Archive for August, 2011



Annoying OFAC Can Be Costly

Posted by at 9:01 pm on August 30, 2011
Category: OFAC

JP Morgan ChaseBy now you’ve probably read the JPMorgan Chase Bank (“JPMC”) agreed to pay to the Office of Foreign Assets Control (“OFAC”) the whopping amount of $88.3 million to settle charges that it violated just about every sanctions program on OFAC’s books. This enormous fine is due, it would appear, in large measure to JPMC not taking OFAC’s rules or its investigatory process terribly seriously.

Most of the agreed fine is based on $178.5 million in wire transfers to Cuba. OFAC emphasized that, after a November 2005 internal investigation that revealed that transfers made through a correspondent account involved Cuban funds, JPMC took no steps to prevent further transfers involving Cuban property. The OFAC report does not state whether or not these further transfers involved the same correspondent account or the same Cuban nationals.

JPMC is also alleged to have made a loan to a bank issuing a letter of credit for a transaction that was being shipped on a blocked vessel affiliated with the Islamic Republic of Iran Shipping Lines. At some point, JPMC determined that the loan was likely a violation and decided to file a voluntary disclosure. That apparently did not do the bank too much good because OFAC pointed out that the bank dawdled for four months in getting the voluntary disclosure on file:

Although JPMC supervisors and managers determined that this trade loan was likely an apparent violation of the WMDPSR [Weapons of Mass Destruction Proliferators Sanctions Regulations] and, in late December 2009, decided to submit a voluntary self-disclosure to OFAC, JPMC did not mail its voluntary self-disclosure until March 2010, three days prior to the date on which JPMC received repayment for the loan without OFAC guidance or authorization. JPMC also failed to respond promptly and completely to an OFAC administrative subpoena seeking information on this transaction.

Four months, which may be a short period as measured in corporate time, can hardly be called much of a delay on OFAC time given that it may take the agency six months or more to respond to simple requests. Still, the lesson here is that initial notifications should be filed with OFAC right away.

The third thing that ticked off OFAC was the way JPMC dealt with OFAC’s investigation of a JPMC wire that referenced Khartoum:

In response to this subpoena and a subsequent communication, JPMC compliance management failed to produce several responsive documents in JPMC’s possession, and repeatedly stated that JPMC had no additional responsive documents. OFAC ultimately provided JPMC with a list of multiple responsive documents that OFAC had reason to believe were in JPMC’s possession based on communications with a third-party financial institution. This prompted JPMC to correct its prior statements that the bank possessed no additional responsive documents and to produce more than 20 responsive documents.

What might have been a simple matter to resolve was complicated here by JPMC’s response to the subpoena. Suffice it to say, it’s never a good idea to say that no documents exist unless you are absolutely certain that no documents exist.

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The Spy Who (Never) Loved Me

Posted by at 7:33 pm on August 29, 2011
Category: Cuba SanctionsOFAC

ABOVE: Juan Pablo Roque (left)
Rep. Ileana Ros-Lehtinen (right)

A jilted wife, a Cuban spy, and OFAC: how could this blog ignore a story involving all three at once? Last week a federal district judge in Miami ruled that Ana Margarita Martinez could not garnish money owed by U.S. companies providing licensed travel to Cuba to satisfy a $27.2 million judgment she obtained in 2001 against Cuba.

The circumstances of Ms. Martinez’s lawsuit against Cuba are detailed in this article, which, although it appeared in Time magazine, contains salacious details that we are unable to repeat on a family blog like this one. In brief, Martinez married a “hunky, sensitive” man named Juan Pablo Roque, described as looking “more like Richard Gere than Richard Gere does,” whatever that means (and I think you know). As it turns out, Roque was a Cuban spy sent to the United States to infiltrate Brothers to the Rescue. He secretly returned to Cuba just before the Castro government shot down the Brothers to the Rescue airplane. When questioned in a television interview about what he missed that he left behind in the United States, Roque calmly responded “My Jeep,” with nary a mention of Ms. Martinez. A lawsuit followed and in 2001, a sympathetic judge awarded Ms. Martinez a $27.2 million judgment against Cuba for its complicity in Roque’s torture and “battery” of Ms. Martinez. The judgment was awarded under now-repealed section 1605(a)(7) of the Foreign Sovereign Immunities Act, 28 U.S.C § 1602, et seq., which permitted money awards for torture against foreign states designated as state sponsors of terrorism, as is the case for Cuba.

Ms. Martinez attempted to satisfy the judgment in a state court garnishment action against licensed Cuba travel companies seeking payment of the sums owed by those companies to Cuba for landing fees and other airport services and charges. That action was moved to federal court where a magistrate’s report issued in June recommended quashing the writs of garnishment. Last week the federal district court judge adopted the report and issued an order granting the garnishee defendants summary judgment on their motion to quash the writs.

The magistrate noted that section 515.201(b)(1) of the Cuban Asset Control Regulations prohibited all dealings in or transfers by a U.S. person of property in which a Cuban national has an interest unless an OFAC license is obtained. He further noted that section 515.310 defined transfer to include judicial levies and garnishment. Since Ms. Martinez had neither applied for or obtained an OFAC license permitting the garnishment of these sums, the Magistrate’s report recommended that the writs of garnishment be quashed.

The wrinkle in the case is the Terrorism Risk Insurance Act, 28 U.S.C. § 1610 note, which says that “blocked assets” of terrorist may be subject to garnishment to satisfy judgments obtained under section 1605(a)(7) of the Foreign Sovereign Immunities Act. However, the magistrate ruled that since the payments by the travel companies to Cuba were licensed by OFAC, they were not “blocked assets” under that provision.

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OFAC Issues General Licenses for Exports of Certain Services to Syria

Posted by at 5:32 pm on August 26, 2011
Category: OFACSyria

Bashar al-AssadWhen I earlier reported on the latest round of Syria sanctions, which now prohibit exportation of services to Syria, I noted that the executive order did not contain typical exceptions for services that are generally permitted in the case of sanctioned countries, such as limited legal services and, lately, certain Internet-related services. And because the restriction on export of services to Syria was new, the Syria sanctions regulations of the Office of Foreign Assets Control (“OFAC”) did not contain those exceptions either. So, for example, providing a Twitter account to a Syrian or allowing a Syrian to post a YouTube video would violate the executive order.

OFAC responded quickly and released several general licenses, dated August 18, 2011, which cover some of the usual exceptions. General License No. 1 covers the provision of goods and services to the diplomatic missions of Syria and their employees in the United States subject to certain restrictions.

General License No. 2 covers the provision of legal services and parallels the provisions normally included in other sanctions regulations. That general license permits, for example, representing the government of Syria or other Syrian persons named as defendants in U.S. legal actions and providing advice to the Syrian government or other Syrian persons on compliance with U.S. laws. The new general license would not, however, cover providing legal services to a French company with respect to business it is conducting in Syria.

General License No. 4 permits exportation of services normally incident to exportation or re-exportation of goods to Syria that have been licensed by the Department of Commerce’s Bureau of Industry and Security.

Finally, General License No. 5 permits the provision of services incident to the exchange of personal communications over the Internet. This would include services relating to instant messages, email, social networking, video and picture sharing and blogging, provided the services are provided without charge and are not provided to the Government of Syria or other blocked persons.

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Arms Dealer Viktor Bout Wins Pretrial Victory Against Government.

Posted by at 7:48 pm on August 25, 2011
Category: Criminal Penalties

Only known photo of Viktor BoutNotorious Russian arms dealer Viktor Bout is on trial in Manhattan for allegedly conspiring to sell weapons to DEA agents posing as members of the Revolutionary Armed Forces of Colombia, or FARC, who claimed they intended to use the weapons against American pilots flying over Columbia to monitor drug activity. Yesterday the judge in that case ruled that statements Bout made to the DEA agents while he was in custody in Thailand, where he was initially arrested for the charges relating to the FARC sting, were inadmissible.

The judge concluded that, contrary to testimony, the agents had been aware of the Thai police’s refusal after Mr. Bout’s arrest to grant him access to legal counsel and to a representative of the Russian embassy. She also found that the agents’ contention that they would have no further access to him after their initial meeting was “false” and that they were untruthful when they denied insinuating they could take Mr. Bout to the United States immediately if he “cooperated” and waived extradition.

Instead, Judge Scheindlin credited the defense team’s assertion that the agents had threatened Mr. Bout, insinuating that he would face “disease, hunger, heat and rape” in Thai jails, where he would face abandonment if he failed to cooperate with the American agents.

Of course, not everything has been so rosy for Mr. Bout in his trial. Last week the same district court judge ruled that the prosecution could introduce evidence of sanctions that were imposed on Mr. Bout by the US and UN for his arms dealing activities although the government could not introduce evidence relating to why the sanctions were imposed. Bout’s lawyer claimed that such evidence was prejudicial and continues to maintain that Mr. Bout has never engaged in arms dealing or arms brokering. As they say, that’s his story and he’s sticking to it.

For those interested in why sanctions were imposed on Mr. Bout, details can be found in this previous post on Export Law Blog

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Uh Oh. Here We Go Again

Posted by at 9:23 pm on August 24, 2011
Category: OFAC

“Société Générale New York (“SGNY”) recently agreed to fork over $111,359 to the Office of Foreign Assets Control (“OFAC”) to settle charges that it facilitated a transaction by foreign persons that would have been illegal if engaged in by a U.S. person. Specifically, OFAC charged that SGNY issued two letters of credit to two non-sanctioned (and presumably) foreign parties in connection with transactions that were shipped on the Islamic Republic of Iran Shipping Lines (“IRISL”). OFAC’s pet theory of facilitation rears its ugly head yet again.

Consistent with OFAC’s practice of supplying the least amount of information possible when it reports settlement agreements, there is no information as to whether SGNY had any reason to know that the transaction involved IRISL. The letters of credit may or may not have specified the bill of lading as a documentary requirement for payment, although they probably did. Even if the bill of lading needed to be presented to SGNY as a condition to payment, it may or may not have shown IRISL as the shipper of the goods, particularly if it was issued by a freight forwarder or a NVOCC.

Why is this important? Well, it’s important because charging people with unknowing facilitation makes the already ugly head of facilitation even uglier. If a New York cab driver takes a French citizen to a meeting where that person negotiates a sale of goods from Tehran to Paris, the cab driver is guilty of unknowing facilitation. Is the cabbie required to quiz passengers on the purpose of their trips to make sure that they aren’t for the purpose of trade, even legal trade, with a sanctioned country?

There is a chance that SGNY knew, or would have known by examining the export documents presented to it, that IRISL was involved. In that case, the facilitation argument is less egregious. But OFAC should have cited that knowledge in its statement of the violation. If knowledge is not required for a facilitation violation, the only way to be sure that you aren’t going to be charged with facilitation by OFAC is to become a hermit on the Alaskan tundra.

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