Why Is Foreign Policy Still on the Internet?

Posted by at 4:47 pm on February 6, 2018
Category: General

Ramzan Kadyrov and Cat via his Instagram account [Fair Use]
ABOVE: Ramzan Kadyrov 

In an article in Foreign Policy titled “Why Is This Man Still on Twitter?” Emily Tamkin and Elias Groll get all confused about sanctions. And they are aided and abetted in this confusion by Peter Harrell from the Center for New American Security (whatever that is). The resulting mess is why I wonder, at least partly in jest, why Foreign Policy is still on the Internet.

The article attempts to answer the question I posed in this post in early January: why is Putin crony and Chechin strongman Ramzan Kadyrov blocked by some social media sites while Bashar Al-Assad and Nicolás Maduro, both of whom are also SDNs, are not? Tamkin and Groll quote Harrell’s supposed answer to this question:

Peter Harrell … explains that the difference might come down to something called the Berman Amendment.

The Berman Amendment, Harrell says, is an amendment to the International Emergency Economic Powers Act, or IEEPA, that states nothing in that law can be used to constrain publication.

“If you have a sanctions designation based on IEEPA, it’s very clear that that cannot be used to prohibit publication activities,” Harrell says.

The Berman Amendment applies only to IEEPA sanctions and not other sanctions programs, such as the separate legal provisions outlining the Global Magnitsky Act. “There is a legal argument that because Kadyrov was sanctioned under Magnitsky, rather than under IEEPA sanctions, the Berman Amendment does not apply,” Harrell says, meaning the U.S. government could conceivably sue Facebook to force Kadyrov’s removal, a risk the company may have not wanted to take.

Let’s leave aside for the moment Heller’s bizarre summary of the Berman Amendment, which deals with import and export of informational materials rather than “publication activities.” Instead, I have to point out, as I did in my earlier post, that Section 584.206(b) of the Magnitsky Sanctions Regulations clearly states:

The prohibitions contained in this part do not apply to the importation from any country and the exportation to any country of any information or informational materials, as defined in §584.304, whether commercial or otherwise, regardless of format or medium of transmission

So, okay, I guess Heller, Tamkin and Groll couldn’t be bothered to actually read the regulations that they were trying to rely on.  Reading regulations, after all, is hard.

But let’s also look at Heller’s inaccurate statement that the Berman Amendment would not apply to sanctions adopted under the Magnitsky Act rather than IEEPA. Once again, Heller, Tamkin and Groll could not be bothered to read the Magnitsky Act, which, if they had, would have revealed the bankruptcy of their argument. Section 406(a)(1) of the Act provides the authority under which the President may block and add to the SDN list human rights violators in Russia:

The President shall exercise all powers granted by the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) … to the extent necessary to freeze and prohibit all transactions in all property and interests in property of a person who is on the list required by section 404(a) of this Act if such property and interests in property are in the United States, come within the United States, or are or come within the possession or control of a United States person.

By explicitly linking Magnitsky Act sanctions to those “powers granted by” IEEPA, it certainly means that the limitations on those powers, like the Berman Amendment, would apply to Magnitsky Act sanctions. That, of course, is why OFAC adopted the section of the Magnitsky Sanctions Regulations cited above that carves out the import and export of informational materials.

So both questions remain unanswered.

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Leaving on a Jet Plane (for Masikryong)

Posted by at 9:32 am on February 1, 2018
Category: BISNorth Korea SanctionsOFAC

Joint Press Corps vihttp://koreajoongangdaily.joins.com/news/article/article.aspx?aid=3044038&cloc=joongangdaily%7Chome%7Ctop [Fair Use]The Olympics are, in theory, a time when foreign policy should be put aside and world athletes simply compete in the probably vain hope that peaceful athletic games might have a spill-over effect into the stormier regions of international relations.   That being said, UN and US sanctions have gotten tangled up in the upcoming Winter Games in South Korea.

First, the International Olympic Committee, following its checkered past, ignored UN sanctions by shipping recreational sports equipment to the Nork athletes for training.   If any of that equipment was U.S. origin, the IOC would have violated U.S. sanctions all well.  Both prohibit the export of “recreational sports equipment” to North Korea.

Recently, an obscure provision in Executive Order 13810 reared its ugly head. Section 2(a) prohibits foreign aircraft that have landed in North Korea from visiting the United States for 180 days after the aircraft has departed North Korea. When the Executive Order came out, it was hard to imagine that this would ever apply to anything.  Who flies into Nork airports that would want to later fly those planes to the United States?  But now, it turns out, the South Korean ski team had chartered an Asiana aircraft to fly to North Korea’s Masikryong Ski Resort for training with the North Korean team.  The plane would then to return to South Korea on the following day with the North Korean skiers who would remain in South Korea to participate in the Winter Games. Oops.

Apparently, according to this source, OFAC was initially reluctant to waive section 2(a) for the chartered Asiana flight, which would have pretty much put the kibosh on the flight to the joint training session. But minutes before the flight was to take off on 10:40 a.m. Wednesday time, Korea time, OFAC had a change of heart and the airplane left for North Korea.

The Bureau of Industry and Security (“BIS”) was not involved, even though BIS has said that the Airbus 321 is subject to the EAR as a result of havingU.S. origin engines which constitute more than 10 percent of the value of the aircraft. Presumably everyone felt that License Exception AVS would cover the temporary sojourn of the A321 in North Korea, even though the regulations are poorly written in this regard and do not clearly cover foreign manufactured aircraft subject to the EAR flying from a foreign country to North Korea.

License Exception AVS covers (1) foreign registered aircraft on temporary sojourn in the United States departing for foreign destinations, (2) U.S. registered aircraft departing for a temporary sojourn in a foreign destination, and (3) “[c]ivil aircraft legally exported from the United States.” Section 764.4(c)(6) says that AVS may be used for North Korea to the extent that it involves civil aircraft legally exported from the United States. Asiana’s A321 was not itself exported from the United States, although the U.S. origin engines that make the aircraft subject to the EAR were. To reach the result that AVS applies here, you have to interpret “civil aircraft legally exported from the United States” to cover aircraft where U.S. origin parts which make the aircraft subject to the EAR were legally exported, a plausible (if not certain) reading, I suppose, of that language.

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Another Reason not to Hire the Russian Mob

Posted by at 11:09 pm on January 29, 2018
Category: OFACSanctionsSDN List

Hotel Vesna via https://images.trvl-media.com/hotels/5000000/4730000/4724200/4724109/4724109_48_d.jpg [Fair Use]This story is on some month-old news that I missed at the time of the announcement. But without much else going on right now, I thought it worthy of a belated mention. Back in December, OFAC designated Thieves in Law («Вор в закoне»), a Russian organized crime group, under the agency’s Transnational Criminal Organization Sanctions Regulations (“TCO Sanctions”). The Thieves in Law apparently originated in the Russian gulags after the Russian Revolution. Unlike the Mafia, you could not belong to the group unless you had already been in jail. And like the Boy Scouts, they have their own code of conduct which, unlike the Boy Scout Code, forbids marriage and work. They sound like The Lost Boys in Peter Pan, except with tattoos and machine guns.

On one level, it seems somewhat odd to designate an organized crime organization since it is more a concept than a legal entity. It is not like the Thieves in Law own property, want to open a checking account for the group, or want to enter into legal contracts (as opposed to, say, the hit “contracts” often entered into by criminal gangs). Designating an unorganized group is rather like designating, say, the Beliebers, although on further reflection I might actually be completely in favor of blocking the Beliebers.

Of course, at the same time that OFAC designated Thieves in Law, it also designated some of the groups more visible adherents and supporter, which seems more logical since they will own property that can be blocked and may seek to do business with others. As a result, the Vesna Hotel and Spa, which is in Sochi and which is owned by Ruben Tatulian, was also blocked and added to the SDN List. Tatulian was designated for allegedly providing material support to Thieves in Law.

Although I doubt many Americans are traveling to Sochi these days, this designation might create a trap for unwary travelers. Executive Order 13581, which serves as the basis for the TCO Sanctions, was promulgated under the International Emergency Economic Powers Act, meaning that the travel exemption in section 1702(b)(4) of that Act would apply.  The travel exemption permits “any transactions ordinarily incident to travel to or from any country.” It seems to me that, even though the exemption would on its face cover travel by U.S. persons which involved staying in that hotel, it could also be argued that staying at that hotel is not ordinarily incident to travel to Russia.  This would be because there are plenty of other places to stay in Sochi not to mention within Russia. Moreover, a broad reading of the travel exemption would completely negate the designation of the hotel, so there is a good chance that OFAC would take the position that the exemption would not apply.

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OFAC Doesn’t Understand How Money Works

Posted by at 1:13 pm on January 23, 2018
Category: OFACVenezuela

Nicolas Maduro via https://commons.wikimedia.org/wiki/File:Nicolas_Maduro_February_2017.png [Fair Use]
ABOVE: Nicolas Maduro

Venezuelan President Nicolas Maduro in December announced his plans to have Venezuela issue a commodity-backed cryptocurrency.  Although cryptocurrencies typically have no backing, there is no reason that they could not.  In such a situation, the blockchain would take over the validation function normally performed by a central bank.  Maduro’s cryptocurrency would, he says, be backed by oil, gas, diamond and gold reserves.  The opposition dismissed Maduro’s plan and called him a “clown” for even suggesting the new currency.

Not to be out-clowned, the Office of Foreign Assets Control last week issued its own FAQ on Maduro’s vague and unimplemented plan:

551. In December 2017, Venezuelan President Nicolas Maduro announced plans for the Government of Venezuela to launch a digital currency. According to public reporting, Maduro indicated that the digital currency would carry rights to receive commodities in specified quantities at a later date. Were the Venezuelan government to issue a digital currency with these characteristics, would U.S. persons be prohibited from purchasing or otherwise dealing in it under E.O. 13808?

A currency with these characteristics would appear to be an extension of credit to the Venezuelan government. Executive Order 13808 prohibits U.S. persons from extending or otherwise dealing in new debt with a maturity of greater than 30 days of the Government of Venezuela. U.S. persons that deal in the prospective Venezuelan digital currency may be exposed to U.S. sanctions risk. [1/19/2018]

Oh dear. They really said that? Seriously??

For starters, let’s address the notion that using currency issued by a government is an extension of credit to the government. Credit is extended to a government when goods or services are supplied to that government without a requirement for immediate payment. By that common and uncontroversial definition, accepting fiat money or representative money in exchange for goods and services from a private individual is not an extension of credit by the purchaser to the government that issued the currency because no goods or services were supplied by the purchaser to the government. This is even the case even if goods and services are provided to the government because the currency obtained can be immediately used for other transactions and there is no delayed payment. If the government paid with a debt instrument, such as a bond with a future maturity, then that would be an extension of credit to the government.

It appears that the genesis of OFAC’s misconception here is that the currency can be exchanged later with the government for the underlying commodity. Even were that an extension of credit to the government, OFAC’s rules would only be implicated if that exchange was delayed for more than 30 days. But, of course, the point of commodity backed currency is that it is immediately convertible. One could take the new Venezuelan currency and immediately demand to exchange it for oil, gas, gold or diamonds, so it does not have a “maturity of greater than 30 days.”

You know, you would think that the people at the Treasury, of all places, would understand how money works.

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BIS Website Rolls Out Exciting New Feature

Posted by at 11:22 pm on January 11, 2018
Category: BIS

Richard Luthmann via https://twitter.com/LuthmannFirm/status/685863407157952512 [Fair Use]The Bureau of Industry and Security (“BIS”), apparently concerned that its website is not quite entertaining enough, has rolled out a new feature, which we can call “When Lawyers Go Bad.” The purpose of this new feature is, apparently, to highlight criminal activity by lawyers even if that criminal activity is wholly unrelated to export violations of any kind and wholly outside of BIS’s jurisdiction.

To roll out this new feature, BIS brings us, from the front page banner of its site, the case of Staten Island lawyer Richard Luthmann.   Mr. Luthmann is pictured at left with a sword and a shield,  He used this relatively bizarre image to illustrate a Tweet where he exhorts potential clients: “Don’t be a #WIMP! Hire a #LawWarrior that will #Vanquish your legal woes.” Sadly, Mr. Luthmann has had to hire his own “LawWarrior” to vanquish his own legal woes as he was indicted in December for, among other things, wire fraud, kidnapping, identity theft, access device fraud, and money laundering (but not, oddly, export violations).

The indictment alleges that Luthmann and a client cooked up a scheme where they would sell scrap metal to various customers but pack the shipments with a little bit of scrap metal and a bunch of worthless filler. If customers complained, they would say the shipment was full of scrap metal when it left the warehouse and that some nefarious type had obviously tampered with the shipment. If that didn’t work, they planned on using the supposed organized crime connections of another one of the co-conspirators to intimidate the disgruntled customers to shut up. (You know, with horse heads in beds, threats of sleeping with the fishes and all that).

The company engaged in this sales was set up by Luthmann. He then installed another client of his, who was blind and on disability, as the alleged president of the company. When the blind guy worried he’d get in trouble, Luthmann, according to the indictment, assured him that the government would never find out. Famous last words.

Oh, and there’s more. Luthmann allegedly demanded legal fees from one of his co-conspirators in the short-fill scheme in connection with un-invoiced legal services he was allegedly providing the client. The “client” borrowed the sums to pay these fees from another of the co-conspirators who later kidnapped the “client” and threatened him with a weapon to have the loan repaid. Fun times.

As I explained above, I can’t for the life of me see what this case, however entertaining, has to do with anything within the jurisdiction of BIS. The word “export” does not appear even once in the indictment. But, as this blog has a number of readers who are much smarter than I am, I propose a contest. I will award a prize of my choosing, worth at least $2.99, to the first person who can offer a credible explanation of why BIS has enough interest in this case to feature it on its website. This offer is void in any states where it might be illegal and in any states, including Alabama and Utah, where fun is prohibited.

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