OFAC and Zimbabwe Bank Negotiating over Penalties

Posted by at 6:17 pm on October 30, 2017
Category: OFACZimbabwe Sanctions

CBZ Bank via https://www.cbzbank.co.zw/images/pages/news/bus-banking.jpg [Fair Use]African media is reporting that the Office of Foreign Assets Control (“OFAC”) and CBZ Bank are in the process of negotiating over a jaw-dropping proposed penalty.  The penalty negotiations arise from CBZ’s allegedly having cleared U.S. dollar transactions for ZB Bank, a bank in Zimbabwe that appears on OFAC’s List of Specially Designated Nationals and Blocked Persons.

The charges by OFAC involve 15,127 violations, which led OFAC to write this in its initial penalty notice sent to CBZ in March:

Accordingly, the base penalty for the apparent violations equals the applicable schedule amount for each apparent violation, capped at US$250 000 per apparent violation, which in this case totals US$3,856,505,460.

The math here is a little whacked out for some reason since 15,127 times $250,000 is $3,781,750,000.  But what’s several hundred thousand dollars, more or less, when you’re talking Dr. Evil sized billion dollar amounts?  According to the press accounts, OFAC has already been bargained down to $385 million.  Of course, that is still a good chunk of the banks current total assets of $2.1 billion.

The transactions involved were allegedly all denominated in U.S. dollars.  Even so, the bank is trying to argue with OFAC that the transactions were “in-country” and therefore not subject to U.S. sanctions.  It’s not quite clear whether this is an argument that only transactions by CBZ with SDNs not in Zimbabwe may be sanctioned, an argument not likely to get much traction.  Or, alternatively whether this is an argument that no correspondent accounts in New York were used to clear the transactions, something that might have been possible for a few small transactions but not very likely for all 15,127 violations.

The better argument here, it seems, is that a $385 million dollar penalty against a bank with $2 billion in assets could cause a run on the bank and could harm ordinary people in Zimbabwe with accounts at the bank.  That, of course, assumes that the U.S. government cares about ordinary people in Zimbabwe.



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The Dog Ate The White House’s Section 231 Guidance

Posted by at 12:48 pm on October 28, 2017
Category: OFACRussia DesignationsRussia SanctionsState Department

Vladimir Putin via http://en.kremlin.ru/events/president/news/27394 [Fair Use]Because Congress was not convinced that the Trump administration would respond to Russia’s various shenanigans in Ukraine and in the U.S. elections, it passed, on August 2, 2017, the Countering America’s Adversaries Through Sanctions Act (“CAATS Act”). Section 231 of the CAATS Act targets U.S. and foreign persons that engage in a “significant transaction with a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the Government of the Russian Federation.” Under that section, the President must impose at least five of the laundry list of twelve possible (and familiar) sanctions described in section 235, including denial of export privileges, asset blocking, government procurement bans, visa and travel bans and prohibition of lending to, or investment in, the sanctioned entity. That section also permits these sanctions to be imposed not just on a corporate entity but also on its principal officers.

One immediate and obvious issue is the ban on dealing with persons acting on behalf of Russian intelligence. You don’t have to be an avid fan of “The Americans” or John le Carré to know that spooks don’t ever advertise that they are spooks. Kaspersky Labs, which may or may not be acting on behalf of the FSB, vigorously denies that it has had anything whatsoever, now or in the past, with the FSB, which, of course, is to be expected and is not in and of itself convincing proof that they are just a little anti-virus company in Moscow. So section 231(d) required the President to issue, by October 1, 2017, “regulations or other guidance to specify the persons that are part of, or operate for or on behalf of, the defense and intelligence sectors of the Government of the Russian Federation.” Not surprisingly, October 1, 2017 came and went without the required guidance. Tick. Tock. Tick. Tock.

Well, yesterday, almost a month late and after a draft of the guidance was leaked to the New York Times, the State Department released a list of thirty-nine entities associated with Russian defense and intelligence. Of those, only 10 were not previously on the SDN or SSI Lists. Of the twenty-nine already on one of those lists, eight are on the SSI List.

It is not at all clear why this list and the guidance are being issued from the State Department rather than from the Department of Treasury’s Office of Foreign Assets Control which normally handles economic sanctions of this sort. The result is that Heather Nauert, who held a State Department briefing on the new guidance and admitted that she was not a “sanctions expert,” had no idea what she was talking about. Hilariously (or perhaps tragically) she says that the entities on the list are “entities that [people] can no longer do business with.” The issued guidance says the exact opposite: “The Act does not provide for sanctions in cases in which transactions are not “significant.'” Oops.

Of course, even though the prohibition is only on “significant transactions” with these entities, it is not altogether clear what constitutes a “significant transaction.” Inexplicably, there is no dollar threshold mentioned in the guidance. The most detailed statement on what is not significant is this confusing statement: if a”transaction for goods or services has purely civilian end-uses and/or civilian end-users, and does not involve entities in the intelligence sector,”  this will “weigh heavily against” a determination that it is a significant transaction.  What this says, given that the restrictions are on dealings with the intelligence and defense sectors, is that transactions in the defense sector with purely civilian end-users or civilian end-uses won’t be deemed to be significant transactions. How a transaction in the defense sector can have purely civilian end-uses and end-users is far from clear.

Finally, it is important to understand that nothing in the guidance says that this is a comprehensive list of entities in the defense and intelligence sector where significant transactions can lead to sanctions. If you have a significant transaction with an entity in the intelligence sector, even one operating under deep cover, you and your principal officers can be sanctioned. Whether this will ever happen is unclear, but U.S. and foreign companies doing business with Russian companies will be doing so at their own risk.  Whether this is the intended result or simply an unintended result of incompetence is irrelevant.

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The UNPA Sidestep Doesn’t Allow OFAC to Shuffle Past the Berman Amendment

Posted by at 10:39 am on October 20, 2017
Category: Iran SanctionsOFAC

The House of Leaves - Burning 4 by Learning Lark [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/7iW4zL [cropped]My post two days ago on the  fourth designation of IRGC by OFAC and OFAC’s claim that this new designation would prevent the supply of informational materials to the IRGC notwithstanding the Berman Amendment has resulted in a lively debate over in the Twitter-verse.  Some are arguing that because section 105 of the Countering America’s Adversaries Through Sanctions Act (“CATSACT”) specifically directs the President to sanction IRGC under Executive Order 13224, and because Executive Order 13224 was promulgated in reliance on the United Nations Participation Act (“UNPA”), the Berman Amendment’s restriction on informational embargoes doesn’t apply.

Because a boring legal and export-geeky argument follows, here is the TL;DNR — Now that the Security Council has lifted its sanctions on the IRGC, the UNPA does not justify designation of the IRGC. That designation is properly made under IEEPA, meaning that the Berman Amendment still applies

The UNPA was passed in 1945 and, as it title implies, is the act that permitted U.S. participation in the United Nations. As part of that participation, the UNPA authorizes the President to take steps necessary to implement Security Council Resolutions. Specifically, the UNPA, in 22 U.S.C. § 287c(a), provides as follows:

Notwithstanding the provisions of any other law, whenever the United States is called upon by the Security Council to apply measures which said Council has decided, pursuant to article 41 of said Charter, are to be employed to give effect to its decisions under said Charter, the President may, to the extent necessary to apply such measures, through any agency which he may designate, and under such orders, rules, and regulations as may be prescribed by him, investigate, regulate, or prohibit, in whole or in part, economic relations or rail, sea, air, postal, telegraphic, radio, and other means of communication between any foreign country or any national thereof or any person therein and the United States or any person subject to the jurisdiction thereof, or involving any property subject to the jurisdiction of the United States.

So, although this provision does permit the President to ban any means of communication with a foreign country it does so only “to the extent neccesary to apply such measure” as the Security Council “has decided … are to be employed to give effect to its decisions.”  It is not like the International Emergency Economic Powers Act which permits the President to declare a national emergency and then apply whatever measures the President wants limited only by the Berman Amendment’s informational materials and travel exception and the other specific exceptions set forth in the Act. Instead, it is limited to implementation of specific measures adopted by the Security Council.

So the issue here is whether the designation of IRGC through an order under E.O. 13224 is necessary to implement measures set forth in a Security Council Resolution and whether it is limited to actions that are “necessary” to implement those measures. First, of course, we have to look at UNSCR 2231, which repealed all prior Security Council Resolutions regarding Iran. This means that the designation of the IRGC in UNSCR 1747 has been terminated. In addition, UNSCR requires the E.U. to remove the IRGC from its list of designated entities. So nothing in any Security Council Resolution regarding Iran authorizes designation of the IRGC under the UNPA.

Nor is there anything in the Security Council Resolutions that are the basis of E.O. 13224 that support the designation of IRGC. Those resolutions are UNSCR 1214, 1267, 1333, and 1363. All of these Security Council Resolutions authorize measures taken against the Taliban in Afghanistan and have nothing to do with, and do not justify, a designation of the IRGC. The Executive Order also cited UNSCR 1269, although it does not explicitly claim authority from that resolution. UNSCR 1269 authorizes and encourages multilateral responses to terrorism and does not authorize a unilateral designation of IRGC as a terrorist, particularly after UNSCR 2231 lifted the UN’s designation of the IRGC and requires the E.U. to remove the IRGC from its lists.

Although cited by those now arguing that OFAC is correct that orders issued under E.O. 13224 are not subject to the Berman Amendment’s exceptions, the Ninth Circuit decision in Sacks v. Office of Foreign Assets Control does not permit that conclusion. The Ninth Circuit does say “IEEPA imposes no such burden on the President’s powers when he acts under the UNPA.” But Sacks is clearly not justification for OFAC’s claim here that the Berman Amendment to IEEPA does not apply to its designation of IRGC under E.O. 13224.

Sacks involved Executive Order 12722 which imposed a travel ban to Iraq pursuant to UNSCR 661. Of course, that travel ban was specifically required by UNSCR 661, which required member states to prohibit all transactions in Iraq other than those involving “medical or humanitarian purposes.” Clearly a travel ban could be considered a measure necessary to implement the specific restrictions of UNSCR. The same cannot be said for the designation of the IRGC which is not necessary to implement the UNSCR sanctions against the Taliban or the UNSCR resolution authorizing multilateral responses to terrorism.

Even though the UNPA doesn’t authorize the designation of the IRGC under E.O. 13224, there is little question that such a designation would be authorized under IEEPA.  Of course, that means that the exceptions in IEEPA, including its restrictions on embargoes of informational materials, would apply to any such designation.

Photo Credit: The House of Leaves – Burning 4 by Learning Lark [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/7iW4zL [cropped]. Copyright 2009 Learning Lark

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OFAC Designates the IRGC for the Fourth Time

Posted by at 7:37 pm on October 18, 2017
Category: Iran SanctionsOFAC

Imam Khomeini by Kaymar Adl [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/kamshots/515002010/ [cropped]Last week, Iran’s Islamic Revolutionary Guard Corps (“IRGC”) was sanctioned yet again by the Office of Foreign Assets Control (“OFAC”). I say “yet again” because prior to the latest action the IRGC had already been designated and blocked under Executive Orders 13382, 13553, and 13606. At this point, OFAC has now put the IRGC on the SDN List more more times than the Washington Nationals have been in the National League Division Series (three times) and way more times than they’ve won the NLDS (that would be never).

Which leads to the legitimate question as to what’s going on here? Are OFAC and the White House just trying to stir things up? Or is there some kind of monthly designation quota at OFAC, like the police department daily ticket quotas in Arlington, Fairfax and Falls Church which make driving in Virginia so risky?

Knowing that this issue would arise, OFAC released along with the designation an FAQ to explain why this designation is unlike the other ones.

Today’s action designating the IRGC under E.O. 13224, our counterterrorism authority, carries some additional consequences that will limit certain activities with respect to the IRGC. Persons designated under E.O. 13224, which now includes the IRGC, may not avail themselves of the so called “Berman exemptions” under the International Emergency Economic Powers Act (IEEPA) relating to personal communication, humanitarian donations, information or informational materials, and travel.

That’s right. It is now a federal crime for a U.S. person to give a copy of The Bible to anyone in the IRGC.

Aside from the sheer stupidity of this result, it is not quite clear to me that it is actually the case that this new designation sidesteps the Berman Amendment. That amendment, codified in 50 U.S.C. § 1702(b)(3), restricts the actions that the President can take with respect to using the International Emergency Economic Powers Act (“IEEPA”) to limit, among other things, the import and export of informational materials.

The new designation is the result of section 105 of the Countering America’s Adversaries Through Sanctions Act (“CATSACT”) which specifically directs the President to sanction IRGC under Executive Order 13224. Now perhaps OFAC thinks that it can escape the Berman Amendment because these sanctions are under CATSACT and not under IEEPA. The problem is section 105 explicitly cites IEEPA in imposing the obligation to sanction the IRGC under Executive Order 13224. Moreover, the other three executive orders under which IRGC was previously sanctioned cite other statutory authority in addition to IEEPA, so it’s not quite clear why OFAC now says that throwing some statute other than IEEPA into the mix makes the Berman Amendment provisions on informational materials inapplicable. Finally, the result of a designation under Executive Order 13224 is to make the IRGC subject to the Global Terrorism Sanctions Regulations.  Those regulations, in section 594.305, have a definition of “informational materials,” a definition that would be completely unnecessary if OFAC thought that the Berman Amendment’s provisions on “informational materials” did not apply.

Photo Credit: Imam Khomeini by Kaymar Adl [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/kamshots/515002010/ [cropped]. Copyright 2007 Kaymar Adl

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Happy Sudan Day!

Posted by at 7:44 pm on October 12, 2017
Category: BISOFACSudan

Meroe (49) by joepyrek [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://https://flic.kr/p/dD4ue9 [cropped]Today, October 12, is the day on which Executive Order 13067, which repealed earlier executive orders imposing sanctions on Sudan, becomes effective. We got here by a somewhat circuitous route. Executive Order 13067, issued in the last days of the Obama administration, delayed its effective date until July 12, 2017, although OFAC issued a general license at the time the order was issued doing everything the order would do when it became more or less permanently effective on July 12, 2017. The Trump Administration extended that effective date until October 12, 2017. Since no further orders have been issued, the lifting of sanctions contemplated by the Obama executive order is now in effect, although practically nothing much has changed given that the general license issued with the Obama order, and found in section 538.540 of the Sudanese Sanctions Regulations (“SSR”), did everything the executive order itself does now that it has officially gone into effect.

Of course, when the Office of Foreign Assets Control is involved, there is always some confusion. In the FAQs issued on the revocation of the Sudan Sanctions, OFAC makes this odd statement: “OFAC expects to remove the SSR from the C.F.R.” When that will happen and why on earth it didn’t happen today is not addressed. So, technically, the rules prohibiting Sudan transactions remain on the books although fortunately so does the general license in section 538.540. Perhaps the new folks at OFAC don’t know the difference between the printed edition of the C.F.R., where removal has to wait to the next edition, and the electronic edition, where the SSR can be removed virtually immediately.

The lifting of the sanctions on Sudan, as a practical matter, means that all imports from Sudan are permitted and most EAR99 items can be exported to Sudan. Since Sudan remains a state sponsor of terrorism, section 7205 to the Trade Sanctions Reform and Export Enhancement Act of 2000 requires a license for all exports of agricultural commodities, medicine and medical devices to Sudan. These are covered by the general license in 538.540 and the new General License A, both of which permit exports of these items pursuant to a written agreement during the one-year period from the signing of the agreement. The lifting of the sanctions has no effect on the export restrictions in the Export Administration Regulations which require licenses for exports of Sudan for most items with an ECCN other than EAR99 or items listed in Supplement 2 to Part 742 (which includes some EAR99 items). And the arms embargo on Sudan in section 126.1 of the ITAR continues to remain in effect.

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