Author Archive

Jan

7

Behind Every Cloud Is Another Cloud

Posted by at 10:51 pm on January 7, 2015
Category: BIS • Cloud Computing • Encryption

Lonely Cloud by Kate Haskell https://www.flickr.com/photos/fuzzcat/32487111/ CC BY 2.0 [https://creativecommons.org/licenses/by/2.0/] (cropped)Breaking News: the Commerce Department has finally figured out how the Internet works. Or, perhaps more accurately, the Commerce Department has figured out that clouds aren’t just fluffy things that float in the sky from time to time.

Readers of this blog will know that I have been arguing for quite some time that the export agencies, including the Commerce and State Departments, need to revisit their absurd position that exports of encrypted technical data are the same thing as export of the technical data in plain text. If a company puts encrypted controlled technical data or technology on a foreign cloud server, then, under current rules and policies, the company will have exported that technical data or technology and will have violated the law if a license was required to export that information to that country.

According to this report (subscription required), BIS Assistant Secretary for Export Administration Kevin Wolf has revealed that this is being rethought

Among the terms to be defined is what constitutes an “export,” and one element of that definition will be that controlled information encrypted “in a certain way” will not constitute an export for purposes of cloud computing, while the unencrypted version would be, Wolf said.

That was the good news. Now for the bad news: according to Wolf, the various stakeholder agencies have not yet been able to agree on just what type of encryption will be sufficient to prevent an “export” of the transferred data.

The irony here is that the Department of Defense itself did not engage in any hand-wringing over encryption standards when it plopped its own, and presumably highly sensitive, communications on Chinese satellite transponders, rebuffing critics by noting simply that everything was encrypted. But — to end on a positive note — Assistant Secretary Wolf, who has been one of the driving forces behind export control reform, clearly understands this issue and I am sure he will do what he can to end this pointless interagency squabbling over the comparative merits and demerits of Blowfish, Triple DES and AES-256.

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Copyright © 2015 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Jan

6

OFAC Issues Wind-Down License for Crimea

Posted by at 9:44 pm on January 6, 2015
Category: Crimea Sanctions • OFAC • Russia Sanctions

By Иерей Максим Массалитин (originally posted to Flickr as Ласточкино гнездо) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons http://http://commons.wikimedia.org/wiki/File:%D0%9B%D0%B0%D1%81%D1%82%D0%BE%D1%87%D0%BA%D0%B8%D0%BD%D0%BE_%D0%B3%D0%BD%D0%B5%D0%B7%D0%B4%D0%BE.jpgRight before the New Year, the Office of Foreign Assets Control (“OFAC”) started some of the inevitable clean-up on the Executive Order sanctioning Crimea that the agency rushed out before the President went on vacation. Not having time to calibrate the sanctions, the order just prohibited all imports and exports (except for the statutorily required exceptions for agricultural products, medicine and medical devices, which, somehow or other, became “medical supplies”). The first of these was General License No. 5 which permits U.S. persons to wind-down operations in Crimea.

But, sadly, the General License is a mess. For starters, although the license permits transactions and activities “normally incident” to “the winding down of operations, contracts, or other agreements that were in effect prior to December 20, 2014,” the General License gives no indication of what types of transactions might be “normally incident” to winding down. The General License does say what is not incident to winding down. New exports of goods and services to Crimea don’t qualify. And, in a masterpiece of useless circular definition, neither are new imports of goods and services from Crimea “except as needed to wind down operations, contracts, or other agreements.” Thanks, that clears everything up.

Let’s take a concrete example. Let’s say that money is owed under a contract for services performed prior to December 20, 2014, in Crimea. Can that money be paid? Who knows. But if you decide that it is, you have to make the payment by February 1, 2015, and file a report within 10 days with OFAC about everything you did to wind down operations. That way OFAC can decide (after the fact, of course) whether what you did was normally incident to winding down and send you a charging letter (too late for a voluntary disclosure) if it decides that it was not.

The February 1, 2015 deadline is pretty unrealistic for certain wind downs that involve divestiture of assets in Crimea. Any potential purchaser who knows about the deadline (and they all will know about it) will, of course, wait until January 31 and offer  the U.S. seller fire-sale prices. So who’s being sanctioned here?

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Copyright © 2015 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Dec

23

How the OFAC Stole Christmas

Posted by at 2:03 pm on December 23, 2014
Category: Cuba Sanctions • OFAC
Santa Flanked by F-16

A spokesman for the Treasury Department’s Office of Foreign Assets Control (“OFAC”) told Export Law Blog this morning that discussions between OFAC and the North Pole over Santa Claus’s Christmas Eve itinerary had once again broken down and were not expected to be resumed before Santa’s scheduled departure on December 24 at 10 pm EST.

The dispute arose from a dilemma that the U.S. sanctions against Cuba posed for Santa’s planned delivery of toys to children in Cuba. If Santa delivers toys for U.S. children first, there will be toys destined for Cuba in the sleigh in violation of 31 C.F.R. § 515.207(b). That rule prohibits Santa’s sleigh from entering the United States with “goods in which Cuba or a Cuban national has an interest.” On the other hand, if Santa delivers the toys to Cuban children first, then 31 C.F.R. § 515.207(a) prohibits the sleigh from entering the United States and “unloading freight for a period of 180 days from the date the vessel departed from a port or place in Cuba.”

A press release from the North Pole announced that the OFAC rules left Santa no choice but to bypass the children of the United States this Christmas. A spokesman from OFAC warned that if Santa attempted to overfly the United States, his sleigh would be forced to land and his cargo seized. He continued:

We know that the outcome is harsh, but we cannot allow the Cuban regime to continue to be propped up by Santa’s annual delivery of valuable Christmas toys to Cuban children. We also note that the proposed rule that might in the future allow entry into the United States by sleighs that were on humanitarian missions in Cuba is not yet in effect and may still be overruled by Congress.

Congressional leaders did not return our calls.

This post is an annual tradition and appeared previously in 2007, 2008, 2009, 2010, 2011, 2012 and 2013 in slightly altered form. Alert readers will notice a small addition to this year’s post.

Export Law Blog would like to take the opportunity of this post to extend its best holiday wishes to all of its readers. Posting will be light between now and the end of the holidays.

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Copyright © 2014 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Dec

22

A Lump of Coal in Crimea’s Stocking

Posted by at 5:42 pm on December 22, 2014
Category: Russia Sanctions

Foros Church near Yalta by Kiyanka (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3A%D0%A6%D0%B5%D1%80%D0%BA%D0%B2%D0%B0_%D0%92%D0%BE%D1%81%D0%BA%D1%80%D0%B5%D1%81%D1%96%D0%BD%D0%BD%D1%8F_%D0%A5%D1%80%D0%B8%D1%81%D1%82%D0%BE%D0%B2%D0%BE%D0%B3%D0%BE_%D0%A4%D0%BE%D1%80%D0%BE%D1%81_01.jpgLast Friday, the White House tied a ribbon around a big lump of coal and delivered it to Crimea in the form of an executive order that institutes a comprehensive embargo against that region of Ukraine. The order prohibits all exports of goods and services to, and all imports of goods and services from, the Crimea region of Ukraine with the exception of agricultural commodities, medicine, medical supplies, and replacement parts as described in a General License issued at the same time. The Executive Order, however, raises more questions than it answers, leaving aside the obvious policy question of how imposing sanctions on the people of Crimea furthers any legitimate policy interests.

Notably absent from the order are any of the typical exceptions to sanctions regimes, such as the exception for hardware and software for personal communications over the Internet. As of the date of the Executive Order, it is now illegal for Google to provide Gmail to anyone in Crimea. Facebook can’t provide messaging services to and from Facebook members in Crimea. The problem, of course, is how Google or Facebook can determine where a user is located given that IP addresses assigned to Crimea will, in most instances probably, still indicate a location in Ukraine for obvious historical reasons.

This locational ambiguity exists not only in the virtual world of the Internet, but in the brick and mortar physical world as well. Suppose a merchant receives a mail order from Nikolai Gogol, 19 Haharina Street, Sudak, Russia. Do exporters have to look up every address in Russia before sending packages? (Sudak is a resort city in Crimea).

Finally, and not surprisingly, although the Crimea order was immediately effective, not everyone has received the message yet. One U.S. car company was happy to book me a car rental just a few moments ago at the Simferopol Airport in Crimea for mid-January. (I was offered a good rate too!) Needless to say, I did not push the confirm reservation button, so perhaps it was all a tease and I would have gotten the hook if I had actually let them charge my credit card.

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Copyright © 2014 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Dec

17

Don’t Light Up Those Cubans Just Yet

Posted by at 8:35 pm on December 17, 2014
Category: Cuba Sanctions

Obama Announces Changes in Cuba Regulations from White House Youtube account [Public Domain]President Obama today announced his intention to make some changes in U.S. sanctions on Cuba. Although these changes fall far short of lifting the embargo completely, the usual suspects on the Hill have already started the wailing and gnashing of teeth, vowing to do whatever they can to thwart these changes, convinced that forcing Cubans to drive 60-year-old cars will cause them, sooner or later, to rise up and throw out the current regime.

The changes, as described in this White House fact sheet, however, hardly seem to justify the fit that Marco Rubio is pitching right now.

  • Remittance levels will raised from $500 to $2000 and the remittance forwarders no longer will require a license to forward money to Cuba
  • Exports of “building materials for private residential construction, goods for use by private sector Cuban entrepreneurs, and agricultural equipment” will be permitted
  • General licenses will be issued for travelers in the 12 current categories of authorized travel (which do not include going to Cuba for the fun of it or for the daiquiris)
  • Travelers can come back with $400 in goods, of which only $100 can be alcohol or tobacco products
  • Banks can open correspondent accounts in Cuban financial institutions to facilitate authorized transactions
  • The rules will be revised to make clear that sales of cash against documents of title (e.g., bills of lading) are permitted for authorized exports and to remove the old rule that cash had to be paid prior to the shipment of the goods.

The question posed by all the noise from Congress is, of course, how far can the President go on his own?  For example, the fact sheet states that the U.S. will permit foreign vessels that enter Cuban ports to engage in humanitarian trade may immediately thereafter enter U.S. ports.  However, section 6005(b) of the Cuba Democracy Act states that vessels that enter into Cuban ports to engage in “trade in goods or services” may not enter a U.S. port for 180 days without a license.  Apparently, the change in vessel policy appears to depend on the argument that vessels that enter Cuban ports for humanitarian trade are not involved in the trade of goods or services.

Of course, the 800-pound gorilla here is section 204 of the Helms-Burton Act which purports to prohibit the President from suspending the economic embargo on Cuba unless a “transitional government” is in place in Cuba.  The Act, however, never defines what constitutes suspending the embargo.  So, in theory, the President can remain in compliance with section 204 if he lifts all restrictions on Cuba other than a ban on exporting Chia Pets and Whoopee Cushions to Cuba.

Needless to say, the ink on the fact sheet was scarcely dry before OFAC released a statement that none of these changes will be effective until OFAC revises its regulations to implement these changes.  No indication was given as to how long this would take, other than that it would occur in the “coming weeks.” But given the agency’s often sluggish pace, the “coming weeks” might be quite far off.  Don’t expect any Cohibas under your Christmas tree this year.

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Copyright © 2014 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

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