Gun Laundering Scheme Takes Defendant to the Cleaners

Posted by at 7:06 pm on February 23, 2016
Category: Arms ExportCriminal PenaltiesDDTC

Washing Machine or your life by Alexander von Halem [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/aeNmsj [cropped]Richmond Attah, a resident of Charlotte, North Carolina, was indicted last week for exporting 27 handguns and 3500 rounds of ammunition without the required license from the Directorate of Defense Trade Controls. The guns and ammo, which were hidden in a washing machine, a dryer and a barrel, were on their way to Ghana before being discovered by U.S. customs officials in Savannah, Georgia.

As readers of this blog undoubtedly know, a criminal export conviction requires proof that the defendant knew that he or she was violating the law in connection with the unlicensed export. Given the confusing welter of applicable regulations, and the uncertain export classification of many items, this can often be a difficult task. The challenge for the defense in this case will be explaining exactly why, if true, 27 handguns were put into a washer and dryer bound for Ghana and why this is not fairly conclusive proof that Mr. Attah knew that the exports were illegal. Perhaps the explanation will be that the intended recipient demanded that the weapons be “clean” and Mr. Attah did not completely understand what this meant.

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Copyright © 2016 Clif Burns. All Rights Reserved.
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White House Will Sign New Nork Sanctions

Posted by at 8:54 pm on February 18, 2016
Category: North Korea SanctionsOFAC

Kim Il Sung Square in Pyongyang by Uri Tours [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/pQmzeV [cropped]White House spokesman Josh Earnest said yesterday that the President will sign H.R. 757, the “North Korea Sanctions and Policy Enhancement Act of 2016,” which imposes new sanctions on North Korea in the wake of a recent nuclear test and missile launch. The bipartisan bill passed the Senate unanimously (96-0) on February 10.

The initial text of the bill, in section 104(e), imposed a strict ban on all dealings in any property located in North Korea, originating from North Korea, or owned by the Government of North Korea. Because the bill did not define “property,” this provision could potentially have been read to impose a near-total embargo on the Norks. This was scaled back, no doubt due to the U.S. concerns that China, which the U.S. is currently seeking to bring on board for new U.N. sanctions, would object to the potential regional destabilizing effects of any measures that would have a significant impact on the North Korean economy.  The last thing China wants is a bunch of North Korean refugees pouring across its common border.

The only remaining export ban is a provision which appears to reimpose those export restrictions that are normally imposed on State Sponsors of Terrorism without actually putting North Korea back on that list. Section 203(a) provides:

A validated license shall be required for the export to North Korea of any goods or technology otherwise covered under section 6(j) of the Export Administration Act of 1979 (50 U.S.C. 4605(j)).

It is not immediately clear that this will change any of the extensive restrictions imposed by section 742.19 of the EAR beyond expanding the general policy of license denial beyond those items controlled for NP and MT reasons to all items controlled by the CCL.

The secondary sanctions of the bill are likely to have a broader impact. Section 104(a) defines activities that, if engaged in by any person, including a foreign person, require mandatory blocking of that person. This is a departure from the usual practice of granting the President the discretion to block persons who have engaged in prohibited conduct. The categories of prohibited conduct include import or export of goods from or to North Korea that are controlled on the Commerce Control List for CB, NP or MT reasons. Import of luxury goods into North Korea is also a ground for mandatory designation. So, if we ever find out who put that MacBook Pro into Kim Jong Un’s pudgy little hands, they’re going to be in big trouble.

The new sanctions bill also introduces an interesting wrinkle into the blocking rules for those designated under the new law. Under current OFAC guidance, entities owned 50 percent or more by a blocked person are also blocked. Under section 104(d), the automatic blocking extends to any entity “owned or controlled by, or to have acted or purported to have acted for or on behalf of, directly or indirectly” any party blocked under this act. That, of course, is a screening nightmare. Normally it is hard enough to determine ownership. Determining whether a party is controlled by, or, worse, acting on behalf of, a blocked party will be next to impossible.

Note:  posting has been, and will be, light this week because of work and travel considerations. Normal posting will resume next week.

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



Nork Dork Kim Jong Un Thinks Different

Posted by at 8:48 pm on February 11, 2016
Category: General

Two years ago we caught Kim Jong Un, North Korea’s Dear Dork Leader sending Candy Crush invites to his Facebook friends (all three of them) using a 21.5 aluminum unibody iMac. It seems that Apple’s most notorious fanboi has now added a MacBook Pro to his collection of Apple devices. James Pearson, a Reuters correspondent covering North and South Korea, captured a shot of the overstuffed dictator with his trendy laptop and shared the photo via his Twitter account in the tweet embedded above.

A MacBook Pro is classified as ECCN 5A992.c and can’t be shipped to North Korea without a BIS export license, a license we can all safely assume that was not granted given BIS’s general policy of denial for these items, as set forth in EAR § 742.19(b)(vii).  Once again, we can see how easy it is for U.S. items to be diverted to places and people where they are not supposed to go.  Whatever Kim Jong Un wants, Kim Jong Un gets. And little Mac, Kim Jong Un wants you!

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Buy Me Some Cubans and Some OFAC-Jacks

Posted by at 11:59 pm on February 10, 2016
Category: BaseballCuba SanctionsOFAC

Yulieski Gourriel by Boomer-44 [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/e1ZrZ7 [cropped and color corrected]
ABOVE: Yulieski Gurriel

It’s cold outside. It’s been snowing. So it’s time, of course, to dream of spring training and the boys of summer. Let’s talk baseball. And OFAC. Batter up!

Wait, haven’t we said this before?  Indeed we have, just about the same time last year, when the MLB and OFAC were in a struggle, principally centered around Yoan Moncado, as to whether MLB would sign unblocked Cuban baseball players only with a specific license even though OFAC said that its general license in section 515.505 of the Cuban Assets Control Regulations was enough and that it wouldn’t issue a specific license for Cuban players. (The MLB blinked and now allows signing based on the general license.)

Early last Monday morning, Yulieski Gurriel and his brother Lourdes Jr., who were playing for Cuba in the Caribbean Series in the Dominican Republic disappeared from their hotel and later announced their intention to take part in the U.S. national pastime. Yulieski is one of the top players in Cuba and Lourdes Jr. is a well-ranked prospect as well. To be eligible for the general license, the brothers must establish residency outside Cuba. It then takes MLB a few more months to convince themselves that residency outside Cuba has been established. So don’t expect to see either of them (Yulieski in the majors and Lourdes Jr. in the minors) on opening day.

Of course, given the liberalization of the Cuban embargo, the question remains as to why the brothers have to cool their heels for 6-12 months before they can play ball. The latest round of liberalization lets people travel from the U.S. to Cuba for baseball and other “athletic competitions.” It would only make sense to even up the traffic in the other direction and let the Gurriels and others play baseball here before being unblocked. Even the perpetual Cuba blockade boosters club in Congress could hardly complain because such a rule would suck baseball talent out of Cuba and, far from propping up the current Cuban regime, might do more to bring it down than 50 years of economic sanctions.

For some bonus fun, here’s what Cuba had to say about the defection:

In the early morning on Monday two players abandoned the hotel where the Cuban baseball team attending the 58th Caribbean Series Baseball in the Dominican Republic was staying. Yulieski Gourriel and Lourdes Gourriel Castillo, in a blatant attitude of surrender, were taken in by the merchants of professional baseball. The event was immediately rejected by the other members of the Cuban team, who issued a statement.

Uh huh. Sure they did.

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Zimbabwe’s Blocking Laws Lead to OFAC Fine

Posted by at 11:20 pm on February 9, 2016
Category: OFACZimbabwe Sanctions

Animal at Barclays by Gareth Milner [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/fj2Kkg [cropped]The Office of Foreign Assets Control (“OFAC”) announced yesterday that Barclays Bank agreed to cough up $2,485,890 to settle charges that it dealt with parties blocked under the Zimbabwe sanctions. At issue were three parties that were not themselves on the SDN List but which “were owned, 50 percent or more, directly or indirectly, by” the Industrial Development Corporation of Zimbabwe (“IDCZ”).  Because IDCZ was put on the SDN List in 2008, the three parties at issue were blocked under OFAC’s 50 percent guidance.

The OFAC announcement offers a confusing description of how and why Barclays did not determine that the entities at issue were owned by blocked parties and were therefore themselves blocked. The story, such as it is, starts with OFAC noting that “local restrictions precluded Barclays from implementing measures for complying with economic sanctions, including sanctions screening, in Zimbabwe.” Because Barclays in Zimbabwe was legally forbidden to screen customers, Barclays did the screening in London, using electronic information which the Zimbabwe Barclays maintained but which, for some reason, did not include information beyond the name of the customer. As a result, Barclay’s processed transactions for the three IDCZ-owned customers from 2008, when IDCZ was added to the SDN List, until 2012, when a U.S. financial institution in the chain of the transactions blocked four transfers involving one of the three blocked entities. Even after Barclays NY conducted an investigation and determined that the customer was blocked as a result of the 50 percent rule, Barclays in London failed to upload that information into its screening filter until after four more transactions involving that customer had been processed.

It seems clear that Zimbabwe’s blocking laws played more than a casual role in the inability of Barclays to determine that the customers at issue were blocked due to the ownership interest of IDCZ. This is the first I’ve heard of Zimbabwe apparently making it illegal to screen parties against the U.S. list but, not surprisingly, OFAC is not going to be bothered with local laws (as we’ve seen before). OFAC does say that these local laws make it a non-egregious case but that, of course, did not mean that Barclays would escape getting its knuckles thwacked for $2.5 million by the agency. Apparently OFAC believes that the road to hell is paved with non-egregious actions.

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