There’s a Nice Knock-Down Argument for You

Posted by Clif Burns at 5:16 pm on February 28, 2014
Category: BISDeemed Exports

Intevac HQ http://www.waymarking.com/gallery/image.aspx?f=1&guid=0efe8498-3735-4754-b1d9-e8e56cea9333 [Fair Use]It should come as little surprise that federal agencies, whether they sit on a wall or not, believe that a word means what they “choose it to mean — neither more nor less.” So when the Bureau of Industry and Security (“BIS”) says that “visual inspection” and “oral exchanges” mean “giving a system password,” well, you can wring your hands about the violence to the English language involved in such a semantic contortion and you can make obscure references to Humpty Dumpty. But that’s about it.

In a recently announced civil penalty imposed by BIS against Santa Clara based Intevac, the enforcement folks at BIS trampled over their own definitions in order to justify a $115,000 fine against the Company for giving a password to a foreign national employee that would allow him to access hard disk technology controlled by ECCN 3E001. Specifically at issue were drawings, blueprints and part numbers that resided on a company server. According to the charging documents

Intevac released the technology . . . by providing the Russian national employee with a login identification code and a password that enabled him to view, print and create attachments.

Now let’s take a moment to do something adventurous; let’s actually look at BIS’s definition in § 734.2(b)(3) of the EAR for “release of technology of software:”

Technology or software is “released” for export through:

(i) Visual inspection by foreign nationals of U.S.-origin equipment and facilities;

(ii) Oral exchanges of information in the United States or abroad; or

(iii) The application to situations abroad of personal knowledge or technical experience acquired in the United States.

Clearly, simply giving out a password that enables access to a technology is neither a visual inspection or oral exchange of the technology. Unless the password is actually used by the foreign national to access the technology itself, something the charging documents rather coyly refuse to assert, there has been no release of technology. Granted the language here is ambiguous and perhaps the Russian national did see the technology at issue, but saying that the password “enabled him to view, print and create attachments” is an odd way of saying that.

The background here is that the Directorate of Defense Trade Controls (“DDTC”) has, at least since the Consent Agreement in the General Motors case, taken the position that with respect to ITAR-controlled technical data the “ability to access” such data is a deemed export whether actually accessed or not. This does equal violence to the definition of export in § 120.17 of the ITAR which refers to “disclosing (including oral or visual disclosure) or transferring technical data to a foreign person.” Again, to ordinary speakers of the English language permitting access and disclosing are two different things. Perhaps BIS in the Intevac case is just exhibiting a bad case of me-too-itis and does not want anyone to think that DDTC is rougher and tougher on deemed export issues than BIS.

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O, Canada! The Harper Government Solidifies Position as a Sanctions Hawk

Posted by George Murphy at 6:17 pm on February 26, 2014
Category: General

By Jamie McCaffrey from Ottawa, Canada (RCMP Sunset Ceremony 2012) [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ARoyal_Canadian_Mounted_Police_(RCMP)_Sunset_Ceremony_2012.jpg

Canadian Citizenship and Immigration Minister Chris Alexander suggested this week on Canadian television that Canadian sanctions against Russia were a possibility if Russia was to support violent strife in Ukraine.  Although Alexander has since declined to comment on specific sanctions against Russia and other “hypothetical scenarios,” the idea that Canada would sanction Russia in some form should not come as a surprise.

Canada has quietly developed an economic sanctions regime that may be the world’s most aggressive outside the United States.  Case in point is Iran.  While the United States and the EU are at the negotiation table with Iran, Canada has stood steadfastly by its sanctions, which now include a comprehensive trade embargo as of last May.

Some in the Canadian press have pointed out that Canadian Prime Minister Stephen Harper’s alliance with Israel and its Prime Minister Benjamin Netanyahu, who called Harper a “great friend,” is the reason for increasing sanctions against Iran.  But Canadian sanctions remain aggressive in other parts of the world as well.  Canada, unlike the EU, has a comprehensive trade embargo against North Korea.  Canada also has strong sanctions remaining against Burma as well as some of the strongest global sanctions against Syria.

The glaring omission is, of course, sanctions against Cuba, which Canada does not have.  In fact, Canada is Cuba’s largest export destination. Canada’s Foreign Extraterritorial Measures Act, moreover, has long created a transnational dilemma because it prohibits any business in Canada from complying with U.S. sanctions against Cuba.  Businesses subject to both U.S. and Canadian laws will violate someone’s law in deciding whether or not to do business with Cuba.  As aggressive as Canada is in imposing sanctions against some countries, it is also aggressive in countering sanctions which it does not support.

But why shouldn’t Canada have a leading role in developing global sanctions policy?  Canada is the second-largest country in the world and one of the few countries with over a trillion dollars in GDP.  Eastern Canada’s traditional ties to Europe and western Canada’s increasing ties to China, Japan and the rest of the Pacific Rim make Canada one of the most globally connected countries.

For exporters with business in the United States, EU and Canada that presume that U.S. sanctions set the bar for your global compliance efforts, you may increasingly need to think again with respect to Canada.  Remember the Canadians can beat us at our own game: the Blue Jays won the World Series (twice)!

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Posted by Clif Burns at 8:59 pm on February 25, 2014
Category: Cuba SanctionsEconomic SanctionsIran SanctionsOFACSudanSyria

Formal Fridays via http://www.glassdoor.com/Photos/Coursera-Mountain-View-Office-Photos-EI_IE654749.0,8_IL.9,22_IC1147431.htm [Fair Use]I missed this earlier, but back at the end of January, Coursera, a provider of the euphoniously acronymed MOOCs (Massive Open Online Courses) said “No MOOCS for you” to residents of Cuba, Iran, Syria and Sudan who wanted to better themselves by taking online courses such as “Scandinavian Film and Television” or “Buddhism and Modern Psychology.” I certainly sleep better at night now knowing that the Cuban and Iranian threats are not being needlessly augmented by educating Cubans and Iranians on the subtle politics of Borgen or the psychological insights of the Four Noble Truths.

Because the online courses involve feedback, grading and the like, the concern is that these courses are an export of services, forbidden by the current sanctions on these countries, rather than the export of information, which is permitted under the Berman Amendment. Coursera is a little vague in explaining how it just found that out, saying that it “recently received information that has led to the understanding that the services offered on Coursera are not in compliance with the law as it stands” and that prior to that the law was “unclear.”

Coursera has given Syrian students a reprieve by saying that the State Department has told it that OFAC’s Syria General License 11A covers MOOCs for Syria. That license permits non-governmental organizations to export services to Syria in support of education. I’m not clear how Coursera qualifies as an NGO since it is not a non-profit but a for-profit corporation that seeks revenues and profits through its certification programs and sales of textbooks purchased through its affiliate relationship with Amazon. Nor am I quite clear how the State Department has acquired the ability to determine the scope of OFAC licenses.

The company claims that it is weeding out Cubans, Sudanese and Iranians based on IP addresses, apparently not having taken one of their own course on VPNs which would allow an Iranian wannabe student to appear, online at least, as a German or Italian or whatever. And since civil violations of OFAC rules do not require intent, Coursera is still liable if an Iranian is sitting in Iran but using a VPN to appear as if he or she were elsewhere.

This last point underlines a particular stupidity of applying a 19th century sanctions philosophy to a 21st century Internet where there are no borders. If an Iranian student is, in fact, sitting with his or her laptop in Germany, it would not be illegal for Coursera to provide its services to that student. It is only illegal when the student is in fact physically located in Iran. Now if you can identify a sensible policy which explains why it is more dangerous to teach an Iranian about Scandinavian TV while in Iran than it is in Germany, then you are much more clever than I am.

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Abra-OFAC-A-Dabra: Now You See Them, Now You Don’t

Posted by Clif Burns at 8:35 am on February 22, 2014
Category: General

Associated Shipbroking HQ via Google Maps [Fair Use]
ABOVE: Associated Shipbroking HQ

Monaco-based Associated Shipbroking was, earlier this week, quietly removed from the Office of Foreign Assets Control’s List of Specially Designated Nationals and Blocked Persons, fondly known simply as the SDN List. As is normally the case with these removals, OFAC declined to give a reason for the company’s removal from the list, either because of its aversion for admitting mistakes or because it is disinclined to offer any guideposts to others on the list about avenues for removal.

This is exceedingly odd given everything that was said by the U.S. Government when it whacked Associated Shipbroking with these ultimate sanctions in the first place. It all started on May 24, 2011, when the Department of State sanctioned seven companies, including Associated Shipbroking, under the Iran Sanctions Act. Three of these companies –Tanker Pacific (Singapore), Ofer Brothers Group (Israel), and Associated Shipbroking — were added to the State Department’s Sanctioned Entity List because they were said to have dealt with a front company used by the Islamic Republic of Iran Shipping Lines (“IRISL”) to buy an $8.65 million dollar tanker.

Tanker and Ofer were sanctioned for failure to exercise due diligence to discover that they were dealing with an IRISL front company. Accordingly, they were prohibited from receiving Ex-Im Bank loans, obtaining loans over $10 million from U.S. financial institutions or receiving U.S. export licenses. Associated Shipbroking was sanctioned more severely because it was deemed to have acted knowingly and was aware that the company was an IRISL front. As a result, it was prohibited from “U.S. foreign exchange transactions, U.S. banking transactions and all U.S. property transactions.” On the same day, OFAC added Associated Shipbroking — but not Ofer or Tanker — to the SDN List which, in addition, would block all property of Associated that comes into the control of U.S. persons.

Several months later Ofer was removed from the State Department list, apparently because the Ofer family convinced the State Department that they were not responsible for the decisions made by their affiliate Tanker Pacific. Somewhat later, Tanker Pacific got itself removed from the State Department list after promising the State Department that it would behave in the future. Then about a week before the OFAC action, the State Department removed Associated Shipbroking from its sanctions list stating, somewhat oddly, that Associated “is no longer engaging in sanctionable activity.” That is odd because since Associated was sanctioned for a single transaction, it was no longer engaging in sanctionable activity the day after that transaction closed.

So, although OFAC does not state a reason for removing Associated Shipbroking from the SDN list, it presumably was simply following the State Department’s lead in removing the company a week earlier. It still leaves open the question as to why a company caught “knowingly” dealing with IRISL through a front company got a get-out-of-jail-free card from OFAC.  Of course, it can’t be ruled out that this delisting is based on larger diplomatic considerations in the context of ongoing discussions with Iran about dismantling its nuclear program.


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Zealous Screening Software Nabs Random Characters

Posted by Clif Burns at 6:19 pm on February 20, 2014
Category: General

Monkey Typing via Wikimedia Commons http://commons.wikimedia.org/wiki/File:Monkey-typing.jpg [Public Domain]A reader and colleague sent me an email with a great story (and the wire documents to back it up) about OFAC screening software gone bad. At issue was a relatively small wire transfer that was blocked because the SWIFT message referenced Sudan. What was the reference? Well in SWIFT message field 59, which contains the beneficiary account number, the account number was shown as XDQSUDAN13DE4. (For obvious reasons, I have munged all the alphanumeric characters of the actual account number except for S, U, D, A and N).

Now, I realize that being given an account number with the words Sudan, Iran, Cuba or some SDN name is about the same as the chance of a chimp randomly typing out in its entirety Hegel’s Phenomenology of Spirit (although there are some who might suggest that is precisely what happened), this amusing incident indicates that screening software is stupid and relentless and that you need to check everything about a transaction to avoid unexpected glitches. It makes me wonder how Mark Cuban can conduct any business at all these days.

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