Mar

16

The Mojito, Er, The Dog Ate My People-to-People Records


Posted by at 10:49 pm on March 16, 2016
Category: Cuba SanctionsOFAC

Mojito by Sami Keinänen [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/4GyGSs [cropped]Today, the Office of Foreign Assets Control (“OFAC”) amended the Cuban Assets Control Regulations to, among other things, expand the general licenses authorizing travel by U.S. citizens to Cuba. Under the new amendments, U.S. citizens can travel to Cuba under the people-to-people general license without doing so under the auspices of a sponsoring organization. As long as the individual arranges for himself or herself a “full-time schedule of educational exchange activities that will result in meaningful interaction between the traveler and individuals in Cuba,” the trip is authorized under the general license for educational activities in section 515.565. The amended rules still exclude travel that is “primarily tourist-oriented” but eliminates the exclusion for “self-directed educational activities that are intended only for personal enrichment.”

A new example tries to grapple with the distinction between a trip that is primarily tourist-oriented and a permitted self-directed activity that involves a meaningful exchange with individual Cubans:

An individual plans to travel to Cuba to rent a bicycle to explore the streets of Havana, engage in brief exchanges with Shopkeepers while making purchases, and have casual conversations with waiters at restaurants and hotel staff. None of these activities are educational exchange activities that will result in meaningful interaction between the traveler and individuals in Cuba, and the traveler’s trip does not qualify for the general license.

In that case, go directly to OFAC jail; do not pass go. As you might imagine, it may be difficult for individuals, anxious to swill down a few mojitos in Old Havana before there is a Starbucks on every corner and an Olive Garden in every storefront, to grasp the difference between a meaningful exchange and a pub crawl. The checks and balances of a sponsoring organization will be absent.

Worse yet, consider this: under the rules for the people-to-people license, the individual will need to “retain records sufficient to demonstrate” a “full-time schedule of activities” that result in a meaningful interaction with Cubans (other than waiters, bartenders and hotel staff). Forgive my cynicism (or not), but a large number of individuals engaged in self-directed people-to-people (other than waiters, bartenders and shopkeepers) travel are not going to have a clue as to how to do this. Unless this is intended to be a requirement that is never enforced and a concealed license for tourism in Cuba, this is not going to end well for many people relying on this self-directed license. Don’t get me wrong, as you can imagine, I’m all for unfettered travel to Cuba. But I really don’t relish the possibility that, 18 months from now, I’ll be getting calls to help out a friend whose kids went to Cuba and thought that their Instagram account qualified as adequate documentation of their self-directed people-to-people trip to Cuba.

Photo Credit: Mojito by Sami Keinänen [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/4GyGSs [cropped]

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Mar

11

End Book Publisher Illiteracy on Cuba Sanctions


Posted by at 10:39 am on March 11, 2016
Category: Cuba SanctionsOFAC

Poro en el mercado de libros usados by Javier Ignacio Acuña Ditzel [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/5xQkWj [cropped]A group of publishers have just petitioned the White House to “End the Book Embargo Against Cuba.” Say what? It’s illegal to send books to Cuba or import books from Cuba? Not so much. Due to the information exception in the Berman amendment, the import of books from, and the export of books to, Cuba is permitted and may not be forbidden by OFAC. But you would never know that from the petition.

Of course, what’s really going on here is that the information exception, as narrowly construed by OFAC, is defined to include only information and books already in existence. You can import Che Guevara’s El Diario del Che en Bolivia from Cuba and export Henry James’s What Maisie Knew to Cuba because both works are already in existence. What you can’t do is pay an author in Cuba to write a book for you and edit it for publication, which is, I suppose, what the publishers, however inartfully, are getting at.

The publishers do have an excellent argument to make, and it is somewhat baffling that they did not make it directly. Under the recent amendments to the Cuban Assets Control Regulations, movie, television and record companies are allowed to go hog-wild in Cuba, hiring Cubans to work on “filming or production of media programs (such as movies and television programs), the recording of music, and the creation of artworks in Cuba,” leaving book publishers behind in the dust. That, simply put, does not make an ounce of sense. I suspect that given that many publishers also have interest in music and movie production, they aren’t anxious to complain openly about differential treatment of movies, music and books.

Photo Credit: Poro en el mercado de libros usados by Javier Ignacio Acuña Ditzel [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/5xQkWj [cropped]

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Mar

9

As Epsilon Lay Dying


Posted by at 11:04 pm on March 9, 2016
Category: Iran SanctionsOFAC

Soundstream Audio Car http://www.soundstream.com/images/intl-team/pic/england/england/images/new/UK%20(1).jpg [Fair Use - Soundstream is Epsilon sub]We have followed the saga of Epsilon Electronics extensively, beginning with the The Auto Sound and the OFAC Fury Part I and Part II and ending most recently with Epsilon, Epsilon. Well, it seems that the story may be drawing to a close. On Monday, a federal district court granted OFAC summary judgment on its motion to dismiss Epsilon Electronics complaint challenging the $4.073 million dollar fine imposed on Epsilon by OFAC. The opinion can be viewed and downloaded here.

The court considered each of Epsilon’s arguments and easily dispatched all of them, only barely concealing its opinion that Epsilon’s arguments were largely frivolous. We discussed our own view of Epsilon’s arguments, particularly its bizarre claim that the fine violated the U.S. Constitution’s Excessive Fines clause, in The Auto Sound and the OFAC Fury Part II. The court, not surprisingly, held that the Excessive Fines clause did not preclude the $4 million fine given that Epsilon sold $3.4 million in goods to Iran and given that this fine was only one-third of the statutory maximum.

Epsilon’s due process claim fared no better with the court.   The court paid particular attention to what was, perhaps, Epsilon’s gravest error in its dealing with OFAC, one we noted in Epsilon, Epsilon, our third post on this case.  Two separate subpoenas, the court noted, provided Epsilon with adequate notice of OFAC’s investigation.   The court went on:

Almost two years later, on May 6, 2014, OFAC issued its pre-penalty notice, which informed the plaintiff that it had 30 days to provide a written response to the pre-penalty notice. … The plaintiff provided a two-page response to the pre-penalty
notice on June 6, 2014 … . This series of events shows that the plaintiff had ample opportunity to respond to OFAC’s inquiries into its dealings with Asra International and to OFAC’s detailed pre-penalty notice. Procedural due process demands nothing more.

The court’s reference to the “detailed” pre-penalty notice and the plaintiff’s “two-page” response make clear that the court had little patience for a due process claim once Epsilon had squandered its opportunity to provide an adequate response to the pre-penalty notice.

Finally, the court dismissed Epsilon’s arguments that its sales to Iran were permissible under the “inventory exception” embodied in OFAC’s “Guidance on Transshipments to Iran.” According to the court, the guidance does not permit sales into non-U.S inventory outside Iran where the U.S. exporter has “reason to know” that the goods were ultimately destined to Iran. The court cited, as we have, the distributor’s website as ample evidence that Epsilon had reason to know that its distributor was dealing principally, if not exclusively, with Iran.

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Mar

7

ZTE Zells ZTE Zhells by the Zeashore


Posted by at 5:57 pm on March 7, 2016
Category: BISIran Sanctions

ZTE Stand 6 via http://www.zte.com.cn/cn/events/ces2013/show/201301/t20130110_381605.html [Fair Use]

The Bureau of Industry and Security (“BIS”) is placing Chinese telecom giant ZTE (and three related companies) on the Entity List tomorrow according to this pre-release version of the Federal Register notice announcing the action. As a result, all items subject to the EAR will require an export license prior to any export to ZTE. Under this action, all applications for such licenses will be subject to a policy of denial.

The action is taken as a result of the diversion by ZTE of certain U.S. origin products to Iran. More important, perhaps, than the diversion itself is that BIS caught ZTE playing a shell game and ZTE lost. Somehow or other, BIS got its hands on a ZTE internal document, labelled “Top Secret Highly Confidential” and titled, innocently enough, “Proposal for Import and Export Control Risk Avoidance.” In fact, this incriminating document might be better titled “Everything You Wanted to Know about Shells but Were Afraid to Ask.” It sets out, in excruciating detail, a plan for setting up a chain of shell companies through which the U.S. goods would pass with the hope that it would throw the U.S. government off the scent of what was really going on. Under this plan, a Chinese company owned by an allegedly independent Chinese investor would buy U.S. parts, sell them to another Chinese company, owned by another allegedly independent Chinese investor, which would sell those to another single “independent” Chinese investor company in Dubai, which would then sell the goods to Iran.

Two juicy quotes from the report will give you the idea of what ZTE had in mind:

However, the detached [shell] companies … are invested by natives of [the People’s Republic of China] and not only does our company need to make [the detached shell companies] operate independently, [our company] also needs to effectively control them.

Yea, sure, that works … if you believe in oxymorons and unicorns.

The biggest advantage of [this] Model is that it is more effective, [because it’s] harder for the U.S. Government to trace it or investigate the real flow of the controlled commodities; and in formality, our company is not participating in doing business with [Iran].

Right, “in formality” it’s not doing business with Iran because its being done by those companies that look like they operate independently but which ZTE “effectively control[s].” Game over.

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Mar

3

“Based on My Experience and Training. . .”


Posted by at 8:09 pm on March 3, 2016
Category: Criminal PenaltiesIran SanctionsOFAC

All in a Day's Work by Damian Gadal via Flickr https://flic.kr/p/5xQkWj [Fair Use]
ABOVE: Erdal Kuyumcu

Erdal Kuyumcu, the CEO of Global Metallurgy LLC, was indicted this week on charges that he shipped an EAR99 chemical to Iran through a middleman in Turkey. The criminal complaint provides the details of the government’s case, which, charitably speaking, seems weak.

In order to sustain a criminal conviction, it must be demonstrated that Kuyumcu knew that the chemical that he shipped from the United States to Turkey was going to be re-exported to Iran. In support of this, the government cites a number of emails unrelated to the shipments at issue, where the Turkish company and Mr. Kuyumcu had an email exchange about a trip the head of the Turkish company referred to as “flying out to the neighbor’s” and which Mr. Kuyumcu replied “Good luck at the neighbor’s.” The FBI agent signing the criminal complaint said that based on his “training” and “experience,” this was a coded reference to Iran and this coded language is proof that Kuyumcu was aware that the chemical he later shipped to Turkey was going to be re-exported to Iran. It’s hard to see the connection here. And it’s not hard to imagine that there are a number of innocent reasons why foreigners might not want to have all their email sniffed by the NSA after the NSA’s email sweeps see the word Iran.

There are two emails connected to the shipments at issue that the government cites, but these are not conclusive either. In both emails, Mr. Kuyumcu, in response to an inquiry from the U.S. supplier of the EAR99 chemical for the name of the end user, asks the Turkish company to provide the name of a “friendly” company in Turkey with a website and that uses the chemical. The FBI agent believes this is a slam dunk:

Based on my training and experience, and on the foregoing emails between KUYUMCU and Co-Conspirator #1, where KUYUMCU asks for the name of “a friend company with a website … that uses this material,” and specifically directs Co-Conspirator #1 to the “email below” from the Ohio Company asking the name of the end-user company, KUYUMCU was asking Co-Conspirator #1 to fabricate end-user information using the name of a “friend[ly]” company whose name could be provided to the Ohio Company [the supplier] in an effort to conceal that the true end user of the Cobalt Compound was Iranian Company #!.

That might be one explanation, but there is certainly an equally reasonable one, particularly for anyone with experience and training not from Quantico but from actual business. Middlemen never like to give the name of end users to their suppliers. They regularly refuse to provide the information or provide incorrect information, not because they’re busy selling stuff to Iran, but because they don’t want their supplier to cut them out and start dealing with the end user directly.

The FBI affidavit is full of questionable appeals as above to his “training and experience,” but there is one particularly amusing reference to his training and experience. Some time after the shipment in question, and without reference to it, Mr. Kuyumcu sent an email that said in part: “H]ave you heard anything from the neighbor? :)” The FBI Agent had this to say about the email:

Based on my training and experience, the colon followed by a close parenthesis in the above quote represents a smiley face.

Seriously? At Quantico they have a class to teach FBI Agents that a colon followed by a close parenthesis represents a smiley face? Do they teach them as well that a colon followed by a zero represents a shocked face? And that *<|:‑) is Santa Claus? I know a bunch of these, so can I get paid to teach that class? ¯\_(ツ)_/¯

Outside of this unintentionally clueless hilarity from the FBI agent, this is really a classic demonstration that when he throws around throughout the complaint references to his “training and experience,” he might be basing his conclusions on something far less compelling than his actual training or experience despite what he claims.

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