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Jul

23

Riddle of the Day

Posted by Clif Burns at 8:44 pm on July 23, 2009

The Office of Foreign Assets Control issued today a Final Rule, without notice or public participation, which, effective immediately, amends the Iranian Transactions Regulations to amend the definition of “Iranian Account” found in Â§ 560.320 of those Regulations. Prior to the amendment, “Iranian accounts” were defined as:

accounts of persons located in Iran or of the Government of Iran maintained on the books of either a United States depository institution or a United States registered broker or dealer in securities.

Under the amended rules the phrase “persons located in Iran” has been replaced by “persons who are ordinarily resident in Iran, except when such persons are not located in Iran.”

The definition is important to exporters because an “Iranian account” can’t be debited in connection with sales to Iran of agricultural products, medicines or medical devices under the Trade Sanctions Reform and Export Enhancement Act of 2000. The definition is also important to banks which are forbidden to service “Iranian accounts.”

OFAC claims that, without explaining why, the new defintion will “facilitate compliance by U.S. financial institutions” and, presumably compliance by TSRA exporters by extension. And that’s the riddle of the day: how exactly does the amendment accomplish that?

The old rule was certainly somewhat ambiguous. How does one determine exactly whether a person is “located in Iran.” Probably simply by looking at the address of the account holder. That’s at least a bright line rule. But the new rule seems even harder to apply. How do you define ordinarily resident? A person could have a U.S. or non-Iranian address where they are sometimes resident even though they ordinarily reside in Iran. When the account is opened under that non-Iranian address, what due diligence can establish that the person is not “ordinarily resident” in Iran. How does my bank know where I ordinarily reside?

Worse, if someone who’s ordinarily resident in Iran, the account is not Iranian while they are not in Iran, but immediately becomes an Iranian account the moment that person sets foot on Iranian soil. How on earth can a financial institution or a TSRA exporter assure that the account holder is outside Iran at the time of the transaction involving the account?

OFAC clearly has something in mind in thinking that this is an improvement, but for the life of me, I can’t tell what. If an Export Law Blog readers have an idea, please share it with the rest of us in the comments section.

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Jul

22

Cuba Tourist Files Suit Over OFAC Questionnaire

Posted by Clif Burns at 9:33 pm on July 22, 2009

Category: Cuba Sanctions

Bruker Zachary Sanders, a Brooklyn attorney, filed* suit in federal district court against the Office of Foreign Assets Control (“OFAC”) in connection with a $9,000 fine imposed on him by OFAC for failing to respond to a Request for Information (“RFI”) that the agency sent to him in 2000. The RFI sought information about suspected travel by Sanders to Cuba in 1998.

Although courts have tossed out challenges to the constitutionality of the travel embargo, this case presents a different issue. OFAC was not charging Sanders with travelling to Cuba but only with failing to answer questions OFAC asked about whether he had traveled to Cuba. In this case, the issue is whether penalizing Sanders for failing to answer the RFI violates the Fifth Amendment of the U.S. Constitution.

The story begins with Mr. Sander’s return to the United States on July 6, 1998. Customs officials became suspicious because Mr. Sander’s passport and travel papers showed that he had visited Mexico and then returned to the United States through the Bahamas on a transit visa. That, apparently, is a good indication that the traveler likely travelled to Cuba. Mr. Sander’s case wasn’t helped when Customs found a box of Cuban cigars in his luggage that weren’t listed on his customs declaration.

Almost two years later, on March 1, 2000, OFAC finally got around to sending the RFI at issue, which asked Sanders, among other things, whether he had travelled to Cuba, what he had done there and how much he had spent there. On February 13, 2002, OFAC sent a pre-penalty notice relating to Sander’s failure to respond to the RFI. The complaint for failure to answer the RFI was filed with the assigned ALJ on March 2, 2000. By the time that the administrative complaint was filed in 2005 by OFAC, the five-year statute of limitations contained in 28 U.S. Â§ 2462 prevented the agency from including any charges based on the alleged 1998 trip.

A one-day hearing was held before the ALJ on June 27, 2005. It took the ALJ more than three years to write and to issue his five-page opinion, which he finally released on September 4, 2008. Such a lengthy gestation did not prevent the ALJ’s opinion from being an utter mess. Among other things, the ALJ wondered, even though no party argued this, whether OFAC could effectively extend the statute of limitations by simply filing RFIs and starting the five-year limitations period all over again. But after raising this issue, he never bothered to answer it.

More oddly, the ALJ acknowledged that the Fifth Amendment privilege against self-incrimination was applicable to the RFI because of the possibility of criminal prosecution for travel to Cuba. But he nonetheless imposed a $1,000 penalty assessment against Sanders, relying on the U.S. Supreme Court decision in Baxter v. Palmigiano, 425 U.S. 308 (1976), Baxter held that an adverse inference could be drawn in a civil proceeding based on a refusal to testify. Thus, if OFAC had charged Sanders with Cuba travel, it could draw an adverse inference from his refusal to say whether he had been to Cuba and could, in conjunction with other evidence, such as the smoking Cuban cigar box, find him guilty of travelling to Cuba. But the Baxter court did not say, and no court that I am aware of has said, that an agency could impose a civil penalty based solely and directly on a proper assertion of the Fifth Amendment privilege.

Upon review of the ALJ’s recommended decision and order, OFAC accepted everything in it, except the proposed penalty, which it increased to $9,000. Sanders’s district court complaint followed on July 16, 2009, more than 11 years after the alleged trip at issue, making this matter OFAC’s own version of Jarndyce and Jarndyce.

As an interesting detour in this case, Mr. Sander’s application for admission to the New Jersey Bar was denied over the alleged 1998 trip to Cuba and its aftermath, as well as two other Cuba trips not raised by the OFAC proceedings. But the decision ultimately appeared to be based on Sanders failure to declare the Cuban cigars in his baggage which occurred on his first two trips and not on the travel itself or the refusal to answer the RFI. Apparently Sanders finally wised up and, on the third trip, he didn’t pack any Cuban cigars in his luggage.

*PACER subscription required. I haven’t uploaded the large pdf file of the complaint to avoid undue bandwidth costs. If you don’t have a PACER subscription and want a copy of the complaint, email me and I’ll send it to you

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Jul

20

BIS Makes A List, Bruker Doesn’t Check It Twice, Or Even Once.

Posted by Clif Burns at 8:20 pm on July 20, 2009

Category: BIS

Bruker The Bureau of Industry and Security (“BIS”) just published a settlement agreement with Bruker AXS, the Wisconsin-based manufacturer of precision X-ray systems. The settlement, under which Bruker agreed to pay a fine of $7,500, arose from Bruker’s voluntary disclosure that it exported an EAR99 X-ray system to the Karachi CBW Research Institute University of Karachi’s Husein Ebrahim Jamal Research Institute of Chemistry (“HEJRIC”) in Karachi, Pakistan. HEJRIC is on BIS’s Entity List which means that a license is required for all exports of U.S.-origin items to HEJRIC.

It’s pretty clear what happened here. Bruker never bothered to look at or even check the entity list. This wasn’t an effort to export something that couldn’t be exported to HEJRIC because the entry for HEJRIC on the entity list notes that there is a presumption of approval for license applications for EAR99 items to HEJRIC. The lesson here is that your compliance program should make sure that all lists are checked — particularly since BIS has kindly compiled them in one place here.

UPDATE: As commenter SParis pointed out, HEJRIC was just today removed from the Entitly List.

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Jul

15

Export Law Grab Bag: Middle East Edition

Posted by Clif Burns at 7:08 pm on July 15, 2009

Category: General

No big news today, so it’s time for another Export Law Blog grab bag, this time with an emphasis on some Middle East stories:

Saudi Arabia: This news report discloses that immigration officials in Saudi Arabia are scanning incoming electronic devices in search of pornography and pirated software. Before moving this to the “this won’t be a problem for me” column, remember that the Saudis have a more expansive view of pornography than you or I might and that it could include pictures that the puritanical Wahabbi inspector finds provocative. Electronic devices are said to include laptops, mp3 players, cell phone memory cards, flash drives, external hard drives and any other device that could harbor morally pernicious images. If such material is found, the device will be confiscated. You might try to claim that a genie put the images there, but I can’t guarantee that will be a successful defense. (UPDATE: A reader emails me to tell me that he knows of instances where Saudi immigration/customs seized Disney films on the grounds that talking animals were offensive.)
UAE: A software update pushed to Blackberry users in the UAE apparently contained spyware from California-based SS8. The spyware was a java application designed to intercept emails and text messages sent and received by the Blackberry user and then forward them to a central server where they could be examined more closely by UAE authorities. We assume that SS8 had a license for this since such software is classified under ECCN 5D980, which requires licenses to all destinations. The licensing policy set forth in section 742.13(b) indicates that licenses will ordinarily be given to telcom companies and their contractors. Of course, one wishes that the UAE spent as much time enforcing its own export controls as it does worrying about what its subjects are texting one another.
Syria: This blog reported last week on the sad fortunes of Orionair as a result of a Temporary Denial Order (“TDO”) issued by the Bureau of Industry and Security (“BIS”) once it learned that the company had entered into a wet lease with Syrian Pearl airlines of two BAE aircraft with U.S. engines. The report was based on a story in Madrid’s Spanish-language daily CincoDÃas, which reported that BAE informed Orionair that it couldn’t return the aircraft that it was servicing to Orianair even before the TDO had been published. Apparently the CincoDÃas story was inaccurate in two minor respects. First, BAE didn’t take any action until it received a signed copy of the TDO. Second, BAE’s only communication was with Flybe, the maintenance provider, and not directly with Orionair. BAE, further did not advise Flybe that the aircraft had to remain in the United Kingdom, although the terms of the TDO clearly required that the aircraft not be exported back to Orionair in Spain. One other thing bears mention. In the TDO, BIS claimed that Orionair agreed not to export the BAE aircraft to Syria, although Orionair’s account seems to differ from this, particularly inasmuch as Orionair says it told BIS, in the words of Dorothy Gale, that it “had no power here.”

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Jul

14

Company Files Chapter 11; Blames Export Investigation

Posted by Clif Burns at 5:27 pm on July 14, 2009

Category: General

Thermal Optics Colorado-based Rocky Mountain Instruments, a manufacturer and distributor of optical components for lasers and imaging devices, filed for reorganization under Chapter 11 of the Bankruptcy Code. An affidavit by a company executive that is part of the filing also blames a 2007 raid by the Defense Criminal Investigative Service (“DCIS”) for at least part of the company’s financial woes, even though the raid has not yet resulted in any formal charges being filed against the company.

The affidavit went on to claim that the raid was triggered by an employee whistle-blower who reported that the company exported product specifications without a necessary export license. The product involved was not specified by the affidavit. As a result of the tip, DCIS, Immigration and Customs Enforcement (“ICE”) and the local constabulary surrounded the business on October 11, 2007, with fifty cars. Yes, you read that correctly: not five, but fifty, “five-zero,” five times ten, or, for any latinists out there, “L” cars. The company claims that the raid triggered a 15 percent decline in business, although it’s not quite clear how it derived that figure. In all events, it’s hard to imagine that a convoy of fifty police cars didn’t have at least some temporary impact on business.

Two compliance lessons can be learned here. First, there’s always a disgruntled employee who will happily turn your company in for export violations. Second, the ensuing theatrics from law enforcement might have a negative impact on a company’s future sales.

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