Archive for the ‘Sudan’ Category


Oct

12

Happy Sudan Day!


Posted by at 7:44 pm on October 12, 2017
Category: BISOFACSudan

Meroe (49) by joepyrek [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://https://flic.kr/p/dD4ue9 [cropped]Today, October 12, is the day on which Executive Order 13067, which repealed earlier executive orders imposing sanctions on Sudan, becomes effective. We got here by a somewhat circuitous route. Executive Order 13067, issued in the last days of the Obama administration, delayed its effective date until July 12, 2017, although OFAC issued a general license at the time the order was issued doing everything the order would do when it became more or less permanently effective on July 12, 2017. The Trump Administration extended that effective date until October 12, 2017. Since no further orders have been issued, the lifting of sanctions contemplated by the Obama executive order is now in effect, although practically nothing much has changed given that the general license issued with the Obama order, and found in section 538.540 of the Sudanese Sanctions Regulations (“SSR”), did everything the executive order itself does now that it has officially gone into effect.

Of course, when the Office of Foreign Assets Control is involved, there is always some confusion. In the FAQs issued on the revocation of the Sudan Sanctions, OFAC makes this odd statement: “OFAC expects to remove the SSR from the C.F.R.” When that will happen and why on earth it didn’t happen today is not addressed. So, technically, the rules prohibiting Sudan transactions remain on the books although fortunately so does the general license in section 538.540. Perhaps the new folks at OFAC don’t know the difference between the printed edition of the C.F.R., where removal has to wait to the next edition, and the electronic edition, where the SSR can be removed virtually immediately.

The lifting of the sanctions on Sudan, as a practical matter, means that all imports from Sudan are permitted and most EAR99 items can be exported to Sudan. Since Sudan remains a state sponsor of terrorism, section 7205 to the Trade Sanctions Reform and Export Enhancement Act of 2000 requires a license for all exports of agricultural commodities, medicine and medical devices to Sudan. These are covered by the general license in 538.540 and the new General License A, both of which permit exports of these items pursuant to a written agreement during the one-year period from the signing of the agreement. The lifting of the sanctions has no effect on the export restrictions in the Export Administration Regulations which require licenses for exports of Sudan for most items with an ECCN other than EAR99 or items listed in Supplement 2 to Part 742 (which includes some EAR99 items). And the arms embargo on Sudan in section 126.1 of the ITAR continues to remain in effect.

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Copyright © 2017 Clif Burns. All Rights Reserved.
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Oct

5

OFAC Fines U.S. Paper Company for “Discussing” Exports to Sudan


Posted by at 9:34 pm on October 5, 2017
Category: OFACSudan

White Birch Paper Mill via https://whitebirchpaper.com/about-us/our-mills/papier-masson/ [Fair Use]Today the Office of Foreign Assets Control (“OFAC”) announced that it was fining White Birch Paper $372,465 to settle charges arising from exports of $354,602.26 of Canadian-origin paper from a White Birch mill in Canada to a customer in Sudan. Ah, yes, the doctrine of facilitation strikes again, although OFAC has some difficulty explaining that clearly:

Various personnel within White Birch USA and its Canadian subsidiary, White Birch Paper Canada Company NSULC (“White Birch Canada”), were actively involved in discussing, arranging, and executing the export transactions to Sudan.

This makes it appear that the violation arises equally from employees of White Birch Canada being involved in the exports, which, of course, was neither illegal nor facilitation.

The violation arises, of course, from the U.S. employees, rather than the Canadian employees being involved in the exports, certainly to the extent that the U.S. employees “arranged and executed” the exports.  However, if “discussing” the exports is facilitation, as this also seems to state, OFAC would be expanding the scope of the facilitation doctrine far beyond any prior conception of the scope of that doctrine. That would mean that if a U.S. employee said to the Canadian subsidiary “We can’t be involved in the exports to Sudan,” then that discussion would violate OFAC’s rules. Even if the employee were to stick his/her fingers in his ears and chant “la la la la la” every time a Canadian employee mentioned Sudan, that might still be a discussion as well since “la la la la la” means, of course, “I can’t be involved in these exports.”

Of course, it is more likely that this is just sloppy draftsmanship by OFAC — something we’ve seen before — than it is an effort to expand the scope of the facilitation doctrine to any discussion of the transaction whatsoever. Still, OFAC could have avoided this issue if it simply noted that the U.S. employees were actively involved in “arranging and executing” the exports, both of which can clearly constitute facilitation.

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

Jun

28

OFAC Fines AIG for Drafting Error in Global Insurance Policies


Posted by at 10:40 am on June 28, 2017
Category: Cuba SanctionsEconomic SanctionsIran SanctionsSudan

IG Employees via http://www.aig.com/about-us [Fair Use]On Monday, the Office of Foreign Assets Control (“OFAC”) announced that insurance giant AIG had agreed to pay $148,698 to settle charges that it had insured 555 shipments involving Sudan, Iran and Cuba. Although some of the apparent violations involved single shipment policies to the sanctioned destinations or paying claims under global policies on shipments to those destinations, others involved simply accepting premiums under global insurance policies that were later used to cover shipments on which no claims were made to sanctioned destinations.

In November of last year, OFAC provided guidance on how global insurance policies should deal with U.S. economic sanctions

The best and most reliable approach for insuring global risks without violating U.S. sanctions law is to insert in global insurance policies an explicit exclusion for risks that would violate U.S. sanctions law. For example, the following standard exclusion clause is often used in open marine cargo policies to avoid OFAC compliance problems: “whenever coverage provided by this policy would be in violation of any U.S. economic or trade sanctions, such coverage shall be null and void.” The legal effect of this exclusion is to prevent the extension of a prohibited service (insurance or risk assumption) to sanctioned countries, entities or individuals. It essentially shifts the risk of loss for the underlying transaction back to the insured – the person more likely to have direct control over the economic activity giving rise to the contact with a sanctioned country, entity or individual. [11-16-07]

This is a sensible and reasonable policy with respect to global insurance policies. So, you must be assuming, AIG must have left the language cited above out of its global policies and that led to the fines. But you would be wrong. OFAC said this about the AIG global policies:

While a majority of the policies were issued with exclusionary clauses, most were too narrow in their scope and application to be effective.

And how were they “too narrow in their scope and application”? OFAC is not saying. Apparently, OFAC thinks it will be easier to fine other insurance companies later if it keeps secret the drafting errors in the global policies that made the exclusionary clauses in the AIG global policies “too narrow in their scope and application.” And what about those clauses other than most clauses that were too narrow?  Why was AIG being fined for shipments under policies where the exclusionary clauses were acceptable?

Worse yet, after staying mum on what was wrong with “most” of AIG’s exclusionary clauses beyond being “too narrow,” OFAC has the nerve to say this in its announcement:

This enforcement action highlights the important role that properly executed exclusionary clauses play in the global insurance industry’s efforts to comply with U.S. economic sanctions programs.

If “properly executed exclusionary clauses” are so gosh-darned important, then why on earth does OFAC refuse to give the insurance industry a single clue as to what exactly are  “properly executed exclusionary clauses” and what was wrong with “most” of the clauses in the AIG global policies? Did they leave out the word “void” from the recommended language? Did they just say “U.S. economic sanctions” instead of “U.S.economic or trade sanctions”?  How hard would it have been for the agency to say precisely and specifically what was wrong with AIG’s exclusionary clauses?  This just underscores the perception that OFAC is more interested in terrifying than regulating U.S. businesses.

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Copyright © 2017 Clif Burns. All Rights Reserved.
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Feb

23

Federal Judge Protects Banks from Injured Sailors and Widows


Posted by at 5:15 pm on February 23, 2017
Category: OFACSanctionsSudanTerrorism Risk Insurance Act

Image viahttps://commons.wikimedia.org/wiki/File:INTEL-COGNITIVE-Cole.jpg [Public Domain]A recent decision by a federal district court in New York prohibited sailors and their families holding a $314 million judgement against Sudan from collecting any of the judgment from funds that had been wired by a Sudanese bank to various other banks and that were then blocked under the Sudanese Sanctions Regulations.  The judgment arose from Sudan’s participation in Al Qaeda’s bombing of the U.S.S. Cole on October 12, 2000.  Instead, now that the Sudanese Sanctions have been lifted, those funds will go to the banks and not to the sailors and their families.

The decision is premised on a highly questionable reading of section 201(a) the Terrorism Risk Insurance Act. That section permits victims of terrorism to execute judgments arising from a terrorist act “against the blocked assets of that terrorist party,” including the blocked assets of “any agency or instrumentality of” that terrorist party.

At issue were funds transferred by El Nilein Bank.  The bank was an instrumentality of the Sudanese government when the funds were blocked, which is why they were blocked in the first place, but not at the time the plaintiff sought to attach the assets. The court held that the TRIA did not apply because El Nilein was not an agency of the Sudanese government at the time the plaintiffs attempted to attach the funds and because the blocked funds, under New York law, were the property of the blocking bank and not El Nilein.

Oddly, the court reached these conclusions without even citing the definition of “blocked assets” in section 201(d)(2) of the TRIA, a definition which would seem to mandate the exact opposite conclusion.

The term “blocked asset” means— (A) any asset seized or frozen by the United States under section 5(b) of the Trading With the Enemy Act (50 U.S.C. App. 5(b)) or under sections 202 and 203 of the International Emergency Economic Powers Act (50 U.S.C. 1701; 1702)

As readers of this blog know well, OFAC takes the position that assets can be frozen under IEEPA even if they are not legally owned by the blocked party and are legally owned by another party. It is sufficient that the blocked person have some interest, direct or indirect, including a contingent interest. So an asset can be a “blocked asset” of a party even if it is not the property of that party.   Moreover, under the court’s analysis, a wire blocked by an intermediate bank can never be levied against under TRIA unless the intermediate bank was itself a blocked party — an absurd result that Congress never could have intended.

This definition of “blocked asset” also is inconsistent with the Court’s idea that the blocked assets could not be seized because Nilein Bank was not an agency of Sudan at the time the plaintiffs sought to attach the blocked assets. The definition is, significantly, in the past tense. As a result, under this definition and under OFAC rules, the wires did not become unblocked when Nilein Bank was allegedly privatized. The blocked funds did not cease being the “blocked assets” of an agency of Sudan because of that privatization; they would only cease to be such blocked assets when they were unblocked. Nor is their any conceivable reason why Congress would want to create, as the Court did, a class of blocked assets of unblocked parties that are somehow exempt from the TRIA.

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Copyright © 2017 Clif Burns. All Rights Reserved.
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Nov

29

Why It’s Called The Hill Rag


Posted by at 8:46 pm on November 29, 2016
Category: OFACSudan

The Hill Front Page via https://www.facebook.com/TheHill/photos/a.445406209086.230191.7533944086/10150235234964087/?type=1&theater [Fair Use]

The Washington political gossip sheet officially called The Hill, but more commonly known as “The Hill Rag,” wanders into the world of OFAC regulations and, no big surprise, gets it wrong.   The occasion for the Hill Rag’s regulatory blunder is a blurb on the representation by a DC firm of the government of Sudan in federal court litigation

[The firm] is working for the Republic of the Sudan on “several litigation matters pending before [U.S.] federal courts.” … Because of U.S. sanctions on Sudan, [the firm] must obtain a license from the Treasury Department’s Office of Foreign Assets Control (OFAC) to work on the contract. OFAC approves some activities that would be otherwise prohibited by sanctions, including legal services.

Er, no. Section 538.505 of the Sudanese Sanctions Regulations provides that law firms may provide legal services without a specific license to the Government of Sudan when “made a party to domestic U.S. legal, arbitration, or administrative proceedings.” It also covers suits where Sudan is the plaintiff and which are filed to protect property interests subject to U.S. jurisdiction. These two provisions cover just about any federal court law suit involving Sudan.

The only thing that requires a specific license in these two instances is the receipt of fees by the law firm for the services provided. But licenses are not required, as The Hill says, for all legal services.

I guess the Hill Rag reporters could not find anybody in DC who could talk to them about OFAC or show them how to use The Google.

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)