Archive for September, 2011



A Question of Control

Posted by at 8:00 pm on September 28, 2011
Category: OFAC

Oh, no!!!One more point should be made about the Al Haramain case that I discussed yesterday. And this point should strike fear in the heart of all but the most foolhardy.

In holding that OFAC had sufficient evidence to designate the Al Haramain Islamic Foundation (“AHIF”) as a specially designated global terrorist and block all its funds and assets, the Ninth Circuit said this:

Al-Buthe is a designated person. Al-Buthe exercises control over AHIF-Oregon because he is on its board of directors. EO 13,224 authorizes the designation of an entity that is controlled by a designated person. EO 13,224, § 1(c). It is, therefore, a valid reason to designate AHIF-Oregon based on Al-Buthe’s control. We agree with the district court that substantial evidence supports this reason.

Say what? Al-Buthe exercises control over AHIF because he is on the Board?? It will certainly come as a surprise to many directors (and, no doubt, their boards) that they single-handedly control the boards on which they serve.

Where I wonder does this end? Can OFAC designate an employee of a company and then hold that the company is an SDN because that employee “controls” the Company?

There appears to be other evidence that OFAC relied upon, particularly with respect to an alleged link of AHIF to Chechnyan terrorism, but the court’s language set forth above is both troubling and counter-intuitive.

Permalink Comments (1)

Bookmark and Share



Court Rules That OFAC Blocks Require Judicial Warrants

Posted by at 6:55 pm on September 27, 2011
Category: OFAC

Ouch!!!Last Friday the U.S. Court of Appeals for the Ninth Circuit released its opinion in a case brought by the Al Haramain Islamic Foundation (“AHIF”) in which AHIF challenged its designation as a terrorist-supporting organization by the Office of Foreign Assets Control (“OFAC”). Although the court found that there was sufficient evidence to support OFAC’s designation of AHIF and its blocking of AHIF’s assets, it found that OFAC’s procedures were deficient and it remanded part of the case to the district court for further proceedings.

The first area in which the Ninth Circuit chided OFAC was in relation to OFAC’s reliance on confidential information to designate AHIF as a specially designated global terrorist (“SDGT”) under Executive Order 13,224 without providing any information to AHIF concerning that confidential information. While the court held that the government’s interest in national security and the prevention of terrorism did not require it to disclose the confidential information to AHIF or to not rely on undisclosed confidential information in making its determination, the court held that there were procedures short of those options that were mandated by the Due Process clause. Specifically, the Ninth Circuit noted that OFAC should provide, subject to exceptions for special cases, either an unclassified summary of the evidence or access to the evidence by an attorney with an appropriate security clearance.

The second area of criticism of OFAC by the court also related to the requirement of the Due Process clause and specifically to its requirement to provide to AHIF adequate notice of the basis for AHIF’s designation as an SDGT. The court noted that OFAC never supplied a statement of reasons to AHIF but only provided it with several unclassified documents and a request the AHIF supply OFAC with a copy of the Koran. (I must admit that I am completely baffled by OFAC’s Koran request. If, for some reason, OFAC needed to research Islamic principles a free copy of the Koran can easily be found for download at the Gutenberg Project in both a translation by J.M Rodwell and a translation by George Sale.)

Even though the Ninth Circuit found that OFAC violated AHIF’s Due Process rights, it declined to take further action on these violations on the basis that AHIF was not harmed by these violations. Basically, the court relied on the legal doctrine known as “guilty as hell.” In effect, the court said that AHIF was so clearly a terrorist-supporting organization that it would have lost even if OFAC had supplied a statement of reasons for the designation as well as an unclassified summary of the confidential evidence or access to that evidence by an attorney with a security clearance.

The third area in which the court took OFAC to task, and which resulted in the remand to the district court, was OFAC’s violation of AHIF’s Fourth Amendment rights by seizing AHIF’s assets through the blocking process without a judicial warrant. The court did credit OFAC’s concern with “asset flight” and permitted OFAC to initially seize assets without a warrant pursuant to the emergency exception to the Fourth Amendment. But that exception would still require a judicial warrant before the assets were permanently blocked.

This decision accords with a prior district court decision in the KindHearts case. Other district court have ruled that blocking assets isn’t a seizure because the government doesn’t take possession of the blocked assets, a strained rationale at best. See Islamic Am. Relief Agency v. Unidentified FBI Agents, 394 F. Supp. 2d 34, 47-48 (D.D.C. 2005); Holy Land Foundation for Relief and Development v. Ashcroft, 219 F. Supp. 2d 57, 79 (D.D.C. 2002). Because the Ninth Circuit’s rationale only applies to assets held by U.S. citizens, and because most blocked assets belong to foreign citizens, it is unlikely that this warrant requirement, even if followed by OFAC, would have a significant impact on OFAC’s practices.

Permalink Comments (2)

Bookmark and Share



U.K. Tribunal Rules That Export Agency Can Keep Iran Licenses Secret

Posted by at 5:00 pm on September 22, 2011
Category: Foreign Export ControlsIran Sanctions

Mahmoud AhmadinejadThis blog reported earlier on a lawsuit brought by Bloomberg Business Week against the U.K. Export Control Organization (“ECO”) which had rejected a request by Bloomberg to release information on licenses the ECO had granted to permit U.K. companies to export dual-use materials to Iran. The United Kingdom complies with U.N. sanctions and does not allow export of arms and materiel to Iran but does allow licensed export of dual-use goods listed on the Wassenaar list to Iran.

The ECO argued that disclosure of these names could cause these companies to lose their ability to use U.S. commercial banking facilities, and the Tribunal, saying the the possibility of U.S. meddling was “disturbing,” agreed:

There is a significant public interest in protecting large and small firms, which trade lawfully and legitimately, from economic harm from a form of embargo imposed by banks, competitors, suppliers, clients and possibly foreign governments. … The tribunal felt some concern at the prospect of a U.K. company, trading quite lawfully in terms of U.K., EU and international law, suffering possibly fatal commercial damage through the extraterritorial intervention of our closest ally.

Bloomberg‘s editor Matthew Winkler objected to the tribunal’s ruling, noting that the tribunal relied on “secret evidence” asserting that “banks will withdraw funding for companies if the public knew who is doing business with whom.”

Permalink Comments (2)

Bookmark and Share



OFAC Is Seeking Solution To Permit US Oil Companies in South Sudan

Posted by at 5:40 pm on September 21, 2011
Category: OFACSudan

South Sudan CurrencyEven though the U.S. has lifted its Sudan sanctions with respect to the newly-minted state of South Sudan, that has not resolved the conundrum of U.S. oil investment and activity in South Sudan. South Sudan is land-locked, and all oil from South Sudan can be commercialized only by using a pipeline that runs through Sudan on its way to Port Sudan on the Red Sea.

In a guidance on the Sudan sanctions released back in April, the Office of Foreign Assets Control (“OFAC”) noted that the continuing sanctions on Sudan would prohibit U.S. oil companies

from providing services to the petroleum industry in the new state if those services would benefit the Government of Sudan or relate to the petroleum industry in Sudan, or from transporting exports of petroleum or petrochemical products through Sudan.

Revenue-sharing arrangements between Sudan and South Sudan arising from South Sudan’s use of Sudan’s pipeline would further complicate matters. Because of the inevitability of oil transport through Sudan and revenue-sharing arrangements between the two countries, this has been seen as, for all intents and purposes, a complete bar to U.S. oil companies doing business in South Sudan.

Apparently OFAC is now trying to find a way to work around that. Needless to say, because the sanctions on Sudan were imposed by Congressional legislation, OFAC doesn’t have a completely free hand here without enabling legislation from Congress. Still, OFAC is trying to determine what can be done in the absence of such legislation.

Princeton Lyman, the U.S. special representative to South Sudan, told a trade briefing in Washington, according to this item in Petroleum Economist, that a task force at OFAC was working on options to permit U.S. oil activity in South Sudan.

[Lyman] said the Treasury Department would define new criteria for licensing oil deals that would provide only incidental benefits to Sudan, making some deals with South Sudan possible. “The rules of the game are still being worked out and that is very frustrating to [South Sudan] because it wants US oil companies there,” he said. “There is a task force working on it and they will have something soon.”

I have to say I’m at a loss to see how anything could be structured that only provides “incidental” benefits to Sudan short of bypassing the Sudanese pipeline and any revenue sharing arrangement, both of which appear to be impossible, at least in the near term. But there is huge pressure on OFAC to structure something because the Chinese, which are major players in the oil industry in Sudan and South Sudan, are the only ones who will conceivably benefit if OFAC does not find a solution.

Permalink Comments Off on OFAC Is Seeking Solution To Permit US Oil Companies in South Sudan

Bookmark and Share



BIS Dings Freight Forwarder for Failing to Check Entity List

Posted by at 6:56 pm on September 20, 2011
Category: BIS

Tin ScrapLast week the Bureau of Industry and Security (“BIS”) issued a press release, announcing a $40,000 fine that Ram International, a St.-Louis-based freight forwarder, had agreed to pay in connection with two exports of tin scrap to Allied Trading Company in Karachi, Pakistan. Allied is on BIS’s entity list, and a license is required for all exports of items to Allied from the United States. There is, however, a presumption of approval for licenses for EAR99 items such as the tin scrap involved in this case. Neither he press release nor the charging documents disclose the value of the tin scrap that Ram exported.

Not all BIS export settlements have the honor of agency press releases announcing the settlements. It’s not clear why this relatively small settlement was made the subject of a press release other than, perhaps, to send a signal to freight forwarders the BIS is actively pursuing cases not only against the exporting companies but also against their freight forwarders, particularly where the freight forwarder hasn’t bothered to consult the BIS entity list prior to exporting. This should encourage freight forwarders to spend the, oh, five seconds or so it takes to fire up the Internet and to check that list. I’d imagine that there is software that could do that in even less time.

Permalink Comments Off on BIS Dings Freight Forwarder for Failing to Check Entity List

Bookmark and Share