The **** Wins the Wad by Laurence Simon [CC-BY-SA-2.0 (], via Flickr [cropped]

We reported earlier this week on an anticipated policy announcement by the White House that would permit families of hostage victims to pay ransoms to the captors without fear of prosecution by the federal government. Of course, we wondered whether this amnesty would extend to relieving families from penalty actions by OFAC and the answer is, not surprisingly, no.

The new executive order on this policy can be found here. It says nothing about administrative penalties and leaves OFAC with a free hand to fine families that pay ransoms if the captors are on the Specially Designated Nationals and Blocked Persons List. The non-prosecution promise is not even in the executive order but is in a non-binding “Statement” from the Department of Justice that says: “The department does not intend to add to families’ pain in such cases by suggesting that they could face criminal prosecution.”

And what does OFAC have to say about payments of ransom by families to SDN kidnappers? Not one single word. So, as things stand now, families that pay ransoms will probably, unless DoJ changes its mind, not go to jail but they could wind up paying a second ransom payment to OFAC.

Samuel Rubenfeld at the Wall Street Journal digs deeper into the issue. (Full disclosure: Mr. Rubenfeld interviewed me and quoted me in his article.) As he correctly notes, the DoJ statement only provides some solace to families and not to any of the necessary parties that assist in the payment of the ransom. Unless the family itself carries a suitcase of cash to the Middle East to pay the ransom personally to the kidnappers, which is probably not the smartest idea in the world, they are going to need help from someone outside the family. And whoever provides such assistance would be liable to prosecution for material support of terrorists as well as fines from OFAC if the kidnappers were on the SDN List.

What this means, as I said in the WSJ article, is this: “This change in policy is a way to put a nice face on an uncomfortable situation, but it’s not going to ultimately change anything.”

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White House Okays Private Ransom Payments to SDNs

Posted by at 9:57 pm on June 23, 2015
Category: OFACSDN List

Iran Hostages by State Department via Flickr [Public Domain]A number of press reports today, including this one, indicate that the Obama Administration will announce on Wednesday that it was revising its policies and will no longer threaten to prosecute families that pay ransoms to terrorists in an effort to release their loved ones. The stories that I read appear to believe that paying ransoms is, in general, a violation of federal law. Readers of this blog will, of course, probably know that such payments are illegal only when the persons receiving the ransom are on the Specially Designated Nationals and Blocked Persons List. In many cases of hostage taking in the Mideast, the responsible groups are indeed on the list and so payment to those groups, no matter how well-intentioned would otherwise be illegal.

How exactly this exemption will be accomplished is not made clear in the news reports. This is an interesting question. It hardly seems likely that the White House will direct the Office of Foreign Assets Control to issue a general license for hostage payments by family members. This leads to an even more interesting question. Even if the DoJ, under the new policy, will not prosecute or threaten to prosecute families making such payments, will there still be a chance of administrative penalties imposed by OFAC on families that make ransom payments to SDNs?

This is not an entirely far-fetched question. Remember that OFAC has previously said that payments should not be made to pirates without being certain that the pirates were not on the SDN List, leading, of course, to the logical question as to how that was to be done. Do you make the pirates show you their passports before you drop the money on the ship?

Payments of ransoms are, of course, a thorny policy issue given that such payments undoubtedly encourage further kidnappings. On the other hand, it is hard to ask families to sacrifice their own loved ones on the chance that this will deter future kidnappers and save other people’s husbands, wives, sons and daughters.

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PayPal Has No Pals at OFAC

Posted by at 8:04 am on March 27, 2015
Category: OFACSDN List

PayPal Campus Outdoor by PayPal via [Fair Use]Internet payment facilitator PayPal recently agreed to pay to the Office of Foreign Assets Control $7,658,300 in fines and penalties to settle charges that it processed 486 financial transactions involving embargoed countries and blocked parties on OFAC’s Specially Designated Nationals and Blocked Persons List (the “SDN List”). The magnitude of this penalty becomes apparent when you consider that the 486 transactions amounted to a total of $43934.02 in transactions averaging $90.40 each.

Oh, and in case you were thinking, well that’s what they get for getting caught, you should realize that these violations were, according to the Settlement Agreement, voluntarily disclosed. Worse yet, this huge fine was imposed even though PayPal cooperated with the investigation, tolled the Statute of Limitations, and sacrificed on the altar of OFAC’s wrath its compliance division’s entire management, all of whom are now looking for new employment.

What seems to have gotten OFAC’s dander up, and led to the agency calling this an “egregious” case, pretty much the ne plus ultra of regulatory misdeeds, involved PayPal’s dealings with Kursad Zafer Cire, an A.Q. Khan crony designated by OFAC under its WMD sanctions program. Although these were only 136 transactions, totalling $7091.77 and averaging $52.15 each, PayPal processed six of these transactions after its interdiction software flagged this guy. On the sixth occasion, PayPal asked Cire to fax them his passport, which he dutifully did, and even though the passport conclusively matched the information on the SDN List, the PayPal risk officer let the transaction go through.

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