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Oct

1

Rum, Embargo-ry and the Lash

Posted by Clif Burns at 9:01 pm on October 1, 2007

Havana Club Rum The apparently never-ending fight over the trademark for “Havana Club” rum made a detour through the Office of Foreign Assets Control and into the Federal District Courtroom of Judge Royce Lamberth. At issue was an OFAC decision that effectively denied the renewal of the registration of the “Havana Club” trademark in the United States.

Judge Lamberth’s decision, released last Thursday, had something for everyone. For the Cuban side his order required that OFAC provide more documentation of why it appeared to have held that the general license for transactions in connection with Cuban trademark renewals wasn’t applicable. For the OFAC-Bacardi side, Judge Lamberth held that OFAC licensing decisions were immune from judicial review (which, no doubt, led to much rejoicing and merriment, perhaps even some dancing, in the halls of OFAC).

For those of you who haven’t followed the peregrinations of the struggle between Bacardi and Pernod-Ricard over the Havana Club rum trademark (and I assume that’s almost everyone), here is a short “Havana Club for Rummies.” Pernod-Ricard bases its claim to the trademark based on a transfer by Cubaexport of the trademark to Havana Club Holdings SA (“HCH), a joint-venture between the Cubans and Pernod-Ricard. Bacardi bases its claim to the trademark on a purchase of the rights to trademark from the exiled members of the Arechabala family. The Arechabalas had produced Havana Club in Cuba until their distilleries were seized by Castro in the 1960s.

Much litigation then ensued between Pernod-Ricard¹ and Bacardi, with Pernod-Ricard filing a suit against Bacardi for trademark infringement and Bacardi filing an action before the Patent and Trademark Office (“PTO”) to cancel Pernod-Ricard’s registration of “Havana Club.” Pernod-Ricard lost its infringement claim and all the subsequent appeals. Bacardi lost its cancellation petition and its appeal of that decision is still pending.

In the meantime Pernod-Ricard needed to renew its registration for the Havana Club trademark. This posed certain difficulties because the trademark was held by HCH — a joint venture with the Cubans. That, of course, made it difficult for HCH to pay its U.S. lawyers and to pay to the PTO the registration fee for the trademark, both of which may be prohibited by the Cuban Assets Control Regulations.

I said “may” because it is not clear whether the general license contained in 31 C.F.R. Â§ 515.527(a) applies or not. The general license permits transactions related to trademark registration applications or renewals by Cuban nationals. However, in 1998 Congress — after extensive lobbying by Bacardi and others — exempted from the general license any

mark, trade name, or commercial name that was used in connection with a business or assets that were confiscated, as that term is defined in Â§ 515.336, unless the original owner of the mark, trade name, or commercial name, or the bona fide successor-in-interest has expressly consented.

Needless to say, Bacardi and Pernod-Ricard disagree over whether the Havana Club trademark meets the standards set forth in the exemption from the general license. Pernod-Ricard argues that the Arechabala family abandoned the trademark when it failed to renew its U.S. registration for that trademark in 1973 and that therefore this trademark doesn’t meet the exemption standards.

Just to be safe, Pernod-Ricard applied for a license from OFAC to engage in the transactions necessary to renew the Havana Club registration. OFAC sat on that letter for almost four months and then on the day after the Havana Club trademark registration had expired (just a coincidence, no doubt!) denied the license application to take the steps necessary to renew the registration. Pernod-Ricard sought review of that OFAC decision in federal district court, which brings us to Judge Lamberth’s decision.

The first important issue considered by Judge Lamberth was whether the OFAC decision denying the specific license to renew the trademark was a decision that the general license set forth in 31 C.F.R. Â§ 515.527(a) wasn’t applicable. The court held that the record was insufficient to determine what OFAC had made any decision about the applicability of the general license. In order to make a determination on this point, the court ordered OFAC to provide information as to

whether it concluded [Pernod-Ricard] could not rely on the general license in 31 C.F.R. Â§ 515.527(a)(1) , and if so, how and why it determined the exception in part (a)(2) embraced [Pernod-Ricard’s] HAVANA CLUB registration. Further, it should explain what process [Pernod-Ricard] was afforded with respect to this particular determination.

The second issue was the reviewability of OFAC’s decision to deny the application for a specific license. Judge Lamberth held that the granting of licenses under the Cuban sanctions program was committed solely to OFAC and, therefore, not subject to judicial review.

It is a fundamental tenet of judicial review that when a court reviews an action or decision, it must do so against some standard. [Pernod-Ricard] asks this Court to judge whether OFAC’s denial of a specific license was consistent with U.S. foreign policy and its own prior licensing decisions. Neither presents a justiciable standard of review.

Notwithstanding this refusal to review OFAC’s denial of a specific license, the game is far from over. Even though the Court felt it couldn’t review the denial of a license, it did feel there were sufficient criteria to permit it to review a determination by OFAC that the trademark was or wasn’t used in conjunction with seized Cuban property and, therefore, was or wasn’t eligible for the general license for trademark applications and renewals.

Several results, then, are possible. The court might find that OFAC made a determination that the Havana Club trademark wasn’t eligible for the general license but that such determination was wrong. Pernod-Ricard could then fairly safely re-register its trademark with the PTO. Or the court might find that OFAC did properly make such a determination, in which case Pernod-Ricard won’t be able to do anything at the PTO. Finally, the court might find that OFAC made no determination on the applicability of the general license. This means, I suppose, that Pernod-Ricard could try to claim the general license applied and file with the PTO. OFAC would, of course, issue a pre-penalty notice claiming that the general license didn’t apply, and everyone would be back where they started.

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¹ To avoid unnecessary confusion, I am referring to Cubaexport, HCH and Pernod-Ricard simply as Pernod-Ricard throughout the remainder of this post.

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Sep

26

Washington Times Stumped by OFAC Regulations

Posted by Clif Burns at 9:15 pm on September 26, 2007

Category: OFAC

Rev. The Washington Times attempted to practice export control journalism a few days ago and did not quite cover itself with glory. In an article titled “Legitimate charities snared in terror net,” reporter Cajsa Collin attempts to argue that OFAC improperly seized monies from European charities that were transiting through U.S. banks:

On three separate occasions, the two charitable groups had funds seized under U.S. anti-terrorism laws even though neither is accused of any terrorist connections. While most of the money was returned, some is still being held without explanation.

Yikes. That sounds terrible. Bad OFAC! Shame on you, OFAC! Except when you look at the cases, as reported by Collin, the seizures had zip, zero, nada to do with terrorism and the reasons the funds were blocked are, well, blindingly obvious.

The poster child for the Times‘s fright piece is Norwegian Church Aid. According to the story, Norwegian Church Aid “denied any connection to terrorism and a careful examination of the OFAC lists, which are publicly available on the Treasury Department’s Web site, showed that [Norwegian Church Aid] was [never] listed.” Even so, Collins claims, transfers from the group were seized without cause. Collins two allegedly problematic cases of funds transferred by the group being blocked.

Here’s the first:

The first transaction was going to sponsor an American professor for an AIDS conference in Cuba. The money was confiscated in early 2003 but not returned until late 2005,” said Eigil Schander-Larsen, the financial director of Norwegian Church Aid.

Gee, I wonder why that transaction might have been blocked? Hint: it’s not because the Norwegian Church Aid group was thought to be a terrorist group. No, it’s because it looks like the wire must have referenced Cuba and neglected to reference a specific or general OFAC license.

And here’s the second:

“The second transaction [intended for a YMCA branch in Burma] was confiscated in 2004 and, even though we have sent in the paperwork OFAC requires both by fax and PDF file, we still haven’t heard anything. I sent the last reminder in January 2007,” he said.

Apparently, neither Norwegian Church Aid or the Washington Times reporter has ever heard of the Burma sanctions. Section 537.202 of the Burmese Sanctions Regulations forbids the exportation of financial services to Burma. Financial services are broadly defined so that any transfer of funds from a U.S. Bank to Burma — even a YMCA in Burma — is forbidden and must be blocked.

So, the reason that funds in both cases were blocked had absolutely nothing to do with anti-terrorism laws, as claimed by Collins, but by country-specific OFAC sanctions. The fact that Norwegian Church Aid wasn’t on the SDN list didn’t make blocking the transfers improper.

Hint to Washington Times: next time you do a story on OFAC, call an OFAC lawyer before you go to press and say something silly. There are, after all, more than a few OFAC lawyers here in Washington.

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Sep

25

Burma Shaved Again

Posted by Clif Burns at 9:30 pm on September 25, 2007

Category: Sanctions

Old In his address to the United Nations today, President Bush announced the administration’s intentions to impose new sanctions on Burma and its military regime:

The United States will tighten economic sanctions on the leaders of the regime and their financial backers. We will impose an expanded visa ban on those responsible for the most egregious violations of human rights, as well as their family members.

Aside from telling additional and as yet unnamed Burmese officials and their families that a trip to Disneyland won’t be in the picture for them any time soon, the President’s statement was not altogether clear about the precise sanctions that would be imposed.

Tom Casey, a State Department spokesperson, seemed to be caught up short in today’s daily press briefing by the State Department when reporters pressed for more details on the proposed new sanctions:

To the extent that we have specific names to add or new measures to announce, we’ll let you know.

Translation: “I have no earthly idea.” Elsewhere, Casey seemed to suggest that the list of individuals that would be subject to blocking orders might be expanded.

So what are the possibilities here for tightening the current economic sanctions on Burma. To be sure, as noted, the list of government officials subject to travel bans and subject to blocking orders could be expanded and that seems to be likely to be at least the minimum that will occur. But since the current sanctions aren’t comprehensive, there are other possibilities.

One possibility would be expanding export sanctions. The current sanctions only forbid exports of financial services to Burma. Accordingly, that export ban could be expanded to cover all goods and service subject only to the limits of the Berman amendment, 50 U.S.C. Â§ 1702(b)(3), and the Trade Sanctions Reform Act of 2000 (TSRA). The Berman Amendment prohibits export controls on “informational materials” and TSRA forbids a unilateral sanction against a foreign country covering agricultural products, medicine or medical devices without express Congressional approval.

Another possibility includes prohibition in dealing in Burmese-origin goods and services. That would prohibit dealing in such goods and services even though they had not been imported into, or exported from, the United States. A similar provision is included in the Iranian Transaction Regulations.

If I look into my somewhat cloudy crystal ball, my guess is that the White House will simply expand the lists of Burmese officials subject to blocking and visa bans. But if the White House gets serious about the matter, we could well see an expansion of export bans and a prohibition in dealings in Burmese-origin goods and services.

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Sep

20

Is the DOJ Tilting at Windmills?

Posted by Clif Burns at 9:09 pm on September 20, 2007

Category: OFAC • SEDs

This morning we laid our hands on the criminal complaint, unsealed earlier this week, charging a Dutch aviation parts firm and its owner Rob Kraaipoel with export violations. The underlying violations charged by the criminal complaint are fairly simple. The complaint alleges that Aviation Services International B.V. and it’s owner Rob Kraaipoel purchased various aviation items from U.S. companies and then sold them to customers in Iran without the necessary OFAC license. Additionally the complaint alleges that Aviation Services caused other to make fraudulent statements on Shippers’ Export Declarations (SEDs) as to the end users of items purchased by the company from vendors in the United States.

The story told by the criminal complaint starts with purchases in 2005 and 2006 of audio and video equipment by Aviation Services from New Hampshire-based DTC, Inc. When DTC requested that Aviation Services identify the end user for the equipment, Kraaipoel is alleged to have sent an email to DTC indicating that the Polish Border Control was the end user. This information was then used by DTC’s freight forwarder when it filled out the Shipper’s Export Declarations for these exports. According to the complaint, the Polish Border Control denies having purchased anything from Aviation Services. Subsequently when Aviation Services requested spare parts for these items, it sent an email to DTC that the end user was a company in Cyprus.

Based on these facts, the complaint charges Kraaipoel with two counts of false statements in violation of 18 U.S.C. § 1001(a). These charges are asserted even though Kraaipoel made no representations to any U.S. government official and even though there is no allegation that Kraaipoel knew that his representations as to the end-user would even be provided to the U.S. government. Nor is there any allegation that these items were ultimately exported to Iran or other embargoed country. Indeed, it appears that they ended up in Cyprus instead.

Felony charges under 18 U.S.C. § 1001(a) seem questionable under the facts alleged. A Dutch citizen sends an email to a private individual in the United States and then faces criminal charges in the United States because inaccurate information in that email is provided, without the Dutch citizen’s knowledge, to the U.S. government. Consider also that a reseller of aircraft parts has a legitimate commercial interest in not providing the end-user’s name to his vendor in order to prevent the vendor from cutting him out as the middleman in future transactions. Because of that Aviation Services misidentification of the end user isn’t necessarily suspicious. And since there is no evidence that the equipment wound up in an embargoed country, it’s even more difficult to assert that there was any criminal intent on the part of the Dutch company.

There’s much more to discuss about the complaint. Tomorrow we will look at the remaining counts of the complaint relating to items that were purchased from other vendors and that were allegedly transshipped by Aviation Services to Iran.

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Sep

19

BIS Rules Don’t Consider the Safety of U.S. Contractors in Iraq

Posted by Clif Burns at 10:39 pm on September 19, 2007

Category: BIS

Iraq Bomb Bethesda-based USAID contractor Development Alternatives, Inc (DAI) recently agreed to pay the Bureau of Industry and Security a $7,500 fine for attempted exports in July 2004 of concealable vests, body armor and bomb blast blankets to Iraq without a license. During that time period, DAI was performing a $72 million USAID contract in Iraq to “restore the capacity of small and medium agro-enterprises to produce, process, and market agricultural goods and services.”

There’s no question, of course, that DAI needed licenses here and that BIS had the right to penalize DAI for these attempted exports. And, I suppose that the slight mitigation of the fine by BIS possibly reflected its sympathy that DAI had a legitimate need for these items to protect its employees in Iraq.

But this situation highlights a difficulty confronted by Iraq contractors in dealing with BIS. Unlike DDTC which has an expedited channel for exports of items being used in Operation Iraqi Freedom, BIS has no procedure to expedite exports by contractors of body armor and protective material to be used by their employees in Iraq. I suspect that if BIS had an office in Iraq, it would be much easier to export body armor to Iraq for use by U.S. employees.

UPDATE: Like every blog, we have our very own troll who comes to try to leave a nasty comment every time we say anything even vaguely negative about BIS. Although the troll won’t leave his or her real name or email address, the IP Address from which he comes suggests that he may be in one of the regional OEEs, although this is by no means certain. The troll took issue with my statement that if BIS had an office in Iraq it would be much easier to export body armor there.

Much easier?? Easier for the US Government to outfit it’s employees?? This would NOT be an export if the USG did it!!! C’mon Cliff…be more conversant!!

Trolls like to use lots of exclamation points and question marks for some reason. And the troll, as trolls often do, missed my point entirely.

My point was that if BIS employees were being shot at in Iraq they would be more sympathetic to the plight of private sector U.S. employees in Iraq running the same dangers and might adopt some procedure to expedite those private sector exports. That might be a hard point for our troll to fathom since I imagine that if he were in Iraq and had his own body armor, the plight of other U.S. citizens wouldn’t be of much concern to him (or her): “I got mine, suckas!” or something like that.

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