Mar

7

ZTE Zells ZTE Zhells by the Zeashore


Posted by at 5:57 pm on March 7, 2016
Category: BISIran Sanctions

ZTE Stand 6 via http://www.zte.com.cn/cn/events/ces2013/show/201301/t20130110_381605.html [Fair Use]

The Bureau of Industry and Security (“BIS”) is placing Chinese telecom giant ZTE (and three related companies) on the Entity List tomorrow according to this pre-release version of the Federal Register notice announcing the action. As a result, all items subject to the EAR will require an export license prior to any export to ZTE. Under this action, all applications for such licenses will be subject to a policy of denial.

The action is taken as a result of the diversion by ZTE of certain U.S. origin products to Iran. More important, perhaps, than the diversion itself is that BIS caught ZTE playing a shell game and ZTE lost. Somehow or other, BIS got its hands on a ZTE internal document, labelled “Top Secret Highly Confidential” and titled, innocently enough, “Proposal for Import and Export Control Risk Avoidance.” In fact, this incriminating document might be better titled “Everything You Wanted to Know about Shells but Were Afraid to Ask.” It sets out, in excruciating detail, a plan for setting up a chain of shell companies through which the U.S. goods would pass with the hope that it would throw the U.S. government off the scent of what was really going on. Under this plan, a Chinese company owned by an allegedly independent Chinese investor would buy U.S. parts, sell them to another Chinese company, owned by another allegedly independent Chinese investor, which would sell those to another single “independent” Chinese investor company in Dubai, which would then sell the goods to Iran.

Two juicy quotes from the report will give you the idea of what ZTE had in mind:

However, the detached [shell] companies … are invested by natives of [the People’s Republic of China] and not only does our company need to make [the detached shell companies] operate independently, [our company] also needs to effectively control them.

Yea, sure, that works … if you believe in oxymorons and unicorns.

The biggest advantage of [this] Model is that it is more effective, [because it’s] harder for the U.S. Government to trace it or investigate the real flow of the controlled commodities; and in formality, our company is not participating in doing business with [Iran].

Right, “in formality” it’s not doing business with Iran because its being done by those companies that look like they operate independently but which ZTE “effectively control[s].” Game over.

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Mar

3

“Based on My Experience and Training. . .”


Posted by at 8:09 pm on March 3, 2016
Category: Criminal PenaltiesIran SanctionsOFAC

All in a Day's Work by Damian Gadal via Flickr https://flic.kr/p/5xQkWj [Fair Use]
ABOVE: Erdal Kuyumcu

Erdal Kuyumcu, the CEO of Global Metallurgy LLC, was indicted this week on charges that he shipped an EAR99 chemical to Iran through a middleman in Turkey. The criminal complaint provides the details of the government’s case, which, charitably speaking, seems weak.

In order to sustain a criminal conviction, it must be demonstrated that Kuyumcu knew that the chemical that he shipped from the United States to Turkey was going to be re-exported to Iran. In support of this, the government cites a number of emails unrelated to the shipments at issue, where the Turkish company and Mr. Kuyumcu had an email exchange about a trip the head of the Turkish company referred to as “flying out to the neighbor’s” and which Mr. Kuyumcu replied “Good luck at the neighbor’s.” The FBI agent signing the criminal complaint said that based on his “training” and “experience,” this was a coded reference to Iran and this coded language is proof that Kuyumcu was aware that the chemical he later shipped to Turkey was going to be re-exported to Iran. It’s hard to see the connection here. And it’s not hard to imagine that there are a number of innocent reasons why foreigners might not want to have all their email sniffed by the NSA after the NSA’s email sweeps see the word Iran.

There are two emails connected to the shipments at issue that the government cites, but these are not conclusive either. In both emails, Mr. Kuyumcu, in response to an inquiry from the U.S. supplier of the EAR99 chemical for the name of the end user, asks the Turkish company to provide the name of a “friendly” company in Turkey with a website and that uses the chemical. The FBI agent believes this is a slam dunk:

Based on my training and experience, and on the foregoing emails between KUYUMCU and Co-Conspirator #1, where KUYUMCU asks for the name of “a friend company with a website … that uses this material,” and specifically directs Co-Conspirator #1 to the “email below” from the Ohio Company asking the name of the end-user company, KUYUMCU was asking Co-Conspirator #1 to fabricate end-user information using the name of a “friend[ly]” company whose name could be provided to the Ohio Company [the supplier] in an effort to conceal that the true end user of the Cobalt Compound was Iranian Company #!.

That might be one explanation, but there is certainly an equally reasonable one, particularly for anyone with experience and training not from Quantico but from actual business. Middlemen never like to give the name of end users to their suppliers. They regularly refuse to provide the information or provide incorrect information, not because they’re busy selling stuff to Iran, but because they don’t want their supplier to cut them out and start dealing with the end user directly.

The FBI affidavit is full of questionable appeals as above to his “training and experience,” but there is one particularly amusing reference to his training and experience. Some time after the shipment in question, and without reference to it, Mr. Kuyumcu sent an email that said in part: “H]ave you heard anything from the neighbor? :)” The FBI Agent had this to say about the email:

Based on my training and experience, the colon followed by a close parenthesis in the above quote represents a smiley face.

Seriously? At Quantico they have a class to teach FBI Agents that a colon followed by a close parenthesis represents a smiley face? Do they teach them as well that a colon followed by a zero represents a shocked face? And that *<|:‑) is Santa Claus? I know a bunch of these, so can I get paid to teach that class? ¯\_(ツ)_/¯

Outside of this unintentionally clueless hilarity from the FBI agent, this is really a classic demonstration that when he throws around throughout the complaint references to his “training and experience,” he might be basing his conclusions on something far less compelling than his actual training or experience despite what he claims.

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Feb

26

Haliburton Fined for Exports to Angolan Entity with a 5 Percent Cuban Owner


Posted by at 9:30 am on February 26, 2016
Category: Cuba SanctionsOFAC

Cupet Oil Truck via http://www.cupet.cu/assets/media/galeria/15_800x600.JPG [Fair Use]

Yesterday the Office of Foreign Assets Control (“OFAC”) announced that it had extracted $304,706 from Halliburton Atlantic Limited and Halliburton Oversea Limited in connection with unlicensed exports of $1,189,752 in goods and services by those companies to the joint venture granted the concession to the Cabinda Onshore South Block in Angola.

Wait, you ask, did the U.S. reimpose sanctions on Angola while I was not looking? Nope. The problem here was that Unión Cuba-Petróleo (CUPET) owns a whopping 5% interest in the joint venture at issue.

Wait, you ask again, did OFAC suddenly get rid of the 50% rule? I thought you didn’t have to worry about interests held by blocked parties less than 50 percent, individually or in the aggregate. You don’t normally, but the Cuba rules are different. Section 515.201 of the Cuban Assets Control Regulations prohibit any dealings in property in which any Cuban “has at any time on or since the effective date of this section had [sic] any interest of any nature whatsoever, direct or indirect.”

So, since CUPET had a five percent interest in the joint venture, exports of goods and services to it were illegal. Further, those exports would have been illegal if CUPET had only a 0.0001% interest in the joint venture because the regulation covers “any” interest. And they would have been illegal if Cuba had a 0.0001% interest in an Angolan company that had a 0.0001% interest because the regulation covers “any interest … direct or indirect.” Worse, the exports would have been illegal if CUPET had divested its 0.0001% interest in the Angolan company with a 0.0001% interest in the joint venture ten years before the exports. That would be because the regulation covers property in which a Cuban “has” or “had” any interest. One might be able to seek refuge in the ungrammatical peculiarities of  “has at any time on or since the effective date of this section had [sic] any interest of any nature whatsoever, direct or indirect” — read it carefully — but I wouldn’t count on it.

In theory, the breadth of this regulation imposes a nearly impossible task on any exporter, requiring the exporter to ferret out any remote Cuban abuela or abuelo hiding behind a potted palm somewhere before exporting anything, particularly given that violations of OFAC rules do not require knowledge. In this case, OFAC noted that Halliburton had been supplied documents showing the Cuban interest, but this was not the basis for liability here but instead an “aggravating factor,” suggesting that OFAC would have fined Halliburton even if had not known of CUPET’s paltry, non-controlling interest in the joint venture.

You have to wonder whether the federal employees who run OFAC have ever worked outside the government and have even the slightest conception of the real impact of requiring businesses to confirm that there is no Cuban interest, past or present, of any size whatsoever, in any foreign customer before exporting goods or services to that customer.

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Feb

24

OFAC Fines Another European Company for Following E.U. Law


Posted by at 11:05 pm on February 24, 2016
Category: Cuba SanctionsOFAC

Hotel Inglaterra - Best Cheese Toast in Town 'Big Cheese' by Rinaldo Wurglitsch [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/fmo3ev [cropped]Two days ago, the Office of Foreign Assets Control (“OFAC”) announced that CGGVeritas S.A, a French company, and its U.S. and Venezuelan affiliates had agreed to hand over $614,250 to settle allegations that the companies had violated the U.S. embargo on Cuba. Most of the violations involve CGG’s export of U.S.-origin parts and equipment to two vessels engaged in oil exploration activities in Cuban waters.

Under most sanctions regulations, re-export by foreign persons of U.S. origin goods that are EAR99 is not a violation, but the situation for Cuba is different and re-exports by foreign persons of such goods will be a violation. Section 515.201 prohibits “any person” (that includes the French) from “all dealings in” any “property” that is “subject to the jurisdiction of the United States” and in which Cuba or any Cuban national has or had “any interest of any nature whatsoever.” On its face, that prohibits all exports of U.S. origin items by anyone to Cuba.

Because licensing jurisdiction for exports to Cuba has been ceded by OFAC to the Bureau of Industry and Security (“BIS”), section 515.533 provides that exports are authorized under OFAC rules if the export is “licensed or otherwise authorized” by BIS. Section 746.2 of the EAR indicates that a license is required to “export or reexport … all items subject to the EAR,” which of course includes all EAR99 items in the United States or manufactured outside the U.S. with more than 10% controlled U.S. content. There is nothing in either BIS’s rules or OFAC’s rules for Cuba comparable to section 560.205 of the Iranian Transactions and Sanctions Regulations to permit re-exports by foreign persons of EAR99 goods.

CGG, of course, is in an interesting position because under Council Regulation (EC) No 2271/96, CGG would have broken the law in its home country by refusing to send the U.S. parts and equipment based on the U.S. embargo on Cuba. OFAC, naturally, takes the position that the U.S. has jurisdiction over the entire planet (if not the entire universe) and that U.S. law naturally trumps any laws passed by other (and necessarily inferior) countries or governments such as France or the European Union. BIS takes the same position so CGG is no doubt busy bickering with BIS over how much it owes BIS for complying with the law in CGG’s home country.

The other violation cited by OFAC involved CGG’s Venezuelan affiliate, which was a subsidiary of CGG’s U.S. affiliate, engaging in the  “processing of data from seismic surveys conducted in Cuba’s Exclusive Economic Zone benefiting a Cuban company.” This was alleged also to be a violation of section 515.201, but that can only be the case if the language of the regulation, which prohibits U.S. persons from dealing in “property” in which Cuba or a Cuban national “has any interest,” is interpreted such that the meaning of “property” is stretched beyond all reasonable bounds. Even given the broad definition of data contained in section 515.311 it doesn’t include within its bounds mere data about Cuba. If it did, is satellite imagery of Cuba property in which Cuba has an interest? Has Google violated the embargo by processing that information for online presentation? Even if that benefits companies in Cuba? There might be an argument that a violation occurred if the seismic data survey was conducted pursuant to a contract with a Cuban entity giving it proprietary rights in those results — but that is not what OFAC says happened.

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Feb

23

Gun Laundering Scheme Takes Defendant to the Cleaners


Posted by at 7:06 pm on February 23, 2016
Category: Arms ExportCriminal PenaltiesDDTC

Washing Machine or your life by Alexander von Halem [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/aeNmsj [cropped]Richmond Attah, a resident of Charlotte, North Carolina, was indicted last week for exporting 27 handguns and 3500 rounds of ammunition without the required license from the Directorate of Defense Trade Controls. The guns and ammo, which were hidden in a washing machine, a dryer and a barrel, were on their way to Ghana before being discovered by U.S. customs officials in Savannah, Georgia.

As readers of this blog undoubtedly know, a criminal export conviction requires proof that the defendant knew that he or she was violating the law in connection with the unlicensed export. Given the confusing welter of applicable regulations, and the uncertain export classification of many items, this can often be a difficult task. The challenge for the defense in this case will be explaining exactly why, if true, 27 handguns were put into a washer and dryer bound for Ghana and why this is not fairly conclusive proof that Mr. Attah knew that the exports were illegal. Perhaps the explanation will be that the intended recipient demanded that the weapons be “clean” and Mr. Attah did not completely understand what this meant.

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


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