May

2

Cuban Rum, Pennsylvania, OFAC and a Recipe


Posted by at 6:16 pm on May 2, 2017
Category: Cuba SanctionsOFAC

Havana Club on the Road to Havana by Richard Smallbone [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/nxC2Pr [cropped and processed]In an earlier post, I expressed some incredulity with respect to an dubious scheme cooked up by some Pennsylvania legislators to import Cuban rum without an OFAC license.  The scheme was based on a questionable reading of Clause 2 of the Twenty-First Amendment. There’s no way to tell whether my derision directed at the legal case for Cuban rum-running by the Pennsylvania legislators was responsible, but it appears that someone in Pennsylvania has thought better of the idea.

According to this article, the Pennsylvania Liquor Control Board which runs the Fine Wine and Good Spirits stores, Pennsylvania’s state-owned monopoly on the sales of wines and hard liquor, is preparing a license to file with OFAC to permit the PLCB to purchase Cuban rum for sales in those stores. The application apparently argues that the “mystique” of Cuban rum would create a boon to the Pennsylvania economy by enticing shoppers into the state-run liquor stores. After all, who needs to fly down to Havana when you can buy Cuban rum in a state store in Erie or drink authentic daiquiris made with Havana Club in Wilkes-Barre?

A Pennsylvania state senator instrumental in the state’s efforts to bring Cuban rum to his state dismissed the notion that this plan posed a threat to national security, telling ABC News “We’re talking about buying a rum.” Good point.

But, of course, with all things Cuba not everyone agrees — here’s an irate letter to the editor of the Express Times in Lehigh Valley criticizing the proposed rum deal.

For those of you now planning a road trip to Pennsylvania to stock up on Cuban rum when (and if) it becomes available there, I commend to you this recipe for the El Presidente Cocktail. This cocktail was named after Cuban president Gerardo Machado (who served between 1925 and 1933) and was a favorite among Americans who sought respite from Prohibition in the night clubs of Havana. And, as the recipe makes clear, use real grenadine that you make yourself, not that pink-colored sugar water that you find on grocery shelves or in the wells of your less estimable drinking establishments. Cheers!

Photo Credit: Havana Club on the Road to Havana by Richard Smallbone [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/nxC2Pr [cropped and processed]. Copyright 2013 Richard Smallbone

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Apr

27

The Gray Lady Seems Pretty Gray About Export Law


Posted by at 5:51 pm on April 27, 2017
Category: BISOFAC

Huawei HQ by Brücke-Osteuropa Ditzel [Public Domain], via https://commons.wikimedia.org/wiki/File:Huawei_1.JPGThe New York Times yesterday reported that it had, somehow or other, laid its hands on an administrative subpoena sent last December by the Office of Foreign Assets Control (“OFAC”) to Chinese telecom manufacturer Huawei. The subpoena, according to the newspaper, asks for information on the company’s dealings with “Cuba, Iran, Sudan and Syria over the past five years.”

The article notes that a similar subpoena had been issued earlier last summer by the Department of Commerce, presumably a reference to the Bureau of Industry and Security (“BIS”). This appears to have caused the Times to become perplexed over why OFAC was now sticking its nose into the matter. So they asked someone whom they imagined to be an expert what was going on and he came up with this humdinger:

The most likely thing happening here is that Commerce figured out there was more to this than dual-use commodities, and they decided to notify Treasury.

Nope. Let’s hope for this guy’s sake that he’s been misquoted. Our expert here seems to be unaware that BIS is concerned with more than the export of dual use items. Maybe Part 746 was ripped out of his copy of the Export Administration Regulations or, possibly, his dog ate that part. That part regulates exports of all items “subject to the EAR” to Cuba, Syria, North Korea and Crimea, not just dual-use items.

And, of course, OFAC has rules that prohibit exports of goods to Cuba, North Korea, Sudan, Crimea and Iran and the export of services to Syria as well as the five previously mentioned locations. So the real answer here as to why OFAC is piling on here is because it can, not because there were concerns by BIS about transactions outside its jurisdiction.

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Apr

20

OFAC Releases Frequently Misleading Answers to FAQs on SDN Delisting


Posted by at 9:14 pm on April 20, 2017
Category: OFACSDN List

U.S. Treasury Department by Oran Viriyincy [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/ecNvDu [cropped]The Office of Foreign Assets Control today issued FAQs on the process whereby OFAC removes people from its List of Specially Designated Nationals and Blocked Persons. Sadly, the answers to those FAQs don’t really tell the whole story.  You might refer instead to Frequently Mis-Answered Questions

For example, OFAC says that it delists “hundreds” of entities each year. Although that has been the case lately, that has not always been the case, as OFAC’s archive of changes demonstrates. In 2001 and 2002, no entities were delisted and many less than 100 were delisted in 2005. Just over 100 were delisted in 2009

And although OFAC says the purpose of designation is not punitive but is to change behavior, this is hard to credit fully given the barriers OFAC erects to make delisting difficult. The principal ground for delisting is, as OFAC says in the FAQs, that the SDN has stopped the behavior that led to designation. The problem is OFAC will not ever reveal the specific basis for any designation. OFAC also makes it difficult to obtain paid legal representation because a license from OFAC is usually required to authorize payments to the lawyer, a lengthy and uncertain process that will lead most lawyers to decline representation. The only reliable way to get off the list is, as OFAC says, to die, but that, as they say, is cold comfort.

The 900 pound gorilla in the SDN listing room, of course, is still not addressed by these FAQs. If you are a terrorist or drug dealer that is designated by OFAC there is at least a process for removal. If you, however, aren’t a terrorist or drug dealer, but have a name similar to one, you are out of luck. Even though banks will routinely refuse to deal with people with similar names, there is no avenue for these innocent victims of the designation process to obtain relief from the agency.

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Apr

18

Indictment of SDN Ignores OFAC’s 50 Percent Rule


Posted by at 2:56 pm on April 18, 2017
Category: Criminal PenaltiesOFACSDN List

Kassim Tajideen Mugshot [Fair Use]
ABOVE: Kassim Tajideen

Prosecutors love to add cute little nicknames to indictments.   In their view, United States v. John Jones aka Vicious Johnny the Kneecapper sounds much, much better than plain old vanilla United States v. John Jones.  So, in the indictment against recently arrested Kassim Tajideen the government makes sure to lead off with a few akas:  “Big Haj” and “Big Boss.”  In this case, however, maybe the United States needs its own aka as well: “United States aka United States of Imaginary Laws”

Tajideen is on the Office of Foreign Assets Control’s List of Specially Designated Nationals and Blocked Persons.   He is being prosecuted for “causing” U.S. persons to violate the rules against transactions with blocked parties.   Charging an SDN for doing business with U.S. persons, rather than charging U.S. persons that do business with the SDN, is unusual but not unprecedented.

The problem here, however, is not that the prosecution is unusual.   The problem is that the prosecution is based on a rookie mistake and an careless misinterpretation of governing law.  The theory of the indictment is that Tajideen, by not disclosing that he controlled various companies, caused U.S. persons to transact business with those companies in violation of U.S. sanctions.   Here’s what the indictment says:

The business empire utilized different corporate entities over the years, all controlled by KASSIM TAJIDEEN, including Epsilon, ICTC, and Sicam Ltd., to procure and distribute goods throughout the world, including the United States. KASSIM TAJIDEEN was the ultimate owner and chief decision-maker of the business empire, with IMAD HASSOUN acting as confidante and lieutenant. KASSIM TAJIDEEN benefited directly and indirectly from the operation of the business empire.

22. At all relevant times during the conspiracy, the defendant KASSIM TAJIDEEN was designated a Specially Designated Global Terrorist by the United States Department of the Treasury, Office of Foreign Assets Control, pursuant to the International Emergency Economic Powers Act, Executive Order 13224, and the Global Terrorism Sanctions Regulations. As discussed above, the SDGT designation resulted in any property in the United States, or in the possession or control of U.S. persons, in which KASSIM TAJIDEEN had an interest, being blocked, and all U.S. persons were generally prohibited from transacting business with, or for the benefit of, KASSIM TAJIDEEN.

Most readers here will immediately see the problem with the prosecutor’s case. In effect, the prosecution is asserting, wrongly, that it is illegal for a U.S. person to deal with an entity in which an SDN has any interest. Alternatively, the prosecutors might be asserting above that it must be at least a controlling interest. But whichever the case, that is just not true.

OFAC has issued clear guidance, easily found by anyone with access to the Internet (which presumably includes the prosecutors here) that describes the circumstances in which any entity in which an SDN has interest is itself also blocked by operation of law.  This guidance makes clear that it takes more than “any interest” or even a “controlling interest” for ownership by an SDN result in the owned entity being itself blocked.

Here is what that guidance says:

Persons whose property and interests in property are blocked pursuant to an Executive order or regulations administered by OFAC (blocked persons) are considered to have an interest in all property and interests in property of an entity in which such blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest. Consequently, any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person.

The guidance makes it perfectly clear that control alone does not result in the SDN’s company being blocked:

U.S. persons are advised to act with caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50 percent or which one or more blocked persons may control by means other than a majority ownership interest. Such entities may be the subject of future designation or enforcement action
by OFAC.

There’s good reason for this rule. Although majority ownership of an entity is something on which information can be easily gathered, it is difficult, if not impossible, for a party to a transaction to determine every owner of that entity or even the person who might ultimately exercise de facto control over that entity. So, under the OFAC guidance, it was not illegal for U.S. persons to transact business with these entities in which Tajideen had some interest, maybe even a controlling one. If those transactions were not illegal, then Tajideen did not cause any illegal transactions and the bottom drops out of the government’s case.

What the government had to allege here, and what it somehow was unable to do, is that Tajideen had a “50 percent or greater” interest in Epsilon, ICTC, and Sicam Ltd.  Even saying, as the indictment does, in one place that Tajideen was the “ultimate owner and chief decision-maker of the business empire” is not the same as saying that he had an interest of 50 percent or more in the three companies at issue.

Indeed the government’s silence here, like the dog’s silence in The Adventure of Silver Blaze, says all you need to know.

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Apr

11

Un Pour Deux, Deux Pour Un! (An ECR Swashbuckler)


Posted by at 11:26 pm on April 11, 2017
Category: DDTCExport Reform

Brian J. Nilsson via https://www.state.gov/r/pa/ei/biog/bureau/250013.htm [Public Domain]
ABOVE: Brian J. Nilsson

Many readers were likely wondering what impact the Trump Administration’s new one-for-two executive order would have on export control reform. As you probably know, that is the order that says for every new rule adopted by a federal agency two other rules must be thrown out — sort of like a closet cleaning rule: for every new shirt I buy, two old ones need to be donated or thrown out.

Well, never fear. At the last DTAG meeting, Deputy Assistant Secretary of State for Defense Trade Controls Brian H. Nilsson said that this new rule would somehow not apply to DDTC rules and that the agency was moving ahead on export control reform unencumbered by the order, or at least that’s being reported by those who attended the meeting. As much as I would like to believe this, particularly inasmuch as Categories I, II and III of the United States Munitions List have still not gone through the export control reform process, I am filing Deputy Assistant Secretary’s statement under “wishful thinking”(if not under “alternative facts”). The Executive Order itself lists no exemptions whatsoever. Now that doesn’t mean that some time in the future someone might realize how silly such a rule is and put another Executive Order with some exemptions to the one-for-two order in front of the President for him to sign.

But until that happens, DDTC can’t amend any part of the USML without slashing two rules for each one added. Oh, and by the way, is anyone else wondering how the counting of rules is done here? If section 121.1 is amended to provide a new version of, say, Category I, II and III, what exactly has to be sacrificed on the altar of the executive order? After all only subsection 121.1(b)(2) of the rule set forth 121.1 would be altered. Does DDTC have to ditch two entire rules, like, say, sections 129.3 and 130.1 (my nominees  for jettisoning) or can it get away with ditching two subsections, such as  128.7(a)(3) and 123.22(c)(1), both of which no one would ever miss?

UPDATE:  As pointed out by commenter TJ below, the Executive Order does indeed exempt “regulations issued with respect to a military, national security, or foreign affairs function of the United States.”  So ECR is safe for the moment, although my query as to how rules are counted for purposes of the one-for-two rule remains valid in other contexts.

 

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