ExportLawBlog » Clif Burns

Author Archive

Aug

5

UK Export Agency Helps UK Companies Evade US Sanctions on Iran

Posted by Clif Burns at 6:06 pm on August 5, 2011

Mahmoud Ahmadinejad This article in Bloomberg Business Week details efforts by the U.K. Export Control Organization (“ECO”) to prevent U.K. companies that trade with Iran from becoming subject to U.S sanctions on Iran. Bloomberg filed a lawsuit in the United Kingdom seeking to force the ECO to reveal the names of companies that had applied for licenses to export controlled items to Iran. The United Kingdom observes UN sanctions, which prohibit exports of arms and materiel to Iran, but does not prohibit exports of controlled dual use items as long as licenses are obtained. In a court filing in that case, the ECO argued against releasing the information, saying that U.S. sanctions had caused banks to withdraw banking facilities from companies doing business with Iran.

Early versions of the Bloomberg story contained an interesting statement from a source at OFAC who wished to remain anonymous.

U.S. trade-secrets laws prevent the Treasury from disclosing the names of companies seeking licenses to export goods that would otherwise be prohibited by sanctions, according to a U.S. Treasury spokeswoman, who declined to be identified and said she couldnâ€™t comment on the U.K. case.

That, of course, is simply not even close to being true, which may be why the spokeswoman wanted her name withheld. The spokeswoman seems to have forgotten somehow the release by OFAC to the New York Times of hundreds of names of corporations that received licenses to export items to Iran and other sanctioned countries. This blog reported on that release here. When I brought this to the attention of Erik Larsen, the reporter who wrote the story, the OFAC quotation was removed and a statement from me on the New York Times disclosures was substituted in its place.

The moral of the story: don’t believe everything that OFAC tells you during a phone conversation.

[Thanks to reader Russ VanDegrift, compliance director at Christie Digital Systems USA, Inc. for alerting me to the original Bloomberg story.]

Permalink

Comments (2)

Aug

4

When Will They Ever Learn?

Posted by Clif Burns at 5:44 pm on August 4, 2011

ABOVE: Bharat Dynamics HQ
in Kanchanbagh, India

Late last week, the Bureau of Industry and Security (“BIS”) released documents relating to an agreement by Toll Global Forwarding (USA), Inc. to pay $200,000 to settle charges that it had aided and abetted nine unlicensed exports of EAR99 items to companies on BIS’s Entity List. The company also agreed to conduct an external audit of its export controls compliance program.

The violations at issue were committed by Baltrans Logistics prior to its acquisition by Toll Global Forwarding in 2008. The exports in question were to Bharat Dynamics Ltd. and Solid State Physics Laboratory, both government-owned entities in India which have since been removed from the Entity List.

It is hard to work up much sympathy for companies engaged in this kind of violation by failing to consult an easily accessible list on the BIS website. And in this instance, it wasn’t an isolated failure but instead nine separate failures. Worse yet, this wasn’t Baltrans’s first time at the rodeo. In 2007 Baltrans agreed to pay a $6,000 fine to settle charges of an unlicensed export to another Indian company on the Entity List. Moreover, one of the unlicensed exports in the current case occurred after Baltrans agreed to pay the earlier fine. That might explain the high fine in this case as well as the external audit requirement

Permalink

Comments (1)

Aug

3

German Store Selling Cuban Rum Online Cut Off By PayPal

Posted by Clif Burns at 7:41 pm on August 3, 2011

Category: Cuba Sanctions • Foreign Countermeasures

Havana Club Rum Poster According to an article dated August 1 in the online edition of German newspaper Die Welt, the U.S. Internet payment company PayPal closed the account of a German website that had been selling Cuban rum among other alcohol and alcohol-related products. PayPal spokesman Christoph Hausel was quoted as saying the company, as a U.S. company, could not process payments for Cuban origin products.

Mr. Hausel is right. Section 515.204 of the Cuban Assets Control Regulations prohibit any person subject to U.S. jurisdiction from engaging in any transaction relating to any product outside the United States which is of Cuban origin.

But that’s not the end of the story here. E.U. Council Regulation No. 2271/96 makes it illegal for any company in the European Union to comply with the U.S. embargo on Cuba. PayPal operates in Europe through a Luxembourg-based banking entity. If that entity had any role in freezing the German company’s funds, it might be in violation of the E.U. Regulations, thereby putting PayPal, as it were, between a rock and a rum place. Not surprisingly, the German website owner is threatening a lawsuit against the Luxembourg entity.

Permalink

Comments (1)

Aug

2

United Flight Makes Unexpected Landing in Cuba

Posted by Clif Burns at 8:05 pm on August 2, 2011

Category: Cuba Sanctions • General

Jose Marti Airport International Terminal A United Flight from Dulles Airport in Washington, DC, on its way to Cancun, Mexico, over the weekend was diverted for an emergency landing after the crew became concerned about an odd odor on the flight. The closest airport at the time of the diversion was the Jose Marti airport in Cuba

Readers of this blog might recall an earlier post where a fishing boat wandered into Cuban territorial waters and got whacked by BIS with a fine for the illegal export (albeit temporary) of the boat to Cuba. Is United going to get a nastygram for BIS over this emergency landing in Cuba?

This is where license exception AVS, which is set forth in section 7540.15 of the Export Administration Regulations, comes in. That exception gives certain aircraft special exemptions from certain export requirements.

Section 740.15(a)(2)(i) deals with U.S. registered aircraft operating under an Air Carrier Operating Certificate, Commercial Operating Certificate, or Air Taxi Operating Certificate issued by the Federal Aviation Administration. This section would cover the United flight. All remaining U.S. registered aircraft are covered under Section 740.15(a)(2)(ii). Under the first of these exceptions, no license is required for the “export” of the aircraft from the United States when it flies to foreign countries, as long as certain conditions are met that qualify it as a temporary sojourn. Under the second category for all other U.S. registered aircraft, there is an explicit provision prohibiting the use of the exception for flights to Cuba. So although a United pilot could divert his aircraft to Cuba under this exception, Joe Pilot in a private plane could not make an emergency landing at Jose Marti in Cuba no matter what he smelled in the aircraft. Section 740.15(a)(5) says that the exception can’t be used for exports or re-exports to Cuba or other Group E countries, but I am assuming that this is just an inartful way of repeating that trips to Cuba must be temporary sojourns meeting the other requirements of section 740.15.

Even if the emergency landing in Cuba did not violate BIS’s rules, United’s headaches may not be over. The Cuba sanctions regulations of the Office of Foreign Assets Control (“OFAC”) prohibit “the receipt of goods or services in Cuba, even if provided free-of-charge by the Government of Cuba or a national of Cuba.” It seems hard, if not impossible, to land in Cuba without receiving services, even if just the clearance to land, from Jose Marti airport. And I don’t see an exception in the OFAC regulations for an emergency landing. I’m sure Ileana Ros-Lehtinen, Bob Menendez and the other Cuba hawks on the Hill are having major conniption fits over this and dashing off letters to OFAC calling for the death penalty for everyone involved in this unplanned trip to Cuba.

Permalink

Comments (1)

Jul

28

High Capacity Magazines Exported from U.S. to Norway Shooter

Posted by Clif Burns at 5:15 pm on July 28, 2011

Category: Arms Export

ABOVE: Ruger Mini-14 30-round
magazines

According to a story that ran today in Politico, Anders Breivik claimed in his “Manifesto” that he obtained by mail order from the United States the 10 30-round magazines for the Ruger Mini-14 rifle that he used in the shootings at the summer camp outside Oslo. The cost of the 10 magazines was said by him to be $550.

Breivik wrote in his manifesto that while he could have purchased the high-capacity magazines in Sweden, they would have been significantly more expensive than ordering them from a U.S. supplier.

Although this revelation has led some politicians and others to wonder why such exports are legal, these exports might well have been illegal. The magazines in question would clearly have been Category I(h) items on the United States Munitions List and would have required a State Department license unless one of the export exemptions in the International Traffic in Arms Regulations was applicable. The only one arguably applicable would be the one found in section 123.17(a) which permits unlicensed exports of certain parts and components, including magazines, of “semi-automatic firearms to caliber .50 inclusive” provided the value does not exceed $100 wholesale in any transaction.

Because of the dollar limitation, the export of these magazines, if done in one transaction, would not have been eligible for the exemption and would have required a license, something that likely was not obtained given the relatively low cost of the transaction. Breivik’s “Manifesto” entry on the purchases also makes it sound like it was one export and ineligible for the $100 exemption:

10 x 30 round magazines – .223 cal at 34 USD per mag. Had to buy through a smaller US supplier (who again ordered from other suppliers) as most suppliers have export limitations.

Of particular note here is that Breivik was looking for a U.S. supplier who was willing to, er, overlook U.S. export requirements. That supplier should be very nervous, because I bet that they’ll find shipping documents in Breivik’s apartment with the supplier’s name.

Permalink

Comments (5)