Apr

5

Slow Boat From Batam


Posted by at 11:17 pm on April 5, 2016
Category: BISCriminal PenaltiesExtraditionIran Sanctions

  1. User:Abelard Fuah, via Wikimedia https://en.wikipedia.org/wiki/File:Batam_City_Mix.jpg#/media/File:Batam_City_Mix.jpg licensed under CC BY-SA-3.0 [http://creativecommons.org/licenses/by-sa/3.0/][cropped]On Monday, according to a DOJ press release published on the Bureau of Industry and Security website, the United States finally extradited Steve Lim, a Singaporean national who had been languishing in a jail in Batam, Indonesia. As we reported here and as noted in the DOJ press release, Lim was under indictment in the United States for shipping radio modules from the United States to Iran. In October 2014, Lim had hopped a ferry from Singapore to Batam to attend a trade show and was nabbed at the ferry terminal. An Indonesian judge ultimately permitted, in July 2015, Lim’s extradition notwithstanding the absence of an extradition treaty between Indonesia and the United States

What the DOJ press release fails to mention is that a court in Singapore had refused to extradite Lim in 2011. Singapore, which does have an extradition treaty with the United States, has a dual criminality requirement for extradition. Because the export of the radio modules from Singapore to Iran was not illegal under the law of Singapore, the request by the U.S. for extradition was refused. Lim would still be in Singapore had he not made that trip to Indonesia. What this illustrates is that although U.S. law enforcement authorities claim jurisdiction over foreign nationals who, without ever setting foot in the United States, export items from the U.S., the assertion of this jurisdiction is not without international controversy.

Photo Credit:User:Abelard Fuah, via Wikimedia http://bit.ly/23fG242 licensed under CC BY-SA-3.0 [http://creativecommons.org/licenses/by-sa/3.0/][cropped]

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



Mar

31

OFAC May Make a U-Turn on Its U-Turn Ban


Posted by at 10:39 am on March 31, 2016
Category: Iran SanctionsOFAC

Freedom Triumphant by takomabibelot [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/4Au9Zg [cropped and processed]An AP story today suggests that the White House may be considering the return of “U-turn” transactions for permitted sales to Iran. Those transactions, which were eliminated in 2008, allowed, under former section 560.516(a)(1), transactions with Iran to be cleared in U.S. Dollars by permitting non-U.S. banks to use their correspondent banks in the United States. In order to qualify for the exception, both the originating and beneficiary banks had to be non-Iranian foreign banks. In addition, no Iranian banks on the SDN List could be involved and, of course, the underlying transaction could not be one prohibited under U.S. law. So, if an Iranian customer wanted to buy goods from France and pay dollars, the Iranian customer would direct its bank in London to use its correspondent account in a New York bank to send the purchase price in U.S. dollars to the seller’s bank in France.

Of course, even if U-turn transactions are permitted once again by OFAC, there is no guarantee that banks will be willing to process them.   After all, no one has forgotten that the New York Department of Financial Services, believing the it understood OFAC regulations better than OFAC, went after Standard Chartered bank for legal U-turn transactions involving Iran.

Photo Credit: Freedom Triumphant by takomabibelot [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/4Au9Zg [cropped and processed]

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



Mar

29

There’s Nork Gold in Them Thar Gadgets!


Posted by at 11:01 pm on March 29, 2016
Category: North Korea SanctionsOFAC

North Korean Commemorative Coin via KCNA at https://flic.kr/p/e8xtQk [Fair Use]

A Reuters story is hyperventilating over the new sanctions on North Korea and their impact on the discovery in 2014 reported by the Wall Street Journal that there might be North Korean gold in the U.S. supply chain. In reviewing conflict minerals issues, some companies discovered that electronic components purchased by them might have contained gold refined by the Central Bank of the Democratic People’s Republic of Korea. So do the new sanctions make this problem worse?

To begin with, imports from North Korea have required licenses since Executive Order 13570 in 2011 and are not affected or changed by the new sanctions. But if I purchase an electronic component from China that uses North Korean gold, have I imported that North Korean gold into the United States when I import the electronic component? The WSJ article linked above quotes an “attorney at Nixon Peabody LLP, who specializes in sanctions,” as saying this: “It’s a problem, even if the raw materials are coming very indirectly through suppliers.”

This is far from clear. Neither the Executive Order nor the implementing North Korea Sanctions Regulations define what constitutes an import from North Korea. There is no reverse de minimis rule that covers imports of items with any particular level of North Korean content, say, one atom, one molecule, 10 percent or 25 percent. In the absence of any specific rule, it seems reasonable that if the North Korean gold has been substantially transformed into another product outside the United States, import of the transformed item is not the import of any good from North Korea within the meaning of E.O. 13570.

Perhaps the most relevant provision in the new sanctions imposed by Executive Order 13722 is section 2(a)(i) which permits OFAC to block any person that OFAC determines

to have sold, supplied, transferred, or purchased, directly or indirectly, to or from North Korea or any person acting for or on behalf of the Government of North Korea or the Workers’ Party of Korea, metal, graphite, coal, or software, where any revenue or goods received may benefit the Government of North Korea or the Workers’ Party of Korea, including North Korea’s nuclear or ballistic missile programs.

Although that seems to pose some peril, in my example, for the Chinese company buying Nork gold for its electronic components, it is far from clear that it covers, or would be used to block, a U.S. company that buys the electronic component incorporating the Nork gold. This seems even clearer given that section 1702(a)(1)(B) of the International Emergency Economic Powers Act, under which Executive Order 13722, only provides blocking authority for “property in which any foreign country or a national thereof has any interest” and would not permit the blocking of U.S. company (and all its property) simply because it imported some items incorporating some North Korean content.

Of course, given that the foreign manufacturer using North Korean gold risks blocking, U.S. importers would be well advised to remove Nork gold from their supply chain, both because of the risk to their supply chain and the commercial optics of dealing with a foreign manufacturer that winds up being blocked under the new sanctions.

Photo Credit: KCNA

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Mar

25

OFAC Issues New General License for Some Aircraft Negotiations with Iran


Posted by at 10:58 am on March 25, 2016
Category: Iran SanctionsOFAC

Iran Air Boeing 747SP-86 by Aero Icarus [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/91vXkv [cropped and processed]Yesterday, the Office of Foreign Assets Control (“OFAC”) published Iran General License I which is designed to permit U.S. persons seeking to sell civil passenger aircraft and parts to Iran to negotiate executory contracts to make such sales provided that all such contracts are expressly contingent upon OFAC approval. Four new FAQs, labelled J.9 through through J.12, were added to explain the general license.

Specifically, the license permits “all transactions ordinarily incident to negotiation of and entry into” contracts for activities eligible for authorization under OFAC’s policy permitting the sale of passenger aircraft and parts to Iran. The general license is needed because the new policy required a license for the sales of those aircraft and parts and, by extension, would require licenses for the negotiations leading to such sales. At least one company had requested and received such licenses, leading OFAC to decide to issue a general license to eliminate the burden of processing such applications.

Not surprisingly, the license excludes any negotiations with “any person whose property and interests in property are blocked pursuant to any part of 31 C.F.R. chapter V other than part 560.” The key language here is “other than part 560.” Some Iranian airlines, and theoretical purchasers of passenger aircraft and parts, are designated under OFAC regulations other than the Iran Transactions and Sanctions Regulations found in part 560. For example, Mahan Air, the éminence noire of Iranian airlines, is sanctioned under part 561 (Iran Financial Sanctions Regulations) and part 594 (Global Terrorism Sanctions Regulations). Iran Air, the great white whale of Iranian airlines, on the other hand, is sanctioned only under part 560 as an entity controlled by the Government of Iran, meaning that negotiations with Iran Air under General License I would be permitted.

The most significant take-away from General License I is less what it specifically permits than what it implies is not permitted.  Many U.S. companies outside the aircraft sector, hoping against hope that all U.S. sanctions against Iran may soon be lifted, are wondering if they can negotiate with potential Iranian customers “just in case” provided any resulting agreement is contingent upon OFAC approval.  The answer now is quite clearly no unless a specific license to do so is obtained from OFAC.

Photo Credit: Iran Air Boeing 747SP-86 by Aero Icarus [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/91vXkv [cropped and processed]]

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Mar

24

Question of the Day


Posted by at 11:24 pm on March 24, 2016
Category: Iran SanctionsOFAC

Cyan Headquarters via Google Maps [Fair Use]
ABOVE: Cyan Headquarters


Today’s question is this: say you are a UK-based company that manufactures a product with U.S.-origin content which you want to sell to Iran? How do you do it?

According to this article, you sell the stuff to Iran through your subsidiary in India. Yes, seriously, that’s the answer that was given:

Cyan was also required to check if an export license would be required to export its products from both the UK and the US, since there is an element of its product that originates in the US. “UKTI (UK Trade & Investment) was very helpful in assisting us and confirming that no license would be required if we ship our products from our subsidiary in India …,” explains John [Cronin, Chairman of Cyan].

Oh dear. Let’s hope that’s a misquote or a misunderstanding. If you are a foreign person with a product with U.S. origin content, section 560.205 of the Iran Transactions and Sanctions Regulations quite clearly state the circumstances in which that product can be sold to Iran. That export is permissible only if the U.S. content has been “substantially transformed” into a new product or if all such content which would require a license from the United States constitutes less than 10 percent of the total value of the foreign product.

It does not say that the foreign person can, as the article suggests the Cyan chairman says, sell the product with U.S. content to Iran if you simply try to sell it through another non-U.S. subsidiary in India or elsewhere. I suspect that, as European companies rush to exploit the Iran market after Implementation Day, this will not be the first possible misunderstanding of the scope of the remaining U.S. rules and when they apply. (I am, of course, assuming that Cyan, in fact, determined the exceptions in section 560.205 applied and that Cronin was either misquoted or misunderstood the actual reason his exports to Iran passed the test.)

Photo Credit:Cyan Headquarters via Google Maps [Fair Use]

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


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