ExportLawBlog

Mar

27

If The Muzzle Fits, Wear It

Posted by Clif Burns at 6:27 pm on March 27, 2013

Standard Chartered Bank by Chintunglee http://commons.wikimedia.org/wiki/File:Standard_Chartered_Bank_China_in_Guangzhou_Tianhe.JPG (CC BY-SA 3.0) Back in December, Standard Chartered Bank paid $227 million to settle charges by the Federal Government that it had improperly processed financial transactions destined for Iran. Earlier this month, John Peace, the Chairman of the Bank, said at a year-end results press conference that the whole business with the Iran fine was the result of “clerical errors” and not the result of willful acts by bank employees. Then all hell broke loose.

So last week the company issued a formal stock market announcement in which Peace took it all back, ate his words, and did everything short of donning sackcloth and ashes and walking to Wall Street to be flogged by U.S. government officials. The spelling mavens and junior detectives at The Guardian found the orthographic fingerprints of U.S. influence on this apology:

The statement appeared to demonstrate the influence of the US regulators by containing American spellings “willful” and “apologize.”

In fact, and without need to resort to orthographic peculiarities of American spelling, the reason for Peace’s contrition can be clearly found in the deferred prosecution agreement that Standard Chartered signed. Paragraph 12 of that agreement is a “muzzle” clause and provides:

SCB expressly agrees that it shall not cause to be made, through its attorneys, board of directors, agents, officers, employees, consultants or authorized agents (including, contractors, subcontractors, or representatives), including any· person or entity controlled by any of them, any public statement contradicting the acceptance of responsibility by SCB set forth above or the facts described in the Factual Statement. Any such public statement by SCB, its attorneys, board of directors, agents, officers, employees, consultants, contractors, subcontractors, or representatives, including any person or entity controlled by any of them, shall, subject to the cure rights of SCB set forth below, constitute a willful and material breach of this Agreement as governed by Paragraph 9 of this Agreement, and SCB would thereafter be subject to prosecution pursuant to the terms of this Agreement.

In short, it seems clear that the U.S. threatened prosecution and Standard Chartered exercised its cure rights to avoid being in the unenviable position of having paid $227 million dollars and still be prosecuted for its violations of U.S. economic sanctions laws. Still, you have to wonder what legitimate purpose a muzzle clause has other than to soothe the sensibilities of government regulators.

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Mar

26

OFAC Threatens To Fine Bank Employees in Sanctions Cases

Posted by Clif Burns at 3:58 pm on March 26, 2013

Category: OFAC

Department of Treasury Seal by woodleywonderworks http://www.flickr.com/photos/wwworks/2895964373/in/photostream/ (CC BY-SA 3.0) Banks may be too big to fail but their employees, apparently, aren’t too small to nail.

After taking a boatload of abuse during Senate Banking Committee hearings in December that no individuals were held civilly or criminally liable for the HSBC violations, OFAC has started waving a big stick at bank employees who might play some role in sanctions violations

As reported by Brett Wolf at Reuters, Treasury spokesman John Sullivan had this to say last week:

Although sanctions enforcement cases involving financial institutions have typically concluded with civil penalties at the corporate level, individuals can and do face liability … when they are personally responsible for sanctions violations, and Treasury’s Office of Foreign Assets Control will take appropriate enforcement action in these circumstances.

Of course the issue here will be which employees will be “personally responsible” if illegal transactions for Iran are cleared by a bank. Are we talking about the people in the wire room who process the transactions or are we talking about the folks with keys to the executive washrooms? I am probably not being overly cynical to suggest that it will be the wire clerks and not the VPs who will pay here.

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Mar

25

Seriously Bad People Who Have Done Seriously Bad Things. . .

Posted by Clif Burns at 6:41 pm on March 25, 2013

Category: DDTC

Blue Lantern? Have you had a license application pending at the Directorate of Defense Trade Controls (“DDTC”) to export a defense article mysteriously denied? If so, you might have been “blue lanterned,” or, more accurately, the end user might have been “blue lanterned.”

The oddly and opaquely named “Blue Lantern” program at DDTC refers to a process whereby U.S. embassy officials abroad and other domestic government officials conduct investigations into proposed end users mentioned in DDTC license applications. The result is that sometimes a source whispers something derogatory about the end user into the investigators ear and, well, that’s the end of that license application.

Every year DDTC issues a report on its Blue Lantern report which provides some interesting information and statistics on the program, although regrettably always leaving the origin of the program’s name shrouded in mystery.* This year’s report was just released and there are some interesting tidbits buried in it.

The report indicated that in 2012, a total of 820 Blue Lantern checks were initiated, up from 783 in 2011 and 536 in 2010. Of those, 20 percent resulted in unfavorable determinations. Interestingly, the report noted that the unfavorable rate for inquiries conducted in Europe was 27 percent, among the highest for any region, even though historically the rate of unfavorable determinations in Europe is among the lowest of all the regions. The report explained the discrepancy as

primarily due to thirty unfavorable checks involving a single entity that failed to sufficiently cooperate with DTCC’s inquiries and also revealed stockpiling concerns.

Late in the report it is revealed that the commodities produced by this “single entity” were spacecraft systems, which may give alert readers enough information to speculate as to who that single entity might be.

My favorite unfavorable determinations, however, had to be one involving a Central American firearms dealer who sold to an individual “known to resell firearms from his car” and the one involving “an Eastern European individual who attempted to acquire a weapon simulator under the premise of using it in a home theatre gaming system.” (And here I thought I had every possible gadget in my home theatre system!)

*See previous posts here and here about the possible origin of “Blue Lantern” as the program name.

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Mar

19

Government Ministers Who Are Also SDNs Can Make Deals Hazardous

Posted by Clif Burns at 8:49 pm on March 19, 2013

Category: Burma Sanctions

Burma The Office of Foreign Assets Control (“OFAC”) has just released new guidance on the Burma sanctions and, more importantly, what’s left of the Burma sanctions. Buried at the end of the guidance is something of an answer to a conundrum we have addressed before, namely, if a government member is on the SDN list, what restrictions are thereby imposed on dealings by a U.S. person with that government.

This blog first addressed that question not too long ago when Specially Designated National Nalinee Taveesin was appointed the Prime Minister’s Office Minister of Thailand. I suggested that this meant that U.S. persons and companies could not deal with her either in her private or her official capacity and cautioned that transactions in which she was any way involved for the Thai government should be avoided.

That question is posed again by Burma where many members of the current government are holdovers from the military regime and remain on the SDN list. The omnipresence of designated cronies of the old junta in Burma was uncomfortably brought home to U.S. Assistant Secretary of State Jose Fernandez when he got caught in a grip and grin photo op in Burma with the Union of Myanmar Federation of Chamber of Commerce and Industry President (and Specially Designated National) Win Aung. Oops.

Here is what OFAC has to say about Burmese government officials who also happen to be SDNs:

285. If a Burmese Government minister is an SDN, how does that impact the ministry he leads?

A government ministry is not blocked solely because the minister heading it is an SDN. U.S. persons should, however, be cautious in dealings with the ministry to ensure that they are not, for example, entering into any contracts that are signed by the SDN.

Unfortunately, the more you examine this “guidance,” the less actual guidance it provides. The problem, of course, is with the phrase “for example” stuffed into the last sentence. The SDN can’t “for example” sign any contracts. But what else “for example” would pose a problem? Negotiating the contract? Approving the contract? Recommending changes to the contract? Taking actions that implement the contract? To be safe, a U.S. company needs to make sure that the SDN official has never heard of the contract and is on a different continent when the contract is negotiated, signed and performed.

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Mar

12

How Many Lawyers Does It Take to Export a Lug Nut?*

Posted by Clif Burns at 6:12 pm on March 12, 2013

Category: Arms Export • Export Reform

U.S. Air Force Photo http://www.af.mil/shared/media/photodb/photos/021105-O-9999G-056.jpg (Public Domain) Michèle Flournoy, a former undersecretary of defense, writes today in the Wall Street Journal in favor of export law reform in an op-ed piece (subscription required) titled “Want to Export an F-16 Fighter Jet?” Probably a better title would have been “Want to Export F-16 Fighter Jet Parts?” since that’s what her whole piece is about.

In her op-ed, she says

Over the past six decades, Washington has developed a system that applies one-size-fits-all bureaucratic requirements to defense exports. The system is plagued by maddeningly lethargic timetables for approving technology transfers. It handles airplane windshield wipers essentially the same way it handles air-to-air missiles. It forces American companies and foreign partner militaries to await separate approvals for every latch, wire and lug nut on an F-16 fighter jet—even though the U.S. government has already approved the export of the whole aircraft.

Although I see what Ms. Flournoy is trying to get at, she hasn’t said it very accurately at all. For starters, not every latch, wire and lug nut on an F-16 requires separate export approvals when shipped separately from an F-16. Parts that are not “specifically designed and modified” for military or civil aircraft don’t require separate export approval. If an item is usable on both civil and military aircraft but is standard and integral equipment covered by a civilian aircraft type certificate it is controlled by Department of Commerce regulations, which means it will not require a license for exports to most destinations. And not to be too picky but Ms. Flournoy’s point also ignores the exemption in section 123.16(b)(2) of the ITAR for exports of low value parts to a previously approved end user.

This is not to say that there is not room for reform in how the U.S. government handles exports of aircraft parts; it’s only to say that not every latch, wire and lug nut requires a license right now.

*One, but the lug nut really has to want to be exported.

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