Sometimes Once Doesn’t Mean Once

Posted by at 9:20 am on November 4, 2016
Category: BISEncryption

Blue Hour Capitol Building
My dog Maisie shamelessly plugging the historic Cubs victory in the 2016 World Series

This blog previously reported on the recent changes to the encryption rules.   One less-than-carefully drafted provision in those amendments has been causing some confusion relating to the annual self-classification reports

The issue is whether an item once listed on a self-classification report needs to be relisted on subsequent reports.  Before the recent amendments, products needed to be relisted on subsequent reports for each year in which they were exported during the time frame covered by the classification report.

The new rules say this:

Your encryption self-classification report must include the information described in paragraph (a) of Supplement No. 8 to part 742 for each applicable encryption commodity, software and component made eligible for export or reexport under § 740.17(b)(1) of the EAR. Each product must be included in a report only one time. However, if no new products are made eligible for export or reexport during a calendar year, you must send an email to the addresses listed in paragraph (e)(3)(ii)(A) of this section stating that nothing has changed since the previous report.

At least one law firm has, with some justification, read the language saying that a product must be “included in a report only one time” to mean that items need not be included in subsequent annual reports unless, presumably, the encryption functionality of the item has changed.

At the BIS Update 2016, BIS officials made clear that they do not think that the language means what it appears to say. Instead, they asserted, items needed to be included on subsequent annual self-classification report even if encryption funtionality of the item has not changed since the last report. Apparently the language is thought by the agency to mean that you only have to list an item once on the same report, although why anyone ever thought that they would have to list any product more than once on the same report is puzzling.

No one from the agency, however, at least that I heard, could explain what “becomes eligible for export” means. The reporting requirement in the previous version was for items “exported or reexported pursuant to an encryption registration.” Unfortunately this new language requiring the listing in the report of every encryption item “eligible for export” during the reporting period would appear to apply to every encryption item that the company filing the report might have been able to export during the reporting period.  This would be the case whether or not it was actually exported. The safest course, then, for upcoming self-classification reports is to include every item with encryption functionality that was available for sale during the reporting period.

Note: My apologies for the picture of my dog wearing a Cubs hat.  However, there’s this:  (a) the Cubs victory justifies all actions by longtime Cubs fans that are not otherwise illegal, immoral or rude and (b) a dog picture is the only possible way to make a post about BIS’s encryption rules even vaguely interesting.

Photo Credit: Go Cubs Go! by Clif Burns, via Copyright 2016 Clif Burns

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OFAC Guidance To Publishers: Proceed At Your Own Risk

Posted by at 10:13 pm on November 1, 2016
Category: Information ExceptionOFAC

DSCN7029 by Bianca Ruiz [CC-BY-SA-2.0 (], via Flickr [cropped]Last week, the Office of Foreign Assets Control (“OFAC”) issued guidance which expands the scope of the various general licenses, embodied in its rules, relating to publishing activities with nationals of sanctioned countries. OFAC has always taken the dubious position that editing and formatting for publication documents prepared by individuals in sanctioned countries was not covered by the informational materials exemption in the Berman Amendment. Instead, according to OFAC, it was a provision of a service to the sanctioned country and required a license. In its most questionable incarnation, OFAC, for a period of time, insisted that publication of anything other than “camera-ready” copy of materials authored by an individual in a sanctioned country required an OFAC license. Why OFAC did not carry this nonsensical logic to its final extreme and say that picking a book from a warehouse shelf before exporting it to a sanctioned country was also a “service” requiring a license has always been unclear.

After years of newspapers openly defying these rules publishing stories from Iranian (and other) dissidents in versions that the newspapers typeset instead of the typewritten copy sent by the dissidents, OFAC ultimately in 2004 amended the rules to add a general license permitting certain editing, translation, formatting and typesetting activities by publishers. Each of these rules, however, provided that these activities could not be performed on behalf of sanctioned governments or their officials.

The new guidance states what should have been more or less obvious: that the prohibition did not cover written materials authored by government officials in their personal capacity. But OFAC appears not to have been able to resist the opportunity to take back more than it gave, noting that it was up to the publisher to decide in what capacity the government official was writing and, worse, that it would not provide any guidance by issuing specific licenses in difficult cases.

Indeed, it is the policy of OFAC not to grant applications for specific licenses
authorizing transactions to which the provisions of an outstanding general license are applicable.

And even though OFAC says that it won’t offer help on determining the government official’s capacity, it does not provide any safe harbor for a publisher that makes a good faith mistake. Nope. Any such mistake would lead to significant civil penalties, currently maxed out at $284,582 per violation.

Oh, you reply, why not just apply for licenses anyway in questionable cases? You can provide all the information relating to the capacity in which the government official is writing; and then, when OFAC returns or denies the application, you will have your answer. That assumes, of course, that OFAC will return such an application rather than just file it away in an archive for the next century or so.

Is anyone else offended by an agency saying, as it seems to have done here, that you must abide by our rules but we refuse to provide any guidance on the proper interpretation of our rules?

Photo Credit: DSCN7029 by Bianca Ruiz [CC-BY-SA-2.0 (], via Flickr [cropped]. Copyright 2015 Bianca Ruiz

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The Kremlin’s Janitor: New Sanctions on Russia Pose Dilemma for U.S.

Posted by at 10:35 pm on October 27, 2016
Category: BISOFACRussia Sanctions [CC-BY-3.0 (], via Wikimedia Commons the U.S. considers more sanctions on Russia, given its cybershenanigans and its involvement in Syria on behalf of Bashar al-Assad, it is running into some unexpected difficulties. The quote of the week, from this article, explains part of the issue:

“While the president has full sanction authority, there’s nobody left to sanction in Russia besides the janitor in the Kremlin,” said Michael Kofman, a global fellow at the Wilson Center’s Kennan Institute in Washington. “In terms of expanding any kind of commercial or financial sanctions, we’re basically maxed out.”

While that is probably an exaggeration, it is not far from the truth. What that means is that individually targeted sanctions are becoming less effective, forcing a consideration of sector-based sanctions, which lead to their own problems in terms of collateral consequences. For example, the sanctions on Rosboronexport had to be revised because it prevented Afghanistan from getting parts for the Mi-17 helicopters that it uses.

Other possible sanctions would impact our allies as well as Putin and his cronies. Options such as preventing U.S. bank from buying ruble-based bonds, cutting off Russia from the SWIFT transfer system, or an embargo on energy exports, would each hurt Europe as much as Russia. Europe gets almost of one-third of energy from Russia.

This illustrates the problem of economic sanctions in a global economy. It’s one thing to whack an economically isolated country. You could cut Granada off from the world economy and the biggest impact would be that your holiday eggnog would have to go nutmeg-less. But for developed or developing economies that are largely integrated into the world economy, economic sanctions will have undesired and unintended effects.

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Just What Part of “Executory” Don’t You Understand?

Posted by at 3:22 pm on October 24, 2016
Category: Cuba SanctionsOFAC

Image via [Public Domain]A lawyer at another DC firm is having a conniption fit over the part of the new Cuba regulations that authorizes U.S. persons to enter into executory contracts in Cuba that are contingent upon OFAC approval. He apparently thinks that this goes to the “core” of the embargo and that OFAC is overstepping its authority as circumscribed by section 102 of the Helms-Burton Act and, although he does not cite it, section 204 of that same act.

We’ve all been through this before: section 204 applies only if the President seeks to “end” the embargo. As long as imports of chia pets and thermal underwear from Cuba are prohibited, the embargo has not been ended, which leaves OFAC and the White House pretty much free to do what they want in this regard.

Section 102, which is the provision relied on here by the lawyer in question, codifies the Cuban Assets Control Regulations in effect as of the date of the law’s enactment. But those regulations, in section 515.201, specifically provide that everything prohibited by the regulations may be “authorized by the Secretary of the Treasury (or any person, agency, or instrumentality designated by him) by means of regulations, rulings, instructions, licenses, or otherwise.” So, once again, OFAC can pretty much promulgate general licenses and regulations to its heart’s content. Whether it was Mr. Helms or Mr. Burton who left open this truck-height loophole doesn’t really matter.

Leaving aside the broader issue of authority, the blog post criticizing OFAC’s new rules on executory contracts somehow thinks that this rule goes to the “core” of the embargo — but why that is the case is far from clear. The author thinks that the problem arises because the executory contract is somehow or other a “dealing” in the property of a Cuban national. Now granted, OFAC has previously interpreted dealing in such a broad fashion that someone who just thinks about buying a vacation casa in Cuba has probably violated the rules. But, in an actual universe where people speak a language where words have a circumscribed meaning, it seems clear that a contract that says it isn’t dealing in property until OFAC says its okay to deal in that property, isn’t “dealing” in that property. Thus, OFAC can issue this regulation on executory contracts without violating statutory prohibitions  because an executory contract can legitimately be seen as not dealing in the property in question, because this regulation has not ended the embargo and because it remains consistent with the authority that Congress gave OFAC in section 102 of the Helms-Burton Act to authorize whatever it wants by regulations and licenses.

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Court Holds US Can Jail Anyone Anywhere for Dollar Based Transactions

Posted by at 7:58 am on October 21, 2016
Category: Criminal PenaltiesIran SanctionsOFAC

Reza Zarrab via Facebook [Fair Use]
ABOVE: Reza Zarrab

I often joke about the number of foreigners who arrive in the United States with their families hoping to see Mickey Mouse but who wind up seeing Elliot Ness and a jail cell instead. Controversial Turkish businessman Reza Zarrab showed up in Miami on March 19 of this year to take his wife and daughter to Disneyland and was arrested at the airport.  His application for bail was denied, and he is still languishing in jail, despite having retained fifteen lawyers from top-flight law firms.

Zarrab is accused of violating U.S. sanctions on Iran by processing payments through his financial network for companies in Iran.   His dream team of lawyers sought to dismiss the indictment, arguing that U.S. sanctions could not reach a foreign citizen requesting foreign banks to send money from foreign citizens to persons in Iran. Judge Berman, writing for the United States District Court for the Southern District of New York, just issued an opinion disagreeing with the defendant’s claim and asserting that the United States could prosecute anyone anywhere in the world engaged in any transactions involving U.S. Dollars.

There are two questions here, one much easier than the other.   The first is whether the Iran Transactions and Sanctions Regulations prohibit this conduct.   The court held, and probably rightly so, that since dollar-based transactions were involved, the transactions ran afoul of the prohibition in the regulations against the export of services from the United States to Iran.  Clearly, if a U.S. bank was used to clear the dollar transaction, there is a good argument that financial services were exported from the United States to Iran in violation of the prohibition in section 560.204 on the export of services from the United States to Iran.

The second and harder question is whether Congress, when it passed the International Emergency Economic Powers Act, under which the regulations were promulgated and which establishes criminal penalties for violations of those regulations, intended to reach extraterritorial conduct. And on this issue, Judge Berman reaches the conclusion that Congress intended in IEEPA intended to criminalize any conduct involving U.S. dollars but he does so by misquoting the relevant statutory provision:

50 U.S.C. § 1702(a)(l)(B) grants the President broad powers, including the power to
“investigate, block during the pendency of an investigation, regulate, direct and compel … any property in which any foreign country or a national thereof has any interest … subject to the jurisdiction of the United States.”

Except here is what the statute really says with the omitted portions bolded and the significant provisions underlined:

investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States

The significance of Judge Berman’s misquotation is that he omits a significant qualification regarding “property subject to the jurisdiction of the United States.” The actual language gives the President the power “with respect to, or transactions involving,” property in which a foreign national has an interest but omits the power with respect to “transactions involving” property “subject to the jurisdiction of the United States.” This is significant because Congress’s omission of “transactions involving” underlines the common understanding that Congress granted authority to block such property but did not go so far as to assert that it can criminalize foreign conduct by foreign persons that could be characterized as “transactions involving” such property.

NOTE:  My apologies for the sporadic posting but anyone who knows me knows that I am a die-hard Cubs fan, meaning that I’ve been up late, way too late, watching baseball games.  These games, as you may know, have run so late into the night in large part because pitchers (we’re looking at you Pedro Baez!) are blithely ignoring the never-enforced 12-second rule and are taking the time it takes for Watson to break a 256-bit AES cipher between pitches.  Once baseball finishes up for the season, I’ll be back to a more regular schedule.

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