Unintended Consequences of Sanctions Intensify Syrian Refugee Crisis

Posted by at 8:25 am on May 17, 2016
Category: OFACSyria

Syrian Refugees by Oğuzhan Ali [CC-BY-SA-2.0 (], via Flickr [color processed]

Last week I wrote about one of the unintended consequences of OFAC’s “scorched earth” enforcement policy against banks and payment processors, namely, the blocking of funds transfers where the memo or the transferee name contains a naughty word like “Cuba” or “Isis” (you know, the name of Count Grantham’s dog on Dontown Abbey). But this excellent article published by Bloomberg News suggests that there are more serious unintended consequences, namely, the potential exacerbation of the Syrian refugee crisis.

According to the article, banks are refusing to permit transfers of funds for humanitarian relief to Syria even where such transfers may be completely legal. The article cites an effort by Christian Aid, a UK charity, to transfer funds to Syria to feed people displaced by the continuing fighting. Its bank declined to transfer the funds. Such refusals, according to sources cited by the article, are a result of banks making a “rational decision” to avoid any risk of penalties, particularly where the profits to be made from a particular funds transfer might be negligible.

“The unintended consequence here is that aid is being denied to people in desperate need of assistance,” said Guy [head of Christian Aid and] a former U.K. ambassador to Yemen and Lebanon. “If this continues, it is possible to see a situation where those people who are often in most need of humanitarian aid are least able to access it.” … But such de-risking threatens to undermine the West’s push to stem the flow of migrants heading toward Europe from the embattled Middle East, according to Christian Aid’s Guy

Of course, this situation is further complicated by OFAC’s refusal to permit humanitarian funds transfers to Syria except those made, pursuant to section 542.513, by United Nations organizations or its contractors, unlike say the broader provisions relating to humanitarian activities in Sudan. Even then, the general license prohibits any blocked entity from touching the funds, setting up the compliance nightmare for the banks involved and their understandable refusal to risk yet another mega-fine from OFAC.

Photo Credit: Syrian Refugees by Oğuzhan Ali [CC-BY-SA-2.0 (], via Flickr [color processed]

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Rumors of Musa Abu Dawud’s Death Are Greatly Exaggerated

Posted by at 9:50 pm on May 11, 2016
Category: General

AQIM Touareg Brigade By Magharebia [CC BY 2.0 (], via Wikimedia Commons [cropped and processed]

Last week the State Department and the Office of Foreign Assets Control (“OFAC”) designated under Executive Order 13224, Musa Abu Dawud, one of the leaders of Al-Qaeda in the Islamic Maghreb, as a Specially Designated Global Terrorist. E.O. 13224 requires actions by both State and OFAC for such a designation.

This designation led to a story by the American Media Institute headlined “Dead terrorist listed as active threat.” Talk about click bait! Indeed, upon reading the headline, the entire editorial staff of Buzz Feed resigned knowing that they could never equal, much less surpass, such a glorious example of click bait, not even today’s soon-to-be-legendary click bait listicle “22 Cartoon Guys Who Sexually Awakened You.”

Problem is, notwithstanding whether the story on cartoon guys has a kernel of truth, the accuracy of “Dead terrorist listed as active threat” was even more dubious. So the AMI story silently disappeared. (The link to the story in the previous paragraph comes from the Google cache, illustrating that old web posts don’t even die or fade away but live forever, rather like, it would seem, Musa Abu Dawud.)

There was a tweet (of all things!) from that Musa Abu Dawud was killed in an Algerian military operation in March that AMI apparently used as a source, but I could not find any other corroboration of Musa Abu Dawud’s alleged death. Apparently, neither could the grown-ups at AMI who finally pulled the story. I tend to think that if both State and OFAC think this guy is alive that he probably is.

Photo Credit: AQIM Touareg Brigade By Magharebia [CC BY 2.0 (], via Wikimedia Commons [cropped and processed]

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OFAC in Wonderland

Posted by at 10:04 am on May 10, 2016
Category: Narcotics SanctionsOFAC

Soho Mall, Panama via Soho Facebook Page [Fair Use]

Late last week, the Office of Foreign Assets Control (“OFAC”) designated the Soho Mall in Panama City, Panama, as a Specially Designated Narcotics Trafficker under the Foreign Narcotics Kingpin Sanctions Regulations. The action was taken based on OFAC allegations that the Mall was engaged in money laundering on behalf of Waked Hatum whom OFAC also designated based on its belief that he and his organization were engaged in drug trafficking and money laundering.

The effect of that designation is set forth in section 598.202 of the Foreign Narcotics Kingpin Sanctions Regulations, which we cite in full because of its curiously fractured English (apparently translated from Middle English into Sanskrit before being rendered into a Modern English of sorts):

Except to the extent provided in regulations, orders, instructions, licenses, or directives issued pursuant to this part, and notwithstanding any contract entered into or any license or permit granted prior to the effective date, there are blocked as of the effective date, and any date thereafter, all such property and interests in property within the United States, or within the possession or control of any United States person, which are owned or controlled by a specially designated narcotics trafficker.

“There are blocked”? Seriously?? Section 598.203 contains the normal provision prohibiting “any transaction or dealing” by a U.S. party in any “property or interest in property” of any specially designated narcotics trafficker.

With that background, General License No. 4, which permits certain transactions pertaining to the Soho Mall, comes as something of a surprise. The General License permits shipments of goods by U.S. persons to “non-designated” stores and other tenants in the mall provided the goods were ordered before May 5 and the delivery is completed prior to July 6. Yes, you read that right. The general license does relate to “non-designated” stores in the mall.

While it’s easy to understand the need for some license to wind-down operations by U.S. persons with the designated mall (a license, by the way, that was not issued), it is hard to understand the need for such a license for the non-designated stores in the mall itself. This license would only be necessary if OFAC thinks that somehow the designated mall has an “interest in” the inventory of the non-designated stores in the mall, a rather surprising idea at best. I can’t imagine what kind of interest this is other than perhaps the mall’s interest that the stores will sell their inventory so that they can pay their rent. By that logic, the mall also has an interest in all the inventory that the stores may have at other locations. So, if there is a MacDonald’s in the food court, no U.S. person can make any deliveries to any other MacDonald’s owned by the same franchisee anywhere else in the world.

It is difficult at this point to see what meaning, if any, is left for the phrase “interest in property.” Of course, OFAC, like Humpty-Dumpty in Alice in Wonderland, has little concerns for the niceties of logic and meaning

When I use a word,” Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean — neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”

Apparently OFAC thinks that it can.

Photo Credit: Soho Mall, Panama via Soho Facebook Page [Fair Use]

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Banks Caught Between Scylla (OFAC) and Charybdis (Customer Wrath)

Posted by at 2:38 am on May 4, 2016
Category: Cuba SanctionsOFAC

Industrial Bank Clock by Clif Burns via Flickr [All Rights Reserved]

By now, we’ve all seen these stories. A slightly dimwitted, possibly drunk, prankster writes “I ❤ ISIS” in the memo line of a check or in the description field of an online payment service and then is shocked, shocked to learn his check or payment has not been processed. The prankster immediately takes to Twitter, swears on a stack of Marvel comic books that he’s not a terrorist, laments the utter stupidity of his bank or payment provider and then waits for a horde or reporters to gather on his steps. Within hours, reporters, bloggers and TV news crews have breathlessly reported the injustice of it all, with almost all of them saying (erroneously) that OFAC (rather than the bank) had seized the funds and with the prankster now lamenting that, as a result of this seizure, his third cousin in Venezuela will not be able to pay for the drug she needed to cure a rare river parasite infestation and would likely die in a matter of days, if not hours. Reddit then stirs up its gang of Internet trolls who vow revenge the minute they can take a break from playing Halo LVII.

It’s about time to step back from this wave of mass hysteria and take stock of what is going on here and how we got where we are. This excellent article in the Tampa Bay Tribune, besides quoting my friend Peter Quinter, sheds some light on what is going on. It starts with the story of a merchant who sells fedoras, guayaberas and other Cuban-style articles made wholly outside Cuba but sold through a site called Even though none of the merchandise sold is Cuban, customer payments, the merchant claims, are regularly seized or held up. The article notes that once OFAC whomped one payment service with a massive fine, the payment services and banks did what any sane business would do: they started erring on the other side, holding up, questioning or blocking anything vaguely suspicious.

Frankly, if you were in the bank or payment provider’s shoes, with OFAC standing behind you wielding an enormous hatchet and threatening mayhem if you clear as much as a nickel in error, wouldn’t you do the same thing? You want to call your store Havana Hats or Tehran Trinkets, then get used to some cash flow issues or pick another name. No one is going to risk a massive fine to clear a 50 cent fee on a $10 order from one of your customers. The answer here is not to shame the banks and the payment providers. Rather it is to insist that OFAC settle down and take a more measured approach to this issue, perhaps even issue some reassuring guidance assuring banks and others involved in clearing payments. Even that might not settle down a shell-shocked industry.

In the meantime, people, please find some other way to amuse yourselves besides seeing whether you can slip references to hardened terrorists past your local bank. Take a walk, read a poem, tutor a school kid, learn to speak Chinese, or listen to all the Shostakovich symphonies in order. If you want to play a prank, call up CVS and ask them if they have Prince Albert in a can.

Photo Credit: Copyright Clif Burns 2013 (

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Two Heads Are Not Always Better Than One

Posted by at 9:22 am on April 28, 2016
Category: BISCuba SanctionsOFAC

Havana by Bryan Ledgard [CC-BY-SA-2.0 (], via Flickr [cropped and processed]

The Office of Foreign Assets Control (“OFAC”) last week updated its Cuba FAQs with this perplexing little blurb that can only charitably actually be called an “answer” or the “A” in FAQ.

68. May a person subject to U.S. jurisdiction export or reexport to Cuba items that include U.S.-origin content, but are not 100 percent U.S.-origin?

Persons subject to U.S. jurisdiction may engage in all transactions ordinarily incident to the exportation or reexportation of 100 percent U.S.-origin items from a third country to Cuba, consistent with the export licensing policy of the Department of Commerce. Items that are not 100 percent U.S.-origin would require OFAC authorization, which would be subject to certain statutory restrictions.

This is nothing more than a paraphrase of section 515.533(a)(1) of the Cuban Assets Control Regulations. In fact, the FAQ might have been more clearly stated and just as useful if it was written this way:

68. Do you really mean what you say in section 515.533(a)(1)?


Of course, the FAQ neatly dodges the ugly truth that if the item is 99 percent U.S.-content, then you will need a license from both BIS and OFAC to reexport that item from a foreign country to Cuba. You want real export reform? Here’s where you start. There is no need in this instance, or ever in any other instance, for two federal agencies to decide whether something can be exported. Of course, you could avoid the double license requirement by shipping the item from the third country to the U.S. before exporting it to Cuba in which case you will only need the BIS license. This workaround further illustrates how absurd the double licensing requirement is here.

There is a second ugly truth that the FAQ dodges. Both the FAQ and section 515.533(a)(1) imagine that the phrase “100 percent U.S.-origin items” actually means something and can be determined to be true or false with respect to any given product. Nowhere in OFAC’s rules, or FAQs, or website, or presumably even on scraps of paper on the floor of OFAC’s basement is there any guidance as to how to determine U.S. content. Anyone who has ever struggled with this issue in its many contexts (including customs country of origin rules) will realize that there are a number of ways to analyze such a question, based on tariff shift rules, substantial transformation rules or the FTC’s “substantially produced in” rule. And often, if not almost always, each of these rules will result in a different country of origin for a product.

Take this example: apples grown and packaged in the United States are packaged in boxes made in the United States with cardboard imported from Canada. A substantial transformation rule might say that the box was U.S. origin; a tariff shift rule might say that it was not; and the substantially produced test would also probably say that it was not. Under the tariff shift rule, BIS licenses the reexport; using the others then both may have to license the re-export.

Here’s a harder case: take the same example above but with the box made in the United States with U.S. cardboard made from U.S. trees and printed with ink made in the United States, although one of the chemicals in the ink is imported from China. Probably under all the tests described above, the packaged apples would be 100 percent origin. Still, there is a Chinese chemical in the ink on the box. Without BIS or OFAC committing to any of the three tests described above, this is not a 100 percent origin U.S. product.

That being said, there are probably no 100 percent origin U.S. products (short of unpackaged agricultural produce without foreign-produced pesticide residue). In that case, you always need both licenses for re-exports and there was really no need at all — unless there was some desire to confuse — for Cuba FAQ 68.

Photo Credit: Havana by Bryan Ledgard [CC-BY-SA-2.0 (], via Flickr [cropped and processed]

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