FIFA and Gazprom: Blame Canada?

Posted by at 10:25 pm on July 8, 2015
Category: CanadaRussia Sanctions

Vladimir Putin via http://www.gazprom.com/f/posts/14/173114/1lm_6189-1.jpg [Fair Use]Today in conspiracy news, we bring you Canada’s National Post.  The Toronto-based daily speculates that, for some nefarious, but unstated, reason, the Canadian government “waited until the last week of the FIFA Women’s World Cup to sanction” Gazprom, which was one of the sponsors of the tournament being hosted by Canada. Not stopping there, the Post wonders “if the sanctions had been broken during the World Cup” by festooning World Cup stadiums with Gazprom banners and ads.

Apparently, they don’t have Google at the National Post. Gazprom was added June 29, 2015 to Schedule 3 of the Special Economic Measures (Russia) Regulations. the Canadian equivalent of the U.S. Sectoral Sanctions Identifications List. Those Canadian regulations prohibit “any person in Canada and any Canadian outside Canada to transact in, provide financing for or otherwise deal in new debt of longer than 90 days’ maturity” for any person on Schedule 3. So, no, nothing in these sanctions would affect Gazprom’s sponsorship of the Women’s World Cup.

The National Post did have the good sense to ask John Boscariol, one of Canada’s top trade lawyers, whether the sanctions had been violated by Gazprom’s sponsorship. He said

it’s unlikely any rules were broken as the measures against Gazprom are “about as soft as you can get.” Unlike those that forbid all financial transactions, the sanctions against Gazprom ban only certain loans to and from the company.

“So in some ways, I guess what you’re saying is we don’t want you to support Gazprom through financing,” Boscariol said. “But otherwise you can deal with them.”

Those of us in the U.S. can now rest easy that there is nothing, nothing at all, to detract from our women’s team’s ultimate victory in the final round!

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The Perils of Travel, or Welcome to Batam

Posted by at 10:31 am on July 3, 2015
Category: Crimea SanctionsExtraditionIran Sanctions

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]Ling Yong Nam, a Singaporean national under indictment in the United States, will be extradited to the United States after a ruling by a court in Batam, Indonesia. Lim is accused of having arranged the shipment of radio modules from the United States to Iran.

Interestingly, Lim could have avoided extradition if he just had stayed home. In 2011, Singapore had refused Lim’s extradition relying on the dual criminality provision in the extradition treaty between the United States and Singapore, which requires that the conduct serving as the basis for extradition be a criminal offense both in Singapore and the United States. Since the unlicensed shipment of radio modules to Iran was not illegal under the law of Singapore, the dual criminality test was not met, and the extradition request was denied.

Fast forward to October 2014. Lim hopped a ferry from Singapore to Batam to attend a trade show. He was nabbed as he stepped off the ferry and has been sitting in jail in Batam ever since.

The United States has no extradition treaty with Indonesia, so the judge issuing the extradition order engaged in some creative legal reasoning to reach his decision:

The judge said he had taken into consideration the two countries’ good relations and America’s help in returning two Indonesian criminals to Indonesia.

“As a result of this, we will grant the extradition request and detain Lim Yong Nam till this extradition process is carried out,” said Judge Cahyono on behalf of the three-judge panel.

He might as well have added that he once visited Disneyland and enjoyed it immensely.

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OFAC Sets Mousetrap; Company Takes Cheese

Posted by at 10:49 pm on June 30, 2015
Category: OFAC

JBT Cargo Loader via http://www.jbtaerotech.com/~/media/JBT%20AeroTech/Images/GSE/Loaders/C60i/JBT%20C60i%20Brochure%200813%20c.ashx [Fair Use]The Office of Foreign Assets Control (“OFAC”) recently announced a fine of $391,500 agreed to by John Bean Technologies, a maker of aircraft ground support equipment, to settle charges that it violated the U.S. economic sanctions against the Islamic Republic of Iran Shipping Lines (“IRISL”). The announcement, however, or at least its description of the underlying facts, is a little odd.

The violation is described like this:

[F]rom on or about April 8 to April 17, 2009, JBT appears to have violated E.O. 13382 and § 544.201(a) of the Regulations when goods that JBT sold to a Chinese company were shipped by Islamic Republic of Iran Shipping Lines (IRISL) aboard a blocked vessel from Spain to China, and trade documents related to the shipment were presented to a U.S. bank for payment pursuant to a letter of credit (“L/C”) in the amount of $2,897,936 …

Notice first that the violation alleged here is not a violation of the Iran sanctions caused by shipping goods with IRISL; rather the violation is dealing in property blocked under the WMD sanctions, namely, the letter of credit.  Later in the announcement, OFAC notes that JBT reimbursed its Spanish subsidiary for payments it made to its freight forwarder in connection with the shipment, meaning it is likely the sale was made by the foreign subsidiary. Given OFAC’s apparently accidental reference later to “CSA” instead of  the “Chinese Company,” it is also likely that the sale is the one announced here involving the shipment of airport ground equipment, including cargo loaders, to China Southern Airlines. This means that the shipment of these EAR99 goods by a foreign subsidiary, which occurred before the restrictions on foreign subsidiaries imposed by the Iran Threat Reduction and Syria Human Rights Act of 2012, would not have been  a violation of the Iran Sanctions. Hence, the violation occurred here when the U.S. company presented the blocked letter of credit, along with the required bill of lading from IRISL, to a U.S. bank.

Now look what happens next:

[F]rom on or about May 8 to May 19, 2009, JBT appears to have violated E.O. 13382 and § 544.201(a) of the Regulations when it presented trade documents related to the IRISL shipment to Banco Santander, a Spanish bank, in the amount of $2,897,936, in order to receive payment for the goods sold to CSA, after the U.S. bank declined to advise the L/C and the trade documents had been returned to JBT pursuant to an OFAC license.

Notice anything unusual here? The U.S. bank, of course, could not return the letter of credit, which was blocked property, to JBT without a license, and in 3-4 weeks it received a license from OFAC to do just that. OFAC almost never grants licenses to release blocked property and almost never issues any license that quickly. Obviously, the unnamed bank and OFAC were setting up JBT, which promptly scurried off to a Spanish bank with the returned letter of credit to get its money. Oops.

OFAC further noted that JBT did not voluntarily disclose the matter to the agency. In reply, JBT told Samuel Rubenfeld at the Wall Street Journal that it did disclose the violation as soon as it knew about it, but the bank had disclosed the violation first. This story does not quite hold up. JBT obviously knew of the violation when the U.S. bank returned the letter of credit and explained its reasons for doing so. It would appear, then, that JBT went to the Spanish bank to get its money with what it knew to be a blocked letter of credit before it disclosed the issue to OFAC.

Also, notice the set-up here. When the bank notified OFAC of its blocking of the letter of credit, OFAC then gave the bank a license to return the blocked property to JBT. The purpose of this was to make it clear, if JBT again tried to negotiate the letter of credit, that JBT knew of the violation and could not claim that it had not examined the shipping documents to see the reference in the bill of lading to IRISL. And the bank was willing to cooperate to get future brownie points from OFAC. Game. Set. Match.

Moral of the story: beware of Greeks bearing gifts and banks bearing blocked letters of credit.

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Hostage Ransom Policy Leaves OFAC a Free Hand to Fine Families

Posted by at 4:56 pm on June 26, 2015
Category: OFACSDN List

The **** Wins the Wad by Laurence Simon [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/isfullofcrap/4288487825 [cropped]

We reported earlier this week on an anticipated policy announcement by the White House that would permit families of hostage victims to pay ransoms to the captors without fear of prosecution by the federal government. Of course, we wondered whether this amnesty would extend to relieving families from penalty actions by OFAC and the answer is, not surprisingly, no.

The new executive order on this policy can be found here. It says nothing about administrative penalties and leaves OFAC with a free hand to fine families that pay ransoms if the captors are on the Specially Designated Nationals and Blocked Persons List. The non-prosecution promise is not even in the executive order but is in a non-binding “Statement” from the Department of Justice that says: “The department does not intend to add to families’ pain in such cases by suggesting that they could face criminal prosecution.”

And what does OFAC have to say about payments of ransom by families to SDN kidnappers? Not one single word. So, as things stand now, families that pay ransoms will probably, unless DoJ changes its mind, not go to jail but they could wind up paying a second ransom payment to OFAC.

Samuel Rubenfeld at the Wall Street Journal digs deeper into the issue. (Full disclosure: Mr. Rubenfeld interviewed me and quoted me in his article.) As he correctly notes, the DoJ statement only provides some solace to families and not to any of the necessary parties that assist in the payment of the ransom. Unless the family itself carries a suitcase of cash to the Middle East to pay the ransom personally to the kidnappers, which is probably not the smartest idea in the world, they are going to need help from someone outside the family. And whoever provides such assistance would be liable to prosecution for material support of terrorists as well as fines from OFAC if the kidnappers were on the SDN List.

What this means, as I said in the WSJ article, is this: “This change in policy is a way to put a nice face on an uncomfortable situation, but it’s not going to ultimately change anything.”

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OFAC Fines Bank for Defective Screening Software

Posted by at 11:17 pm on June 24, 2015
Category: OFAC

National Bank of Pakistan Chauburji [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimapia http://wikimapia.org/17730284/NATIONAL-BANK-OF-PAKISTAN-CHAUBURJI[cropped]The Office of Foreign Assets Control (“OFAC”) announced that it had fined the New York branch of the National Bank of Pakistan $28,800 in connection by seven wire transfers made by the Bank in an amount totaling $55,952.14 to an entity on OFAC’s Specially Designated Nationals and Blocked Persons List. The transfers went to Kyrgyz Trans Avia, an airline headquartered in Bishkek, Kyrgyzstan. The transfers were from or to an account denominated “LC Aircompany Kyrgyztransavia.” Although the SDN List contains references to both Kyrgyz Trans Avia and Kyrgyztransavia, the Bank’s screening software failed to identify the match.

OFAC noted that the base amount for the penalty under its guidelines was $64,000. That the error was a software error, meaning that no one at the Bank was aware of the violation, was considered a mitigating factor. But this mitigation still resulted a substantial fine equal to approximately half of the funds transferred and far more than any conceivable profits the bank made on the transfers.

The interesting issue here is whether the Bank has any recourse against the unnamed software provider. The answer is probably no, given that it is quite likely that the software license includes standard language disclaiming any liability for consequential damages arising from any failures or errors by the software. The take-away is this: select your screening software carefully, audit it frequently and do your best to get an indemnification from the provider.

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