Jul

15

Who Sang First, Kraaipoel or Fokker?


Posted by at 6:36 pm on July 15, 2014
Category: Criminal PenaltiesIran SanctionsOFAC

Rob KraaipoelBack in the early days of this blog in 2007, we reported on the case of Robert Kraaipoel, a Dutch businessman who was indicted for selling U.S. origin items to Iran, even though Mr. Kraaipoel had never set foot in the United States and even though the sales were completely legal under Dutch law. We challenged the notion that under international law, the U.S. origin of the items was enough of a basis to assert criminal jurisdiction over Mr. Kraaipoel.

In 2009, we reported that Mr. Kraaipoel had voluntarily flown to the United States to face the music. We expressed some surprise that he had done this and expressed even more surprise that the court let him fly back to the Netherlands after a guilty plea. At the time we noted that this was likely because he had agreed to cooperate with the government in indicting other bigger fish.  Indeed, the sentencing memorandum filed by the U.S. Attorney in 2012 cited substantial and extensive cooperation by Mr. Kraaipoel dating back to 2007.  The court ultimately sentenced Mr. Kraaipoel to sixty months of probation and no prison time, no doubt because of Mr. Kraaipoel’s cooperation with U.S. authorities vis-à-vis his dealings with Iran.

Now it appears that one of the companies that got snared by Kraaipoel’s cooperation may have been the Dutch company Fokker Services BV, about which we reported last month.  Fokker agreed to pay $21 million to OFAC and to the DOJ under a deferred prosecution agreement.  Interestingly, Kraaipoel’s role in the Fokker case may derail the deferred prosecution agreement itself.

The federal court judge charged with approving the deferred prosecution agreement was concerned that the agreement for lenient treatment was premised on Fokker’s voluntary disclosure in 2010.  Because Kraaipoel began talking with prosecutors back in 2007, there was some concern, and some sources who told Bloomberg News, that the government knew about Fokker’s misconduct well before the voluntary disclosure, which would, of course, substantially detract from the credit that Fokker should receive for having voluntarily disclosed the matter.

A hearing on the deferred prosecution agreement to resolve these issues is scheduled for July 24.

 

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Jul

9

Syrian Oil Supplier Sanctioned; U.S. Companies Still Maintain Its Website


Posted by at 8:23 pm on July 9, 2014
Category: OFACSyria

'Syria #1 Donkey, Bashar Assad' by Freedom House https://www.flickr.com/photos/syriafreedom/6731491031/ [CC-BY-2.0 https://creativecommons.org/licenses/by/2.0/]
ABOVE: Bashar al-Assad


The Office of Foreign Assets Control (“OFAC”) today announced that it had added Pangates International Corporation, Ltd. to its list of Specially Designated National and Blocked Persons (the “SDN List”). The designation is based on Pangates having supplied oil to the Assad regime in Syria. As a result of that designation, all property of Pangates in the control of U.S. persons is blocked and all transactions with Pangates by U.S. persons are forbidden.

If you clicked the Pangates link in the previous paragraph, you will have noticed that their rather crude website is still alive and well. And you will have noticed that it was a dotcom domain, meaning it is likely supplied by a U.S. registrar, which it is. Washington-based eNom is listed as the registrar for that domain name, and it is also providing domain name services, meaning that every time you click on Pangates domain name or put its URI in a browser, eNom provides the service to Pangates of directing your traffic to the Pangates website.

On top of that, the Pangates domain name redirects to 198.23.50.69, which is an IP address assigned to LiquidNet US LLC in Pompano Beach, Florida, meaning that LiquidNet in the United States is providing web hosting services to Pangates. This is also prohibited now that OFAC has designated Pangates.

In all fairness, of course, these companies may not yet be aware of the designation or understand its impact, even though the designation specifically lists Pangates’s website in the entry. The question, then, is this: how long do you think the Pangates site will be up and running?

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Jul

8

BIS Slaps Defunct Company with Suspended Export Denial Order


Posted by at 5:00 pm on July 8, 2014
Category: BIS

Broken Building Parts by Nitram242 https://www.flickr.com/photos/25165196@N08/8164174513 [CC BY 2.0 https://creativecommons.org/licenses/by/2.0/]Back in April, the Bureau of Industry and Security announced a $45,000 fine imposed on C.A. Litzler Co., Inc., based on an unlicensed export of a 24 Inch Hot Melt Prepreg Machine, which sounds vaguely naughty but is indeed covered by ECCN 1B001.e. The machine (I’m not repeating that name again) was in fact exported in 2005 by Western Advanced Engineering Company (“WAECO”), a company that ceased operations when Litzler acquired its assets in 2011. Under BIS’s “substantial continuity” rule announced in the Sigma-Aldrich decisions, Litzler became liable for WAECO’s export violations. (And that, my friends, is why export due diligence is necessary before any acquisition).

Well, all taxpayers will be delighted to learn that nothing escapes BIS, which has worried itself sick about what to do about WAECO even though WAECO is an empty shell that had ceased all operations once it sold all of its assets to Litzler. So, because WAECO still had a corporate existence on paper, BIS recently announced a settlement agreement imposing a three-year export denial order on WAECO, which denial order was immediately suspended as long as the defunct company committed no further export violations during the next three years.

You never know what kind of trouble a defunct company can get itself into. Why wasn’t it only just a few months ago that TWA got caught trying to sell souvenir junior pilot wing badges to a toy shop in Khartoum?

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Jul

7

Who Elected Ben Lawsky to Conduct U.S. Foreign Policy?


Posted by at 5:18 pm on July 7, 2014
Category: Iran SanctionsOFAC

Official Portrait of Ben Lawsky http://www.dfs.ny.gov/about/staff_bios/blawsky.htm [Fair Use]
ABOVE: Ben Lawsky


Of the $8.9 billion fine being paid by BNP Paribas for violations of U.S. sanctions on Cuba, Iran and Sudan, $2.24 billion is going to the State of New York and, specifically, to Ben Lawsky’s Department of Financial Services. All of this will gild Lawsky’s credentials, overstuff the NYDFS’s coffers, and pay for NYDFS’s holiday parties and expensive lunches for eons to come, while not a single cent of this astonishing sum of money being handed over to the New York agency will go to anyone whom the sanctions seek to protect like, say, Sudanese refugees.

The NYDFS consent order justifies this mega-fine, in part, on BNP’s processing of $160 billion in dollar-denominated transactions for Iranian customers. This is the overwhelming bulk of the $190 billion total of dollar-denominated transactions at issue here for all three sanctioned countries. This amount for Iran covers, according to the consent order, the ten-year period between 2002 and 2012. Astute readers will remember, from the NYDFS/Standard Chartered fiasco, that we’ve been here before with NYDFS. Prior to November 2008 — i.e., for most of the period cited by NYDFS — it was perfectly legal for BNP’s NY branch to process off-shore dollar-denominated Iranian transactions under the so-called U-Turn transactions rule.

So, when Lawsky and his crew complain in the consent decree that the failure of BNP to include references to Iran in the legal U-turn transactions “rendered its New York Branch and other New York-based financial institutions helpless to detect payments that should have been rejected or blocked under U.S. law,” they are spouting utter nonsense given that these payments were legal before November 2008 and not required to be rejected or blocked. But Lawsky’s goal is to enrich NYDFS here, not to observe legal niceties like what OFAC’s rules actually said before November 2008.

There are two major problems here. First, NYDFS’s case is completely dependent upon the scope and extent of federal sanctions, because without a federal sanctions violations, none of the record keeping issues are material. And, obviously, the New York state regulators either have no clue, or do not care, as to the actual scope of those sanctions. Second, and more importantly, to the extent that everything is based ultimately on federal sanctions, the enforcement of those sanctions is ultimately a matter of U.S. foreign policy, something that should be in the hands of OFAC, the DOJ and the rest of the federal government and not in the hands of either the State of New York or, worse, the hands of a single New York regulator.

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Jul

2

OFAC Gores Red Bull for Skateboarding in Havana


Posted by and at 6:45 pm on July 2, 2014
Category: Cuba SanctionsEconomic SanctionsOFACSanctions

Ryan Scheckler Skateboards in Havana via http://www.redbull.com/cs/Satellite/en_INT/Gallery/Ryan-Sheckler-shreds-Cuba-and-Panama-021242761792131#/image-12 [Fair Use]

Last Friday, OFAC announced that Red Bull North America, Inc. (“RBNA” or, when we’re feeling informal, “Red Bull”) agreed to pay $89,775 to settle allegations that “seven representatives” of RBNA traveled to Cuba in order to “film a documentary” in 2009 without OFAC authorization but with the approval of RBNA’s “management.”  RBNA is the U.S. subsidiary of Red Bull GmbH, the Austrian elder statesman of excessively caffeinated energy drinks.  Although OFAC provided no details about the film itself, it is likely a 2009 documentary, described by Red Bull here, which the company made about Ryan Sheckler skateboarding in Havana.  Apparently there is no place left in the world that is safe from skateboarders other than, perhaps, some interior stretches of Antarctica.

Of course, there is a general license for journalistic activities in Cuba, which would seem to cover making documentaries, as opposed to, say, filming Transfomers LVIII: The Final (And We Really, Really Mean It This Time) Apocalypse.  But OFAC’s general license is restricted to “persons regularly employed as journalists by a news reporting organization.”  As we’ve noted before OFAC has not applied this limitation in a consistent fashion, suggesting that Michael Moore wasn’t a journalist but Charlize Theron was. Although Red Bull seems quite active in the documentary business, OFAC apparently viewed them as simply a commercial marketing endeavor in a country where Red Bull is undoubtedly sold.  In fact, judging from the Red Bull Cliff Diving World Series event held in Havana this May, a good amount of Red Bull is being consumed in Cuba.

In considering the penalty amount, OFAC said it determined and took into account that “RBNA did not voluntarily self-disclose” and that “RBNA had prior knowledge of U.S. sanctions on Cuba and took steps to conceal the transactions.”  Of course, we don’t quite understand how you conceal a documentary, particularly where Red Bull posted extensive information about it on the Internet, which is where OFAC likely discovered this transaction. On the other side of the equation, OFAC cited  RBNA’s institution of an OFAC compliance program, no other sanctions violation from 2004 to 2009 and the “non-egregious” nature of the violation.

We have over the past few years called attention to the confusion and lack of information in OFAC’s enforcement action announcements.  Last April, we highlighted what we thought was one of the more egregious “non-egregious” settlements that OFAC has announced.   The latest settlement with RBNA, furthers the confusion by imposing a fine on the low scale even after OFAC finds, albeit wrongly, that Red Bull concealed the documentary.

While OFAC makes up for its small-ish RBNA fine in its hefty enforcements against banks (à la the almost $1 billion settlement OFAC reached with BNP Paribas this week), most U.S. companies’ dealings with Cuba are going to be more on par with isolated occurrences like the one involving RBNA.  In the end, the RBNA settlement is good news for RBNA, its Red Bull parent and any other U.S. company in a similar situation.  If a U.S. company ever finds itself in the future before OFAC in an isolated situation like RBNA, the first thing to do is to pull out RBNA’s settlement announcement and try negotiating from there.

 

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