Jun

7

Russia Sanctions Aren’t Rocket Science


Posted by at 7:08 pm on June 7, 2016
Category: OFACRussia Sanctions

OA 4 Launch by NASA via http://www.nasa.gov/sites/default/files/styles/full_width_feature/public/thumbnails/image/oa-4-launch-1c_0.jpg?itok=LZznlmsx [Public Domain - Work of U.S. Government]The U.S. still buys certain rocket engines from Russia for rockets that, among other things, launch U.S. satellites. This has gotten various Hill types, including Senator John McCain, all worked up and provides an opportunity for them to demonstrate their lack of knowledge about the current sanctions against Russia.

Indeed, Senator McCain a few days ago launched a letter to OFAC demanding that they justify this “selective enforcement of sanctions.” The problem, as the Senator thinks he sees it, is that Sergei Chemezov, who is on the SDN List, is on the Board of Directors of Roscosmos, which makes the engines. Novikombank, which is on the Sectoral Sanctions Identifications List, as is its owner Rostec, finances Roscosmos. So, according to Senator McCain, it’s game over, case closed, for Roscosmos:

[W]e are funneling U.S. taxpayer dollars to a Russian space agency that is financed by a sanctioned Russian bank, which is owned by a sanctioned Russian defense company, and which is controlled by a sanctioned Russian CEO, who also happens to be a close personal friend of Vladimir Putin.

Why this is “selective enforcement” of the Crimea sanctions is far from clear. To begin with, Senator McCain lumps the SDN List and the SSI List together as equivalent sanctions, which they aren’t. A company owned by one on the SSI List is not automatically blocked or even put on the SSI List.  Next, he doesn’t understand OFAC’s guidance which blocks companies that are owned 50 percent or more by blocked companies; it does not automatically block companies controlled by blocked entities. So Roscosmos isn’t automatically blocked because it’s financed by an unblocked bank on the SSI List that is owned by another entity (Rostec) on the SSI List just because Rostec is controlled by an SDN.

Now, leaving aside whether this is “selective enforcement,” which it’s not, there may be an argument, perhaps, that OFAC ought to sanction Roscosmos because of its connections with these companies. This is something OFAC has the discretion to do but which it is not required to do and which would not make it guilty of “selective enforcement” if it does not. Still, that question is not simply answered by looking around and pointing to all of Roscosmos’s unsavory connections. If Roscosmos produces something that the United States needs, then to target Roscosmos in that situation would be, as they (sorta) say, targeting your own foot.

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Jun

3

Nork Money Laundering Designation Targets Chinese Banks


Posted by at 10:24 am on June 3, 2016
Category: FinCENNorth Korea SanctionsOFAC

Kim

On May 25, the U.S. Treasury Department issued a finding designating North Korea as a  jurisdiction of “primary money laundering concern.”  On the same date, Treasury, through FinCEN, issued a notice of proposed rulemaking (“NPRM”) setting forth the measures that it proposes be implemented as a result of the finding.  Although the finding was immediately effective, the proposed rules will not become effective until some time after the 60-day comment period expires.

The designation comes shortly after evidence that North Korea hacked the SWIFT system to steal money from foreign banks and after an increase in activity by North Korea relating to nuclear and missile proliferation. The finding, however, is based instead on the  requirements set forth in section 311 of the Patriot Act as predicates for such a finding — namely that entities in North Korea were engaged in proliferation of WMD, that North Korea has no controls on money laundering, that North Korea does not have a mutual legal assistance treaty with the United States, and that there is a high level of corruption in the North Korean government.

Once such a  finding is made, section 311 permits Treasury to impose one of five special measures, and in this instance Treasury, as detailed in the NPRM, selected the so-called Special Measure Five to impose. Under that special measure, Treasury “may prohibit, or impose conditions upon, the opening or maintaining in the United States of a correspondent account or payable-through account” by foreign banks that involve the designated jurisdiction. The proposed rules implementing Special Measure Five would prohibit U.S. financial institutions from opening or maintaining a correspondent account for a foreign bank if the foreign bank was engaged in transactions on behalf of North Korea. They also impose certain due diligence obligations on U.S. banks to ferret out North Korean activities by foreign correspondent accounts.

These rules, when adopted, will go beyond current restrictions imposed by the Office of Foreign Assets Control (“OFAC”). Under current OFAC rules, banking transactions with blocked entities in North Korea as well as those that would involve the unlicensed import of North Korean goods into the United States are prohibited. But under the new FinCEN rules, foreign banks could be cut off from the U.S. financial system for engaging in transactions with any entity in North Korea, whether blocked or not.

Chinese banks are clearly the target here. China is North Korea’s biggest customer, and many of those transactions are believed to be denominated in the U.S. Dollars that North Korea needs to buy goods from around the world. These transactions will clearly become much riskier for Chinese banks when the rules go into effect. Although it is certain that Chinese banks have in the past concealed from U.S. banks the extent to which their correspondent accounts are used in connection with purchases from, or sales to, North Korea, it seems unlikely they will continue to run the risk that these activities will be uncovered now that the stakes (namely continued participation in the U.S. financial system) are higher and now that U.S. banks will be more closely scrutinizing the correspondent accounts of Chinese banks.

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Jun

1

Russian Export Case Larded with Bogus Spying Charges: Part 3


Posted by at 8:02 am on June 1, 2016
Category: BISCriminal PenaltiesGeneral

Alexander Fishenko
ABOVE: Alexander Fishenko


This blog has been covering the export prosecution of Alexander Fishenko for quite some time. Previous posts on this case can be found here and here. Most of my interest has been in the trumped-up Foreign Agents Registration Act charge brought by the government to allow Fishenko to be characterized, inaccurately, as a Russian “spy.”

Fishenko, who pleaded guilty to all counts in the indictment, is scheduled to be sentenced on June 3. The sentencing memorandum prepared by his lawyers provides more insight into the “spy” nonsense and the government’s motivations in bringing these charges. (I am not linking to the memorandum, even though it is publicly available through PACER, because it contains detailed information on some unrelated private matters relating to Fishenko’s medical history.)

As was detailed in the preceding posts, it was undisputed that Fishenko was buying things at the request of the Russian government. But that alone does not make him a foreign agent required to register under FARA. Section 3(d) exempts “private and nonpolitical activities in furtherance of the bona fide trade or commerce of such foreign principal.” There was no allegation or evidence that Fishenko acted for the Russian government in any other capacity, meaning that he was not a “foreign agent” under FARA and, therefore, was under no obligation to register as one.

Apparently, Fishenko was anxious to plead guilty after the indictment, but the government was not willing to take his plea. The hold-up was that Fishenko, although he was willing to plead guilty to all the other charges, did not want to plead guilty to the bogus FARA charge for precisely the reason the government included it: namely, that those charges had been widely, indeed universally, interpreted as charges that he was a Russian spy, something the government well knew and was intentionally using to poison the well.  Fishenko thought that such a plea would permanently damage the reputation of his family members.

Leaving aside for the moment that Fishenko’s activities were exempt under section 3(d) of FARA, it is also undeniable that there is a significant difference between being an “unregistered foreign agent” and being a Russian spy. You can be an unregistered foreign agent in violation of FARA even if you run around wearing a banner saying you work for the Russian government, behavior essentially incompatible with being a spy. Nor was Fishenko charged with espionage under the relevant provisions in 18 U.S.C. §§ 793 – 798, something that certainly would have happened if Fishenko was really a Russian spy.

The only conclusion behind the government’s intransigence on the fake FARA charges is that it wants to keep this weapon in its arsenal for future, and equally illegitimate, use. It’s much easier to convict export defendants once they have been branded in the press as spies. Sadly, such behavior — intentionally bringing unfounded charges for their negative publicity value — turns the word “Justice” in the Department of Justice to Orwellian double-speak.

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(No republication, syndication or use permitted without my consent.)



May

25

More Border Search Shenanigans by Customs in Sanctions Case


Posted by at 8:51 pm on May 25, 2016
Category: Border SearchesCriminal PenaltiesCustomsIran SanctionsOFAC

Los Angeles International Airport by Daniel Betts [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/redlegsfan21/13789084574 [cropped]Here we go again. Another case has surfaced where U.S. Customs seized computers and other electronic media from a U.S. traveler at the border, shipped them off to be imaged, rifled through the imaged contents looking for evidence and then weeks later, based on emails they found while going through the computer images, finally sought a search warrant arguing that there is probable cause that the Iran sanctions had been violated.

This almost identical scenario recently led a federal district court in Washington, DC, to toss out evidence gathered in this fashion. And neither of these cases is particularly tough: if you have the time to haul the computer from the airport after the passenger has departed, you have time to get a warrant before snooping through the computer. This is not like the typical border search where Customs looks at a suitcase before the traveler takes it with him to a foreign country.

The latest case involves a search of Idin Rafiee, a San Diego resident and U.S. citizen, who, on October 5, 2012, was traveling to London through LAX. He had a computer, an external hard drive, a smart phone and a tablet with him. A Customs agent told Mr. Rafiee that Customs was detaining his electronic media on the ground that there was reason to believe that there was child pornography on it. The media was imaged on October 9 and returned to Rafiee on  October 13. The government did not seek a search warrant until November 1, 2012, and based the warrant on emails that it obtained from the seized media before it had obtained a warrant. Subsequently, Rafiee was charged with violating the U.S. sanctions on Iran.

The child pornography claim was a complete fabrication. There was never any evidence supporting such a belief and no such pornography, or any pornography for that matter, was alleged by the government to have been found. Instead, the only evidence the government had before it searched Rafiee’s devices was an alleged statement by a disgruntled employee that the defendant was doing business in Iran, even though the notes of the conversation with the employee produced by the Government did not mention Iran.

Of course, even if the Government had some valid reason to grab Rafiee’s stuff, there was no exigency once they had it to justify searching it before getting a warrant. They had all the time in the world, as their one month delay in applying for a warrant amply demonstrates. Beyond that, the notion that you can bootstrap a warrant request with evidence from the same computer you are asking to be permitted to search is, at best, ludicrous.

Not surprisingly, the Government finally dropped all charges against Rafiee on May 13, 2016, before the Court even had an opportunity to rule on Rafiee’s motion to suppress.

 

Photo Credit: Los Angeles International Airport by Daniel Betts [CC-BY-SA-2.0 (http://creativecommons.org/ licenses/by-sa/2.0)], via Flickr https://flic.kr/p/n1uEru [cropped]. Copyright 2014 Daniel Betts

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



May

23

Vietnam Arms Embargo Lifted (More or Less)


Posted by at 5:07 pm on May 23, 2016
Category: Arms ExportDDTCVietnam

Saigon Morin hotel (Hue, Vietnam 2015) by Paul Arps [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/C2rm6w [cropped and color corrected]During a press conference today in Hanoi, President Obama announced the lifting of the arms embargo against Vietnam. Although he stated that the action had nothing to do with China, U.S. officials have noted before that the idea was to help Vietnam counter threats from the PRC in the South China Sea. There has also been speculation that Vietnam would, in return, provide access to Cam Ranh Bay and its deepwater port.

Of course, attentive readers will remember that back in November 2014 the embargo was lifted to permit exports to Vietnam of non-lethal defense articles and lethal weapons “to enhance maritime security capabilities and domain awareness.” Applications for such exports were considered on a case-by-case basis. As a result of today’s action, this limitation on lethal weapon exports to Vietnam has been removed.

DDTC scrambled to get something up on its website, where this notice now appears:

Industry Notice: Change in Policy on Exports of Munitions to Vietnam (05.23.16)

Pursuant to a decision made by the Secretary of State and effective immediately, the Department of State’s policy prohibiting the sale or transfer of lethal weapons to Vietnam, including restrictions on exports to and imports from Vietnam for arms and related materiel, has been terminated. Consequently, in accordance with the Arms Export Control Act, the Directorate of Defense Trade Controls (DDTC) will review on case-by-case basis applications for licenses to export or temporarily import defense articles and defense services to or from Vietnam under the International Traffic in Arms Regulations (ITAR). DDTC will soon publish a rule in the Federal Register to implement a conforming change to ITAR §126.1.

Since the provisions in section 126.1 refer to a licensing policy, there seems to be no reason why DDTC can’t change the license policy first and clean up the regulations later. After all, the Vietnam subsection of 126.1 starts with “[i]t is the policy of the United States to deny” licenses for exports to Vietnam. So, if an exporter applies for and receives a license, there won’t be any issue of violating the unchanged regulation.

Things, however, are not so simple for the absolute prohibition in section 126.1(b), which provides:

A defense article licensed or otherwise authorized for export, temporary import, reexport, or retransfer under this subchapter may not be shipped on a vessel, aircraft, spacecraft, or other means of conveyance that is owned by, operated by, leased to, or leased from any of the proscribed countries, areas, or other persons referred to in this section.

That prohibition will remain in place, forbidding shipment on Vietnamese vessels of licensed defense articles, until whenever (likely in a few years) DDTC gets around to amending 126.1 to reflect today’s action.

Photo Credit: Saigon Morin hotel (Hue, Vietnam 2015) by Paul Arps [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/C2rm6w [cropped and color corrected]. Copyright Paul Arps 2015.

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